This article aims to shed some light on assets and guide you in the right direction on how to choose the “right” assets to trade binary options. Even though the way we select assets in binary options is completely different than the stock in securities world we can still use market information to better inform ourselves on which trades we want to be taken. Learning each type of asset and how it works will help you get comfortable with the financial market settings. After you become more established you can begin trading some real binary options.
What is an Asset?
Based on Investopedia definition: “An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.” There are four main types of assets that you can trade with binary options and you’ll need to familiarize yourself with, those being:
- Forex or currencies;
- Stocks;
- Global Indices;
- Commodities;
Each of the above asset classes has their own general trading style and methods. Currency pairs are the most commonly traded binary options as everyone who has been introduced to the world of binaries will recognize assets like the EUR/USD or USD/JPY. This explains why there is so much crossover from Forex trading to binary options.
In binary options in the stocks asset class, the most commonly traded stocks are Apple, Facebook, and Google. Trading stocks in binary options is not the same thing as with the real stock trading which technically means you own a piece of the company. With stock binary options you’re only trying to predict on whether the value of the stock is rising or falling.
Most commonly traded commodities through binary options are Gold, Silver, and Oil while the most famous global indices are the S&P 500, Dow Jones and DAX. With such a large variety of instruments to be traded going forward, you’ll be presented with a guide on how to choose the right assets to trade binary options.
How to Choose Assets to Trade Binary Options
There are several important factors that you need to take into consideration before deciding on what asset to trade and going forward, we’re going to focus our attention on 3 main factors. However, you shouldn’t limit yourself to only these considerations as they are proposed as a general guide. Although Forex trading will likely be the type of assets that you’ll most often trade it’s still important to learn how each type of asset is different than the others.
Time
Time is especially when dealing with binary options trading. Each different asset has its own time zone in which is traded. For example the US stocks trade during regular market hours between 9:30 AM – 4:00 PM Eastern Time, unlike the currency market which is open around the clock. Stocks are traded based on their respective home market times, which means that you can’t trade binary options when the stock’s home market is closed.
There can also be a big inconvenience if you live in Asia and want to trade US stocks due to the gap in time zones, but since you most likely live in South Africa you have good access to the Arab and European markets. Overall you want to make sure you’re available for trading during the time when the underlying instrument is most active, which in the case of stocks and index trading is during the regular market hours; Forex trading is during the London and New York sessions, while for commodities during the New York session.
Trading Strategy
There are a number of different trading styles and binary options strategies that people use – this is an overlooked topic especially by new traders. It’s important to understand which strategy you want to follow because what might work for one asset class might not work for the other. If you want to trade stocks, it’s more appropriate to use a fundamental focused strategy because stocks are driven by fundamental news reports like the earning reports.
On the other hand, the currency market is more technical and you might need to use a technical approach. Trading indexes may require using a combination strategy between both fundamental and technical analysis. While commodity trading may involve the study of the supply and demand equilibrium of the underlying instrument.
Higher Binary Options Payouts
Not all binary options contracts have the same payout rate, quite contrary; each asset can have its own payout structure as some assets might offer higher payouts than others depending on your binary options broker. The standard binary options payout ranges anywhere between 60% and 90%. You want to make sure you trade the asset that offers you with the highest payout structure, but at the same time, you need to balance this with the previous two factors. However, it is not always that the highest payout structure can be the right choice for you, and you need to choose the assets that fit into your time zone are suitable for your own trading style.
