[heading style=”1″]What is the underlying asset of binary options?[/heading]
Each binary options broker offers its own list of underlying assets that you can trade. Trading instruments or underlying assets of binary options can be divided into four groups.
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- Stock
- Stock indices
- Commodity raw materials
- Currency[/list]
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Binary options trading on currency pairs
Currency pairs are an underlying asset related to the forex market, but popular when trading binary options. It is determined by the ratio of the prices of the currencies that make up the pair, or the difference in prices of these currencies. The currency pair can be considered on the example of the Euro / dollar – in this pair, the first currency is the base currency and indicates how many units of the second currency you need to spend to buy a unit of the first. Thus, if the ratio of the euro/dollar pair is equal to 1.3000, you will need to spend $ 1.3 to buy one euro.
The daily turnover of the forex market exceeds 3 trillion dollars. Trading takes place in currency pairs that differ like major currency pairs, cross rates and exotic currencies. Major currency pairs account for 75% of forex market trades, which explains the high volatility.
Stock Binary Options Trading
Shares are securities that entitle the owner to receive profit in the form of dividends. Also, the owner of the share has the right to part of the property of the company, the shareholder of which he acts. Binary options brokers offer their traders to trade shares of leading international and domestic companies.
The underlying asset in the form of shares is one of the most popular among novice binary options traders, in view of the greatest awareness of the financial situation in such companies and the upcoming changes in them. As a result, it is not difficult to predict the value of the share. So, the result of the planned reduction in the company will be an increase in the share price.
Commodity Binary Options Trading
An exchange commodity (Commodity Raw Material) is a commodity that is actively traded on the exchange and has a noticeable demand. There are more than 100 commodities on exchanges around the world, the most popular are non-ferrous and precious metals, fuel, grain, and industrial raw materials. The cost of goods is determined by supply and demand – a decrease in the amount of goods on the exchange causes an increase in demand and an increase in price.
Trading Binary Options on Stock Indices
A stock index is an underlying asset that expresses the general state of the market. Market instability is characterized by a negative index value. The high stability of the market and expectations of its growth make the index positive. Thus, stock indices are one of the most important indicators of the state and trends of the market in cases of changes in the value of securities in different directions in one index basket. [/note]
Indices can be calculated as the arithmetic mean of the value of all assets, or take into account the value of the price of each asset. Based on the indicators of the indices, some traders make a forecast of changes in the price of currency pairs.
Understanding the underlying asset is important when trading binary options, as success depends on how correctly the underlying asset has been chosen for trading. Understanding what the price of the underlying asset depends on will largely allow you to predict the price movement. Volatility also affects the success of forecasting the price dynamics of the underlying asset – underlying assets with high volatility make forecasting difficult and reduce its accuracy. Commodities with low volatility, on the other hand, are the most favorable for forecasts. In view of this, you should initially observe the various underlying assets, and select for trading binary options those of them, the price changes of which you understand and predict most accurately.
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