What do you trade on binary options?
Using binary options as a tool, you can, with a single terminal Trade commodities, stock price forecasts, indices, currency pairs in parallel. The only thing you have to do is accurately predict future asset movements. Here we will discuss the types of assets available for trading, the varieties of options and some universal analysis techniques used when predicting price movements. And most importantly - what types of assets should a beginning trader choose at the beginning of his professional way.
Existing asset types
At the beginning of trading activities You should choose an underlying asset, i.e., the most appropriate financial instrument. If you are used to working, say, on the market "Forex"Most likely, you will choose currency contracts for operations. But you must remember - the main advantage of binary options is the impressive variety of trading instruments used, which allows not only to diversify easily the risks, but at the same time allows you to explore new areas of activity with the prospect of a significant increase in future earnings. In operations with options, four basic types of assets are used:
2) Stock indices.
3) Various raw materials.
4) Currency pairs.
In relation to the stock exchange, operations with stock derivatives demonstrate a number of significant advantages. The first one is that the level of risks in such operations is fixed, and, consequently, the amount of possible losses and profits is known to the trader in advance and in full. The second advantage - the procedure of securities investments is much more complicated than operations with options; traders engaged in this type of trading require a lot more efforts and skills in controlling the trading portfolio and forecasting. When working with binary options, basically, the only important question is whether the price of the contact will fall or rise. Finally, as opposed to the stock exchange, in working with options you are not buying the asset itself, but only the contract. This makes it possible to start with much smaller amounts and gives you the opportunity to operate on shares of considerable value.
According to the liquidity provider applied by the broker, the trader has the opportunity to conduct operations of the world's largest stock exchanges, such as the legendary New YorkThe securities of many world-renowned and highly reputable firms are listed there.
Since the binary options market acts as an aggregator of trading instruments of different exchanges, located on all time zones of the planet and having different working hours, you can trade around the clock, and on weekends, choosing your own working hours.
In operations with binary options on securities, it is advisable to pay close attention to the financial characteristics of the issuing firm, and in addition to them - the economic situation of the country in which the firm is registered.
A stock index is a very convenient indicator reflecting the dynamics of a whole group of instruments united by some common attribute and operating in a particular market segment or on a particular stock exchange. Usually, the overwhelming majority of indices today express the aggregate capitalization of the totality of firms taken into account by an index. However, there are also the so-called "equal-weighted" indices, when the number of shares is selected in such a way, that the "weight" of each security in the whole total capitalization is approximately equal. Sometimes a "weighted price" index calculation is also used, where it is determined by the sum of the prices of all applied instruments divided by a certain divisor.
The attractiveness of the commodities market for traders is based on its calm atmosphere and good predictability, which is determined by the strong dependence of this market on the most fundamental economic factors. This asset class includes many different types of resources and commodities. Such commodities can be food products, metals, energy carriers and so forth. The most important characteristic of this market sector is its complete indifference to brands and producers because the price of two barrels of oil produced by different firms do not differ. In a homogeneous crude it is extremely difficult to find factors of difference.
Apart from the established investment methods, the commodity exchange is the ideal place to apply hedging strategies and conduct arbitrage operations. This is due to the ease of analyzing the commodity markets and the multitude of traceable patterns on it. Usually, a trader trading binary options should have at least several instruments for working with commodities in his or her portfolio.
The familiar variety of tools forex market allows you to choose the most convenient time for the transactions, but also makes it possible to successfully apply a variety of trading styles with one and the same tool at once. For example, trading in the Asian session of the yen is more rational, because at this time the pair shows the greatest activity. However, many channel strategies are more effective at night, which makes it possible to choose the most appropriate trading style. Let's try to consider some of the most popular pairs.
1) "EURUSD" - this pair is considered to be the most liquid. For this symbol you can find the maximum amount of analytics.
2) GBPUSD - this is the second most popular pair among beginners. It demonstrates sufficient liquidity and volatility, demonstrating directional strong movements.
3) "USDCHF/USDJPY" - this pair is for fans of quiet trading, but its liquidity is at a sufficient level.
4) "GBPJPY" - mainly used by experienced traders, due to its high volatility and volatility. It should be handled with caution, as many news often provoke sharp exchange rate fluctuations.
