What is the action plan for buying a binary option? First of all, you have to be registered on the website of a broker and deposit the amount which you are going to use to buy an option. That’s it. You can start trading.
In order to buy an option you have to select several parameters:
- Basic asset;
- Price;
- Time and validity period.
As for the price and time, everything is obvious even to a rookie trader. But asset is a thing that we should have a closer look at. It is the first thing to be chosen.
The main idea of a basic asset
Basic asset determines the object of trade, i.e. what exactly a trader will be trading. In simple terms, basic asset is the object the quotations of which will be seen on the diagram.
For instance, AnyOption brokers offer huge amount of options which can puzzle a green hand trader. However, in reality everything is much more simple and accessible.
All possible variations can be divided into several categories.
Currencies
Currency is traditionally traded on Forex. However, it is also present on the binary options market and always in pairs. For example, it can be EUR/USD.
When you see such combination of currencies, you should trade on the basis that the exchange rate of the first currency will have a certain movement in relation to the second currency. For example, if at the beginning of trading Euro was more expensive than dollar by 1.3022 times, and then EUR/USD diagram will be at the point of 1.3022. A trader, for example, can open the following position: 13350 if the diagram goes upwards or 1.3300 if he or she thinks that it will move downwards.
Depending on the correctness of the forecast, the trader will get profit or lose the money. The advantage of binary options is that a trader does not have to predict the exact growth of the price. One point is enough to get income.
Shares
Shares of various companies such as HSBC or Apple can be traded as well. Various factors influence upward trend which changes shares value. The main task of a trader is to correctly predict the direction of the trend.
This trading is simpler as a trader operates only share value and there are no pairs.
Stock exchange is one of the oldest and most traditional markets. However, the complexity of work on this market is that you have to pick the right company whose shares can be trusted. There are some corporations whose shares are more reliable than some currencies.
Indices
The value of assets is determined by indices. For example, when an index includes two assets (shares of two companies) of an equal value and the value of one of the assets falls dramatically, and the value of the other one rises slightly, the overall index will fall.
There are many various indices but, as a rule, only the most popular are traded. The most well-known and popular are Dow Jones and Nasdaq (the U.S.). The former includes shares of hi-tech companies and the latter – shares of the largest companies of the American industry.
As for the practical side of things, when trading indices, a trader sees the diagram of fluctuations. Trader’s task is to predict the trend of an index for the nearest future.
Commodities
This asset is the most simple and accessible. Not only currencies and shares are traded on the exchange markets but also real commodities. For example, such commodities can be oil, precious metals, cotton, pork, or grain. Their prices are also subject to constant change. A trader has the opportunity to earn good money buying commodities options forecasting changes in their values.
