The simple structure of a standard binary options contract is a boon for beginner and advanced investors alike. After all, the opportunity behind binary options rests at the heart of all tradeable financial assets: an asset will either go up or go down in price over time, and an action may be taken to benefit from this movement.
However, for those investors excited about the opportunity to trade binary options, another question emerges. Which asset should be traded?
An Array of Assets
Like other methods of investment, binary options traders enjoy access to a range of assets to pick from. During market hours, the stock of any given public company moves up or down – as do commodities, indices and currency pairs that are traded in the foreign exchange market.
Each of these may be used as the asset backing a binary options contract. For example, just as a trader opens a binary trade for Microsoft stock, at a value over or under a specific price at a specific point in the future, an investor can also try and anticipate the value of gold, oil, an index comprised of many stocks such as the S&P 500, or how many Dollars it costs to buy one Euro.
Which asset to choose depends on many factors that must be considered before beginning entering a binary options trade.
Important Factors to Assess
The first factor that must be considered when contemplating a trade is time zone. This applies especially to stocks, whose markets are not open 23-24 hours a day like other asset classes. If you live in China, for example, and you want to trade using stocks listed on the NYSE in New York, you must be awake in the middle of the night when the stock exchange is open. Why? Stocks are only traded during the exchanges designated trading hours and not the remainder of the day.
If commodities or currencies are more your specialty, you’re in better luck. The worlds commodity and currency markets are open and in motion at all hours, making it possible to trade these assets no matter where you live. However, consider that just because the commodity markets are open does not mean that it is an ideal to trade. During certain hours, trading turnover and activity might be significantly depending on the time zone.
Dynamic or Mostly Static
It so happens that the stock market is a sort of barometer to how much volume, or trading turnover, other markets have. Generally, volume is the second most important factor to consider. The higher the volume in any market; stocks, currencies or commodities, the more prices move and trend directionally–a factor that is generally positive for binary options traders.
When stock markets are open in the two most major territories of the world, the United States and Europe, volume is significantly higher across the board. Therefore, it may be worth trading during US or European hours as opposed to Asian sessions.
V for Volatility
The differences in volatility between stocks and other assets can be significant depending on conditions, but there are many ways to take advantage of slow acting or fast moving market environment. Depending on the determined strategy, trading style and timeline for opening and closing a trade, investors have a few different choices when it comes to trading volatility.
In the event that a trader prefers to identify short trends and hold positions with expiry dates within a few minutes or hours may be better suited to choose assets with higher volatility. This will enable the investor to identify multiple opportunities to capitalize on short bursts of market momentum instead of identifying longer-term trends.
For those who believe they’re better at predicting medium or long term trends, they may want to pay closer attention to currencies which are noted for trending over longer periods of time compared to stocks while focusing on expirations longer than 4 hours. Besides earnings announcements which are generally regarded as explosive events with higher volatility and momentum, stocks are generally viewed as spending most of their time trending horizontally during intraday sessions.
How to pick the best assets to trade really depends on the strategy involved. However, for any trader, understanding the timing, volume, and volatility of an asset are paramount to success. There is no best answer however, a thorough, studious approach to any asset is the key to generating positive returns. When determining which trading style is the best fit, it is always important to consider geography, comfort with volatility, and the level of activity an asset regularly experiences.