If you want to trade binary options, you must first understand the basic principles of financial markets trading. As we explained it in our previous article, “trading is an investment activity that involves the buying and selling of financial assets.” These financial assets can be of different types. Within financial markets, we call these different types “asset classes”. There exist 5 different asset classes: equities, bonds, forex, indices and commodities.
You Can Trade All Asset Classes With Binary Options
Most binary option brokers offer access to forex, equities, indices and commodities but few brokers are offering binary options on bonds. This is because bonds are traded OTC (Over The Counter), which means that these assets are not listed on an Exchange and that their prices is not really transparent. Don’t worry though; you will still have tones of trading opportunities with the four other asset classes.
Presentation of the Different Asset Classes
Forex – Forex stands for foreign exchange. Forex trading involves the buying and selling of currencies in order to speculate on the relative strength of a specific currency compared to another. Indeed, forex trading works in pairs. You can for instance Buy the Euro-Dollar exchange rate, meaning that you believe that the Euro will appreciate versus the dollar (or reciprocally that the dollar will depreciate versus the Euro). There are lots of different forex conventions that you need to know before you start trading but we will cover this in dedicated articles.
Equities – An equity stock, also called a company share, is a share of a company’s capital that is publicly traded on a stock exchange. You can easily buy and sell Apple shares on the market in order to make money. After forex, the Equity universe is the second most popular asset class among retail investors and binary option traders.
Bonds – A bond, also called an obligation, is a share of a company’s debt that is traded OTC on the market. Bond trading, also called fixed income trading, is a lot less accessible than equity trading for retail investors. This is the reason why most binary option brokers don’t offer binaries on bonds. Among all the asset classes, this is the less available with binary options as capital requirement are extremely high.
Indices – An index is a basket of different assets belonging to the same asset class. There exist equity indices, forex indices, and commodity indices. An equity index, for instance, tracks the performance of a basket of equities belonging to the same geographical area, the same sector or sharing a common characteristic. An index allows investors to diversify their investment while investing in a single asset. You might have heard about the FTSE100, the S&P500, and the CAC40. Well, these are the most popular equity indices from respectively the United Kingdom, the United States and France.
Commodities – A commodity is a raw material that is publicly traded on a commodity exchange trough standardized contracts. Oil and Gold are the most traded commodities on the market. They also are the most popular commodities for binary option traders. Among all the different asset classes, the commodity market represents the fastest growing segment of binary options trading.
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We put all our efforts to keep on proposing you the best articles on binary option trading in order to help you become a trader that is successful. We also investigate all the brokers out there to provide you with a restrictive list of the best binary options brokers. Don’t hesitate to have a look at the new brokers of our ranking with our Banc de Binary review and our OptionRally review.