In the previous section of this trading binary options tutorial, we outlined how options are an extremely versatile tool for betting on financial markets, since they allow access to a diverse range of underlying asset classes.
Today, we’re going to look at the 4 main types of asset you can trade with binary options. We’ll take a closer look at binary options strategies for trading all of these later, but first let’s cover the basics, what they are, and how you can make money betting on their price direction.
Trading Binary Options – Asset Classes
Stocks & Shares
Buying stocks and shares has been around since business began, and this is one of the original ways a business would raise the capital to grow. It’s still very much relevant today, and stocks and shares are traded in their millions every day. Endless buy and sell orders flood traders desks around the clock as global corporations conduct business.
Trading binary options allows you to bet on the price of a stock or share. If you have reason to believe that a certain company is going to do very well in the future, binary options are a great way to get in on the action.
Many investors place options on stocks and shares in and around earnings season. This is the end of every financial ‘quarter’ when companies announce their earnings, profits and losses. Stock and share prices typically move a lot during earnings season. Since price movement is what the options traders profits from, earnings season is a great time for us.
Remember, you can place options on prices going either up or down, so whether a company moves up or down in value, you can capitalize and profit.
24/7, 365, every second the world turns, commodities are being traded in the global marketplace.
Everything from cotton to copper to oil and grains make up the commodities market, and just like anything that can be traded for money, prices rise and fall, allowing binary options trades to be placed on their direction.
The commodities market has a reputation as being the Wild Wild West of the financial markets, a place only the daring and deluded go. Yet, this reputation is largely undeserved. Commodities can fluctuate wildly in price, but underneath all the fuss and noise lies the simple principle of supply and demand.
If something is in excess supply, prices fall. If something is in high demand and there isn’t enough to meet that demand, or there is fear that this may be the case in the future, prices rise. It’s not rocket science, although figuring this out isn’t always easy, either!
Many commodities are cyclical, meaning they go through very clear price patterns which have been identified by commodities traders over the years. They are also very easily moved by geopolitical and world events. For example, just imagine what would happen to the price of oil if Iran and a neighbour flared up and fears set in about a war.
Commodities trading can be a wild ride, but it’s always an exciting one. Trading binary options won’r require you to have a separate account for this, but will be able to access the commodities market in exactly the same account as stocks and shares, and the other asset classes.
Which way will oil go next? If you can figure that out, you can make money by trading binary options!
The biggest market of them all, the 4 trillion dollar per day global currency market provides opportunities to trade around the clock. This is a market that never sleeps, and traders don’t go home at 5pm like they do on Wall Street. When the sun is setting on the city in London, it’s just coming up in Beijing, China and Tokyo, Japan, and the global currency market continues.
Much like the other two, currency prices are sensitive to both supply and demand and also to global economic news and conditions. There are certain key pieces of economic news released monthly that can cause currency prices to move violently, meaning binary options trades can be placed to profit.
Currencies are always traded in pairs. We’ll explore these later and have a more in-depth look at currency trading techniques.
For now, suffice it to say that this extremely liquid, massive market is easy to access for options traders.
All companies listed on the stock market are listed on an index, which has a point value reflecting the total combined values of all the companies listed on it.
A great example is the UK FTSE100. It’s lists 100 blue-chip stocks which are bought and sold on it, and the more valuable these companies are during economic boom times, the higher the FTSE goes increasing its number of points. Likewise, when times get tough and the companies shed value, the FTSE level sinks and this is reflected in its number of points.
All indexes around the world are different, but they work in exactly the same way as the FTSE. They rise and fall based on the value of the companies listed on them.
Binary options trades can be placed on entire indexes as well as individual stocks. You can bet that the price of an index will rise or fall, depending on how you think the economy of that country and the companies listed on the exchange will perform.
This is another exciting way to trade and is open to the options trader from the same platform as the other three markets we’ve mentioned. Indexes can fluctuate wildly as turbulence makes its way through financial markets, but since options allow both ‘call’ and ‘put’ options to be placed, either way the market moves, options traders can walk away with money in the bank.
Binary Options Asset Classes Summary
This is a birds eye view of the financial markets trading binary options gives you access to.
All markets are different and each trader has his own favourite. Some traders choose to zero in and focus on 1 specific market, while others tend to take a wider view of things and trade more than 1 or even all 4 of them.
Next, let’s look at the first options trading strategy we can use to profit from market movements, whatever asset we decide to trade.