How to Pick the Right Assets to Trade

Before a binary options trader can start picking the right assets to trade with, it's necessary to have a good grasp of what assets are generally available for trading. This is important because assets form the foundation of binary options trading. The price development of these assets determines whether your trade becomes profitable or loses money.

What can be traded using binary options?

Assets that can be traded using binary options generally fall under the following categories:

  • Forex currency pairs
  • Shares
  • Indices
  • Raw materials

1. Trading with forex currency pairs

Forex currency pairs are among the most popular trading assets and are widely available on most binary options platforms. Many forex traders have a keen interest in binary options while forex currency pairs are beloved by traders for their volatility. Further, currency pairs render themselves easily to a variety of trading strategies. USD/EUR is a popular currency pair and so are GBP/USD, EUR/USD, EUR/GBP and CAD/USD currency pairs. The average broker platform has 5-12 currency pairs to choose from.

2. Trading with shares and indices

Shares and indices offer perhaps the widest selection of assets for binary options traders. Many brokers offer shares of well-known blue chip companies such as Microsoft, Apple, Google, Facebook, and Coca Cola while others offer a selection of shares from all over the world. Popular U.S. indices that are offered by brokers include Standard & Poor (S&P), the Dow Jones (DJIA), Nasdaq (COMP) while popular foreign indices include the CAC 40 (France), the Deutsche Aktien Index (Germany), the ISE 30 (Turkey), and the IBEX 35 (Spain). Many novice traders are familiar with at least some company stocks and therefore trading with shares is a good way to get started with binary options. The average broker offers 20-60 shares and maybe 10-20 indices.

3. Trading with raw materials (commodities)

Although most brokers allow trading with raw materials, the options available here are rather limited compared with other asset classes. The most commonly traded commodities include gold, silver, platinum, copper, oil, and soybeans. The average broker provides 5-7 commodities to trade with. Trading with raw materials is considerably more challenging than trading with other assets because it's very difficult to predict their price movements on an a minute, hourly, or even daily basis. Starting with currency pairs or shares is easier for inexperienced traders.

Picking the right assets to trade

There are several factors that you need to consider when picking assets to trade with. These include:

  • Time zone implications
  • High/low volume trading periods
  • Knowledge about the asset

1. Time zone implications

Stocks are traded in their home markets. Prices fluctuate when the markets are open but remain unchanged when they are closed. Depending on where you live, time zone implications can make some stocks very difficult to trade. For instance, an Asian trader would have to wake up in the middle of the night to trade with American stocks. The same applies for an American trader who wants to trade with Asian stocks.
On the other hand, currency pairs and commodities are traded on every major stock exchange around the world. You are therefore almost guaranteed to find an open market when trading with currency pairs and commodities. You can therefore trade these assets round the clock from Monday through Friday.

2. High/low volume trading periods

Whereas there is always an open market for currency pairs and commodities, the trading volume tends to fluctuate considerably due to the available number of traders at any given time of the day. For instance, trade volume is high when American and European markets are open and lower when they are closed. For this reason, some brokers find it necessary to limit trading times for commodities and, to a lesser extent, currencies to 16-20 hours a day. Stocks, on the other hand, are only traded on their home markets and are mainly influenced by opening and closing times.
These characteristics influence the type of asset that's best for you depending on your trading strategy. Traders with a gap strategy should trade with stocks while those with a long strategy should consider currency pairs.

3. Asset knowledge

When it comes to how your knowledge about a particular asset should influence your trading strategy, there are two opposing school of thoughts. The first says that having a good grasp of the asset that you intend to trade with gives you an inherent advantage when trading binary options. For instance, if you are aware of the catalysts that surround a particular company, it's easier to predict where the share price is going.
The opposing school of thought says that having prior knowledge about an asset when trading binary options can result in the trader making biased decisions based on preconceived notions about the asset. It's therefore better to rely on your technical analysis of the company rather than letting your knowledge of the asset interfere with your decisions.
Unfortunately there is no right or wrong position in this matter because both are valid arguments. It's therefore advisable to test each approach and see what works best for you. By keeping a detailed account of your trades, you check and see which strategy yields the best results.