When choosing the right asset to trade, it is important to understand the characteristics of varying asset classes. Different market conditions call for different assets to trade.
But, how can you determine the right asset to trade from the many diverse assets of stocks, currencies, commodities and indices? This decision is based on your specific knowledge of how specific types of assets behave under the given market conditions. When trading binary options, volatile markets are the best markets to trade because, in volatile conditions, assets quickly move up or down, whereas, in non-volatile market conditions, there are only a few assets that perform.
Understand the Advantages of Each Asset
- Currency Pairs are always in motion!
Probably the most volatile asset class is that of the foreign exchange market where currencies are traded. There are several currency pairs that are traded as binary options and the EUR/USD, NZD/USD and USD/JPY are the currency pairs that have the highest liquidity and therefore, are the most volatile.
- Find Assets negatively correlated to your preferred assets.
You could also trade the USD/CHF in the opposite direction to your EUR/USD trade as they are, generally speaking, negatively correlated. The best time to trade binary option currencies is while economic news is being released.
- Commodities can be an attractive option.
Binary options in commodities don’t have the characteristics of binary options in currencies because the underlying assets like gold, oil and silver etc. are traded in the future. This has the effect of reducing volatility, however, if you watch the contract periods of the underlying asset you will find that commodity binary options are good to trade at the beginning part of a contract of a contract period.
- Trading Stocks allows you to capitalize on brands you already know and love.
There are many popular stocks that can be traded as binary options. Stocks such as IBM, Microsoft and Google are all affected by either economic news or by company reports. The best time to trade binary options in stocks is when the earnings of the particular company you wish to trade are reported, or after a major news item about the company.
- Indices are good when you can see the big picture.
The Index markets are also very volatile and can be compared to the currency markets because in essence the index is a bundle of assets and not just one asset. Also, as they are electronic markets they are open 24 hours a day. Some indices take a while to respond to financial news or company reports. The best way to trade index binary options is to only trade the index when there is a major announcement about a stock or stocks within the index.
The binary options market has one great advantage over other financial markets in that the amount of movement in the price of an asset does not affect the final pay-out because the pay-out for binary options is the same, however much the price has moved. All the trader needs to do is determine the right asset to trade and also determine in which direction the price is going, and if, at the time of expiry, the price will be higher or lower than the entry price.