What is the underlying asset of an option?

What is the underlying asset of an option?

What is the underlying asset of an option?

The process of investing in binary options looks a little more complicated than Forex trading. The fact is that you are not buying the underlying asset, but a contract for it. This is a difference that at first glance is not noticeable. But it is the essence of binary trading.

The underlying asset for these contracts can be either a Forex currency pair, commodity or stock, or a stock index. Each company that offers its services in this market has its own list.

In principle, for most Forex brokers, these lists overlap in one way or another. We can say that any trading platform today offers currency pairs, stocks, indices and commodities. However, the difference is already directly in the range.

So, what is the underlying asset of an option? These are essentially the trader's trading tools, such as stocks, currency pairs, commodities, and stock exchange indices. Why are they called basic? It's very simple – because they are the basis of the contract.

Of course, all the same financial instruments can also act as separate independent units. For example, if you trade on Forex, you can buy the currency pair itself without any contract.

The same can be said about the stock market. But commodities can be manipulated either on the futures market, or if you open an account with a binary options broker. Then you can buy a contract for this basic asset and try to earn money on it.

We have figured out what the underlying asset is. Now let's go to the description of the process of working with them and their features. Before you start buying binary options, it is recommended to get acquainted with what binary options assets are offered by a Forex broker. As we noted above, all companies, without exception, work with four types – currency pairs, stocks, indices, and raw materials.

But do not rush immediately into the abyss of trading and try to buy everything. It is better to decide for yourself with several types or even units and only then start working. Each underlying asset has its own characteristics and the first thing to do is to study them.
Trading stocks and indices

basic asset

This is one of the most popular types of binary options trading. The basic asset on the stock allows you to earn on the securities of well-known companies. You can, for example, to buy shares of Apple or BMW. Of course, not the shares themselves, but only the contract for them. But there is no difference in this case, since you will work and will be able to earn income from these securities.

It should be noted that in binary options trading, you do not get any rights to the stock. That is, you will not become its holder even while you have a binary contract. You will not be able to claim dividends and other benefits.

However, you will be able to claim a profit if the contract condition is met. For example, you expect Gazprom's securities to rise in price in the next five minutes. You buy an Up option with expiration in 5 minutes. The underlying asset in this case is Gazprom's securities.

The same rules apply in binary options analysis. It is important for you to know what the price of binary options assets will be after some time. Accordingly, you will have to analyze Forex charts and read the news.

In addition to stocks, you can also trade indices. They are derivatives and combine companies by specific industries or profitability. The underlying asset of an index option is subject to all the same rules as for shares. You need to analyze the market and study the news.
Forex Currencies

No less popular base assets are Forex currency pairs. The foreign exchange market is in high demand among traders. You can choose both the main so-called majors and crosses pairs (currency pairs that are quoted without the US dollar).

To analyze these assets are used all the same tools that are used to predict future actions. First of all, Forex traders look at the chart and work with various indicators. Some people prefer news trading.
Commodity

This category is not very popular among traders. Recently, however, there has been a significant increase in interest in the oil trade. And no wonder, because in the market, this asset attracts the attention of investors and speculators. It is quite natural that interest in oil has become quite high among binary options traders.

As you can see, the underlying assets of binary options are very diverse. This is one of the advantages of these contracts. You can work with most of the world's markets at once and earn income from speculation.

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