Monday, August 12th, 2013 by Tim Lanoue
There are four asset groups you can trade from in the binary options industry. These four options are stocks, indices, currency pairs, and commodities.
One of the best advantages when it comes to trading binary options would be that they offer the ability to trade a variety of assets allowing traders to become as dynamic as they wish. When trading binary options all traders have the ability to trade from any of those four classes of assets, whereas with Forex you only have the ability to trade currency pairs which can become very limiting. The aim of today’s article is to inform and educate the traders about the four classes of assets involved in trading. This way, you the trader, have a better understanding of what they are trading.
Stocks have the status of being an attractive asset class because historically they have had the tendency to outperform all other asset classes along with allowing traders to invest in the companies they support. Stocks by definition are a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. What many people don’t know about stocks is that there are two types of stocks, preferred and common. The main difference between the two is that preferred stockholders have more entitlement on a company’s revenue opposed to common stockholders. In addition, preferred stockholders typically receive dividends and liquidation before common stockholders do. One of the best things about trading binary options is that trading stocks while keeping an investment portfolio is a great well to represent yourself to potential financial corporations.
Currency Pairs Options
Binary options is an extremely liquid trading market, however, the most liquid market to trade in is currency, averaging nearly 4 trillion dollars in trades a day. When trading currency in the Forex or binary options market they are often presented in a pair. An example of a currency paid would be the US Canadian dollar pair denoted as USD/CAD. When one trades a currency pair they are ultimately trading the performance of one currency pair against the other. Common terminology associated with currency pairs is that the first currency listed is known as the base currency while the second pair is known as the quote currency. In the example given the U.S. dollar was the focus of attention, so when trading you are predicting whether the price of the U.S. dollar will lower or go higher opposed to the Canadian dollar.
Gold, oil, silver and wheat are among the materials and goods known as commodities. One of the unique features offered when trading commodities is that they are able to be traded between the producers, meaning that they have an equal standard no matter where they originated from. In lenience terms is basically means that the price of an ounce of silver or a barrel of oil are to be the same no matter where they originated from. When commodities are exchanged they are done so as future contracts and exchanges are responsible for setting the foundation grade. Oftentimes overlooked, commodities are extremely important as they are the raw materials needed for everyday life. In addition, they are associated with the wealth of countries that help fuel their status and power effect.
Oftentimes the most misunderstood assets along newer traders, these assets have the reputation as being more difficult than they appear. The term that one needs to know when it comes to indices would be index. Index by definition is a statically average of part or all of the separate assets that make up a certain market. The volume of an index is dependent on the combined performance of all assets in accordance with their own special calculation. In addition, an index theoretically cannot be purchased solely because it means the performance of a number of assets. Nonetheless the information used to make derivative instruments are sold by exchange-trade funds or mutual funds. Among the two most common indexes are MSCI Emerging Markets Index and The Standard and Poor’s 500.
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