Traders often choose stock indexes as the underlying assets for binary options. This choice is driven by the great amount of assets that allow choosing between them, and the fact that index binary options allow getting reasonable profit even if the market is rather tranquil.
What are index binary options?
In order to reply to this question, let’s primarily consider what the binary option is. It is a contract with a fixed price and pre-determined profitability that is completed at the specified point in time. Such type of contract is concluded for the certain underlying asset. After considering stock indexes as the underlying asset, it is possible to say that they suit trading in the binary options market excellently. There are many explanations to this. But we will come up with them later, and now we have to determine what types of stock indexes exist.
Perhaps, one of the most known stock indexes is the Dow Jones Industrial Average that is formed by getting the weighted average cost of security papers of 30 companies. The index is quoted on the stocks NYSE and NASDAQ.
Index binary options can have a very interesting index S&P500 as the underlying asset. This index comprises 500 of the largest companies of the United States of America.
Stock indexes exist not only in the stock market of the USA. For example, index CAC 40 is very popular too. This index shows the business dynamism of the 40 largest companies in France. German stocks’ market has the DAX index. This index is drawn up based on 30 leading German companies. As for Great Britain, it also has its own stock index FTSE 100. It includes the largest 30 companies of the Foggy Albion.
Index binary options: benefits
Stock indexes as the underlying assets for the binary options have a number of notable benefits. As we have already noted, fairly generous amount of different stock indexes exists. For this reason, one of the most important benefits of the binary options’ trader, who has chosen it as the underlying asset, lies in the fact that he has a broad selection, and an opportunity to work with many strategies.
Many traders believe that stock indexes, unlike the companies’ security papers, are easier to make a forecast for. For this reason, the underlying assets for them are so popular in the binary options’ market. Furthermore, standalone stocks can cause fairly strong oscillations that are not observed in the weighted index.
Index binary options give another notable benefit. Risks with this type of the underlying assets are much lower than risks with the stocks’ trading. For example, S&P 500 includes stocks of 500 largest companies in the USA. If there is an opportunity to trade the aggregate index, which smoothes the oscillatory motion for some of them, it is not necessary for a trader to buy these stocks.
You can trade indexes 24 hours per day because stock exchanges stay opened all over the world at a different time.
Therefore, index binary options allow a trader to conduct a profitable trade with the stock market’s tools. The fixed risks and the pre-determined profitability of a binary option guarantee success and earning a fairly high profit.