Most binary options brokers offer four different types of asset classes, which are stocks, commodities, currencies, and indices. Understanding asset classes can help you diversify your portfolio so in an effort to facilitate your learning process, we have put together an explanation of each category.
Stocks are considered the highest performers among all four classes and they also form the largest number of assets grouped together in the same class. They are company shares that are traded on stock exchanges across the globe. Most binary options brokers offer stock trading across all American exchanges as well as many located in Europe, Asia, and the Middle East.
Some of the most famous stocks include those from companies such as Apple, Google, and Microsoft. An important element to note is that stock trading is only available during the opening hours of the given exchange on which you wish to trade. However, since most brokers offer trading across many different exchanges, you are likely to find one that is open when you want to trade, no matter where you are located.
This asset class is defined as products valuable to the economy that are extracted from the ground or grown from crops. The first category includes materials such as gold, oil, and silver, while the second category includes goods such as coffee, sugar, cocoa, and corn.
The key factor influencing whether a certain product is considered a commodity resides in its value perception for the greater good of the economy. In addition, commodities have to be interchangeable among producers, which means that methods of extraction, harvesting, or any other component of the process involved in selling a given product is regulated by certain industry standards.
Commodities have a large economic impact on the countries that produce and export them. Since so many factors come into play when it comes to perception of value, the learning curve for trading this class can be steep for traders who have no knowledge of its intricacies.
This asset class experiences some of the highest traffic levels of all classes. On a daily basis, more than 3.8 trillion dollars are traded on the world’s markets. Currencies work in pairs and most brokers offer a large variety of options, although the amount is slightly less than what is typically offered on forex platforms.
Popular currency pairs include the EUR/USD, GBP/USD, and the USD/CHF. The first currency in the pair is called the base currency, whereas the second one is called the quote currency. Pairs work by comparing the performance of one currency against another. The figure quoted for a given pair indicates how much you need of the quote currency to purchase one unit of the base currency.
A stock index is a weighted measure of the performance of a selection of stocks (typically the most capitalized) in a given exchange. In theory, indices cannot be purchased as they are only statistical averages. However, derivative instruments have been created with the data of each index in order to sell them through mutual funds and exchanges. Well-known indices include the NASDAQ, S&P500 and the Dow Jones in the US, the DAX30 in Germany, the FTSE1000 in London, and the Nikkei225 in Japan.