While binary options are simple as compared to vanilla options, the calculations behind the pricing of them are complex and sophisticated. It is for this reason that binary options are classified under the umbrella of exotic options. Hence the type of assets to trade in with regards to Binary Options trading depend very much on which financial markets that the trader want to focus on.
Binary options are generally available for the four (4) financial markets listed below:
Each of the above mentioned markets have different characteristics and different factors that will influence them. Although binary options are simpler and less risky than the traditional financial instruments, one must still be aware of the fundamental factors that can cause prices to fluctuate.
In other words, traders must be aware of both macro and micro factors that affect the respective markets. Making profits with binary options trading is dependent upon traders selecting the right category of asset to trade in.
The Commodities Market:
The Commodities market deals with raw and unprocessed products from the mining, oil and agriculture industries. In this market, you get products like Crude oil, natural gas, gold, silver, copper together with many other organic products cotton, coffee, cocoa and concentrated orange juice. What is special about the Commodities market is that they are moved more by expectation of the future.
The prices reflected in the commodities contracts actually represent what the market is willing to pay for them sometime in the future. Futures contracts are usually for a three month duration. Therefore, to get the most out of this market, traders for binary options in commodities should trade at the beginning or towards the middle period of the three months futures contracts.
The Forex Market:
Forex trading can best be understood as trading with currency pairs like the British Pound against the U.S. dollar. In other words, we are pitting the performance of the British pound to that of the U.S. dollar. The Forex market is unregulated and there is a great deal of volatility in this particular market.
Because of the volatility, the potential for profit is high from the release of major economic news from the Federal Reserve and ECB. Hence, traders of binary options in the Forex should take note of events in their economic calendar.
The Index Market:
The index market is quite similar to the Forex market in the sense that trading is generally done electronically and available 24 hours a day. The index market is quite liquid as it bundles several types of assets together to be traded as one. In this respect, it is easier to trade than having to deal with individual stocks and commodities.
However because of this bundling, the index market is not as price sensitive as individual assets. Some indices have a lag before they respond to the market trends. Traders who lack patience will definitely face a pitfall when it comes to trading in this market.
Although the index market is used to represent the longer trends, they can easily make a turnaround as result from the impact of an immediate knock-on effect of an economic situation. As the value of indices depends on a selected number of stocks, binary options trading is best done when major announcements are made by companies that are covered under the index. A good understanding of each index is essential as they all react differently to the market trends and market news.
The Stock Market:
Stocks from popular multinational companies are covered by the Binary options market. Even though the performances of stocks are affected by macro economic factors, they are affected to a greater degree by news of their respective industry as well as their profit and loss accounts. As such, the best time to deal in binary options for the stock market is when these companies announce their quarterly, half yearly or annual earnings.