Binary options refer to OTC contracts, which means the freedom to choose and interpret the form of conditions and the list of underlying assets. Therefore, despite the stereotypical connection of these instruments with currency pairs, stocks and futures or exotic events can act as assets for binary contracts: weather and political elections, referendums, etc.
The list of underlying assets depends on the capabilities and desires of the broker.
Specialized companies provide a wide range of tools, including exotic bets and random indexes that allow you to trade on weekends.
Investments in exchange-traded binary options differ from contracts with underlying assets in the form of exotic bets on "red and black", the possibility of economic forecasting and systematic profit. The task of the trader is to select the market assets that are most susceptible to certain patterns.
For example, it can be energy carriers or commodity assets (agricultural crops), the quotations of which are associated with seasonality. In times of crisis, binary options on defensive instruments or currency pairs of individual states may be of particular interest in case of local domestic political problems that cause devaluation.
The vast majority of types of binary options need price trends that increase the probability of quotes "moving away" from the point of entry or exit from the range, touching certain levels. Therefore, when choosing the underlying assets of a certain type (currencies, metals, commodities, stocks, etc.), the trader should be guided by liquidity.
For example, in the currency class, the highest trading turnover is in the EUR/USD pair, in metals – gold, which means more frequently occurring trends, such as the reaction of the quotes of these instruments to any world events.
Binary options, depending on the underlying asset, have certain features.
Binary options on stocks
Stock market stocks, apart from the influence of fundamental factors? react to corporate news, which gives more opportunities and benefits for binary options buying strategies on the news. Trends in securities can have a number of patterns – seasonal for agricultural enterprises or industry, political, "dividend stories".
A wide range of instruments allows you to hedge risks by selecting a portfolio of various instruments. By buying binary contracts for securities from different sectors of the economy, you can diversify the option strategy, increasing the probability of obtaining a final profit.
Forex and binary options brokers independently took care of the liquidity of the list of shares, offering securities only of large enterprises, multinational corporations, many of which are known around the world.
Binary options on stock indexes
World stock exchanges in the XX century applied the index principle of measuring the economic activity of issuing enterprises. Each platform has its own methodology for calculating this parameter in relative units, based on the rates of "blue chips" - shares of enterprises, the flagships of the industry.
On the basis of stock index quotes, futures are traded, the purchase and sale of which is, in fact, an investment in a conditional portfolio collected by the exchange. Traders purchase binary options on these futures for the same "portfolio reasons". In addition, the stock indexes of developed economies have long periods of steady growth, so long-term binary options "Above/Below", bring profit more often than other types.
Within the exchange, industry indices are issued that allow hedging the risks of unprofitable binary options transactions on shares or diversifying trading by buying contracts from different sectors of the national economy.
Binary options on raw materials
Binary options are purchased as insurance for open positions in the underlying assets. Despite the predicted price movement, based on seasonality, the markets of these goods often have a force majeure factor: drought or military operations in the Middle East (oil) and Africa.
Commodity traders are well versed in the patterns of seasonal price movements, so trading this class of underlying assets and options on them is highly specialized. Also, bidders exploit the correlation effect of underlying assets in commodity groups, buying binary options on discrepancies for reasons of arbitrage or pair trading strategies.
Binary options of the Forex currency market
Binary options on Forex currency pairs are the most popular asset, due to the high liquidity and availability of understanding the nature of exchange rate fluctuations, based on national currencies. Unlike direct currency transactions, options allow you to control losses, avoid "sitting out" in transactions limited by the expiration time.
Most novice traders get acquainted with the exchange through the Forex market, losing funds due to emotional unpreparedness. Binary options on currency pairs help the novice to cope with these problems more easily, since the amount of loss is equal to the investment in the contract and is known in advance, and the terms of the transaction are often unchanged.
Professional traders "exploit" the patterns of low volatility of currency pairs that fall at certain intervals of time to increase the profitability of strategies for the type of options of the "Inside the range" type.