Binary Options Assets
Binary options are offered by binary brokers on a range of financial assets (also known as ‘underlying assets’) including: global stock index averages, shares of stock traded in major national stock exchanges, foreign currency exchange pairs and commodities. Below are brief descriptions for each of the financial asset class above
Foreign Currency Exchange Rate (Forex) Pairs
This one is discussed first because:
1. it’s the most common asset for which binary options are purchased, as the forex markets normally open 24 hours a day and 5 days a week
2.Comparing to others, it’s the easiest type of option for people who do not have a background in finance to understand when they start binary options trading.
The majority of binary options brokers offer the ‘major’ forex pairs as underlying assets in their binary options. These are classified as ‘major foreign currencies’: the US Dollar, European Union Euro, Great Britain’s Pound, Swiss Franc, Canadian Dollar, Japanese Yen, Australian Dollar and the New Zealand Dollar, and their various pairs: the Euro/Dollar (EUR/USD), Dollar/Yen (USD/JPY), Pound/Dollar (GBP/USD), Dollar/Swiss Franc (USD/CHF), etc.
Some brokers may provide in their binary options some “rare” forex pairs like the Chinese Yuan and the Turkish Lira.
When a trader purchase a binary option on a forex pair, it means he is trying to predict if the value of a currency is going up or down comparing to another currency in a pair. To make it easier to understand, if one trader thinks that the Euro is rising in value vis-à-vis the dollar in the next hour, he or she would take an UP (Call) position on a EUR/USD binary option pays 75 per cent and has the expiry period of one hour.
Similarly, when a trader believes the value of Euro is going down vis-à-vis the Dollar in the next hour, he or she will choose the DOWN (or Put) position on that binary option. Most of the forex binary options can be purchased in the countries from which the currency is issued, from midnight of Monday to midnight of Friday.
The term ‘commodities’ involves natural resources like gold, silver and oil which are traded in the commodities market worldwide. Binary options on gold, silver and oil are offered by most brokers such as uBinary, whereas commodities like copper, platinum, coffee, wheat and sugar are also offered by some other brokers.
If a trader thinks that the current value of gold is going up in the next half an hour, he or she will purchase an UP (Call) binary option on that commodity with the expiry time of 30 minutes in the future.
Shares of Stock
An immeasurable number of shares of stocks changes hands among dozens of stock exchanges worldwide every day.This movement makes the value of individual shares of stock go up or down in different amounts. Option brokers offer binary options on a various stocks throughout several stock exchanges around the world in order to enables their traders to gain profit from these fluctuations.
Brokers normally offer stock shares as underlying assets for binary options from big technology companies such as Microsoft, Apple, Google and Intel, and big multinational companies like Coca-Cola, McDonals, CitiGroups or Nike in the US or HSBC Holdings, Rolls Royce and Barclays in the UK.
Normally, option brokers want to offer binary options for the stock of corporations that have an outstanding profile. Traders can benefit greatly from this because they would be able to use news and information that are public to make informed decisions on binary options for the corporations’ stocks. When a trader thinks that a share of Google stock is going down in value in the next 3 hours, he or she will choose a DOWN (Put) position on the Google stock binary option that has the expiry time of 3 hours and pay 80 per cent.
Not only can one trader purchase a binary option on the value of one share of a company’s stock but he or she can also purchase a binary option on the overall average of a specific stock exchange.
The most common binary options on global stock indices offered by online option brokers are: Nasdaq (USA), Down Jones (USA), S&P500 (USA), CAC (France), FTSE100 (UK), Dax (Germany), Nikkei 225 (Japan) and Hang Seng (China). Some other smaller indices are also offered as underlying assets in binary options. Traders can only purchase binary options for stock indices during the time when the stock index is open for trading. These hours vary greatly depending on the country and the time zone.
When a trade thinks that the average of the Nasdaq stock index will rise in the next 2 hours, he or she would choose to invest $1,000 in an UP (Call) binary option on the Nasdaq that pays out 81 per cent and has the expiry time of 2 hours.
Binary Options Assets Conclusion
Binary options broker offer binary options on the forex pairs, value of stocks, commodities and the global stock index averages.
Traders should have a good knowledge about the function of binary options in each class of asset. After gaining a full understanding on their functions, traders can diversify their portfolio by investing, at the same time, in a short-term binary option and a long-term, traditional investment in one of the assets above.