5) "AUDUSD\USDCAD" - pairs demonstrate insignificant liquidity, so it is difficult to forecast their further movements. However, a powerful factor influencing them are the prices of gold and oil, which facilitates forecasting, given the correlation with the situation at the commodity market
What is worth trading for a beginner trader?
Beginners are advised to pay close attention to assets with the least liquidity. They are the easiest to learn trading operations on. This is due to the smoothness of price movements, and the low level of "noise," which simplifies the process of recognizing candlestick patterns and allows more time for preparatory procedures for the transaction. The commodities market fits the described criteria optimally, to be more specific gold, oil, platinum, the specifics can be clarified with the broker you work with.
The great advantage of trading with derivatives is the possibility to enter the markets of indices and stocks, perhaps the most popular investment options. If you have dreamed of becoming a true stock trader - binary options trading is the most direct way to make this dream a reality. When working on stock exchanges you have to purchase a stock in its entirety, when using binary options - only a contract is purchased, which has a number of conditions for realization. This point makes life extremely easy for a novice analyst, because the margin of error in binary options forecasts is quite large.
Competent analysis of indices requires taking into account the weight of each of the instruments included in the basket, because the value of the index can be influenced by any of its constituent companies. At times, the capitalization of a particular index can exceed the GDP of some countries, so the main factor here is the overall situation in the economy of the country.
Because forecasting in currency pairs trading is a complicated business, it requires extreme caution. It is recognized that the most convenient trading pair is "EUR/USD", with "GBP/USD" coming in second place. Their main advantages and disadvantages are the high liquidity of both pairs and the diversity of opinions and forecasts about their behavior.
In the most general terms, options operations are a real godsend for all traders looking to work with short time frames. They allow to get up to 80 percent profit on each deal. And the fact that some types of binary options are as much as 500 percent profitable, puts them among the most profitable types of investments.
Correlation of assets in operations with binary options
The situation is such that many types of trading instruments turn out to be historically very closely related and capable of exactly repeating each other's movements. This correlation is usually equally the result of the situation in a country's economy or the volume of total exports of specific commodities. The "Pearson correlation coefficient" is considered optimal for analyzing the financial markets and can take values ranging from minus to plus one. Values close to zero are a sign of weak correlation, while minimum or maximum values, respectively, are a sign of high level of negative or positive correlation.
Say, in the short term, the Eurodollar shows a strong correlation with USD/CHF and other currencies heavily dependent on the U.S. dollar.
The high level of long-term correlation in "GBP/USD" and "EUR/USD" can be explained by these factors. In such a situation trading with the same signals has a low probability of reducing trade risks, so it is rational to prefer instruments with a signal of greater strength.
To find instruments with a high level of correlation the service "myfxbook.com". It allows you to create instrument correlation tables, giving a visual representation of the dynamics of the relationships between them over time, displaying up to a dozen instruments in a single window.
A full advantage of distribution of funds between different financial instruments, and, consequently, risk diversification, is possible only if there are positions of different orientation on instruments with a positive correlation coefficient, or on instruments with a negative correlation coefficient and unidirectional ones. This technique allows taking an almost completely neutral position when used. Potential losses on one instrument will be almost completely compensated by profits made on the other. This is the main advantage of the capital allocation method. However, even an ideally balanced basket of any correlated instruments cannot stay like that forever, except theoretically in a completely closed system. It is clear that such situations do not occur in the real world, capital is constantly flowing between markets in various ways. However, standardly, for optimal formation of the basket it is enough to monitor statistical data concerning the correlation of instruments with a period of a week or a month, respectively, removing or adding instruments with too weak or too strong correlation.
The market of binary options transactions can be confidently called a Mecca for professional traders and a delight for traders just stepping on their personal "Silk Road". Quickly gaining popularity, binary options offer the most logical and modern trading environment. The low entry threshold and uncomplicated analysis give newcomers a quick learning curve. And the high rates of profit in admission to the world's most popular exchanges also entice traders with extensive experience. Finally, the flexibility of risk management gives you a real opportunity to quickly develop a reliable trading system that fully meets your personal style of doing business.
Bottom line - it is logical for beginning traders to start with the assets that demonstrate the greatest predictability - namely the commodities market, using instruments such as gold, platinum, oil and the like, according to the conditions of the broker with whom you work.