Binary options traders will often choose indices as their underlying assets in their trading activity. While there are numerous indices to choose from, there are some that tend to be more important than others when trading in this particular market.
Trading stock market indices is a popular way to profit in the binary options arena. There are several advantages to trading indices versus trading individual stocks. One such benefit is that, whereas individual stocks can carry a great deal of surprise if they should rise or fall rapidly, indices are much more diversified, and therefore do not carry as much “unsystemic risk.”
The Advantages of Trading Indices with Binary Options
When trading with indices, traders will gain exposure to all of the stocks (or other financial vehicles) that are included in the index, yet without the need to purchase each one individually. This can be a real benefit to the trader from a cost standpoint, as well as for diversification. Speading the risk of trading an entire market can be benficial as the largest stockmarkets often have a general trend which can be traded, as a reflection of the overall market sentiment. Binary options are an excellent way of speculating on this general movement throuhgout the trading day as indices often sustain the general sentiment to rise or fall consistently and therfore provide good opportinities to trade options in this general direction.
Additionally, trading indices allow traders to take advantage of 24 hour trading. This is due to the fact that stock markets open in different timezones and follow the sunshine around the globe. This means that there will always be an open stock market and, therefore, most likely an index available to trade no matter what time it is in your timezone. Indices again provide a much easier route in to trading unfamiliar stock markets. It may be difficult to choose an individual stock to trade in an unfamilliar stock market, but the index will most likely be more familliar and less volatile and requiring a lower degree of knowledge of that market.
Many technical traders enjoy trading indices because of the way that they perform in regards to technical levels and patterns. Historically, indices respect major technical levels, round numbers and chart patterns consistently and these provide excellent opportunities to trade binary options. Many levels within an index, such as fibonacci and support and resitance are also adhered to which help traders to see where the index is likely to move higher or lower. One of the most influential of these are the large round numbers, such as the 10,000 level for the US Dow Jones index and the 6,000 mark for the FSTE 100. These numbers are very rarely penetrated at the first attempt and attract many but or sell orders depending on which direction price is approaching this level.
What are Some of the Most Important Indices that are Traded in the Binary Options Market?
Depending upon the trading website/platform that is chosen by an individual, there are various indices that are available for trading. Some of the most important indices that are traded via the binary options arena include:
- Dow Jones Industrial Average (DJIA) – The DJIA is a price-weighted average of 30 individual stocks from both the New York Stock Exchange (NYSE) and the NASDAQ.
- S&P 500 – The S&P 500 is a U.S. stock market index that contains stocks of 500 large corporations that are located in the United States.
- CAC 40 – The CAC 40 (.FCHI) is the French stock market index that tracks 40 of the largest stocks in France based on their market capitalization.
- CAC Future – The CAC Future, or FCE, is a market that is based upon the CAC French stock market index.
- DAX – The DAX (.GDAXI) is a stock market index that is representative of 30 of the largest and most liquid German companies that are traded on the Frankfurt Exchange.
- FTSE 100 (.FTSE) – The FTSE 100 is a stock market index that is representative of 100 large British companies that are traded on the London Stock Exchange.
- Hang Seng – The Hang Seng (.HSI) is an Asian index that is based on 41 of the largest companies in terms of market cap that are traded on the Hong Kong Exchange.
- Dubai (.DFMGI) – This index represents the Dubai Financial Market General Index. It consists of a cap-weighted price index that is comprised of stocks of listed companies on the .DFMGI.
- Tel Aviv 25 – The Tel Aviv 25, or TA-25, is an index that tracks the prices of shares of the 25 companies with the highest market capitalizations on the Tel Aviv Stock Exchange.
One of the brokers to trade indices is IQ Option, because it offers you a wide choice of more than 30 underlying indices.
Trade binary options on indices at IQ Option now!RISK WARNING: YOUR CAPITAL MIGHT BE AT RISK