How to Choose Assets to Trade
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 time of expiry, the price will be higher or lower than the current price.
How can you determine the right asset to trade with from the many diverse assets of stocks, currencies, commodities and indices? This decision is based on your knowledge of how specific types of assets behave under certain market conditions. Volatile markets are the best markets to trade as in volatile conditions assets move quickly up or down, whereas, in ranging market conditions, there are only a few assets that perform. You have to carefully evaluate the current market conditions to get the best results.
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. You could also trade the USD/CHF in the opposite direction to your EUR/USD trade as they are negatively correlated. The best time to trade binary option currencies is while economic news is being released.
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.
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 in, are reported, or after major news item about the company.
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. However, 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.
As you can see it is important that you understand the characteristics of asset classes of binary options in order to know what to do under different market conditions.