Index or Indices Trading is one of the ways you can trade on the global financial markets utilizing the binary options trading instrument. The most influential indices to consider are: Dow Jones Index (Established 1896), which was soon followed by the S&P 500 (Est. 1923), the NASDAQ (Est.1971) and the FTSE 100 (Est.1984). The daily news for these indices rules the financial headlines, and influence the decisions made by fund managers as well as the individual investor.
Probably the easiest way to explain how trading on indices works is to use an example. For example, if you are interested in trading on the Dow Jones index, for instance, you need to study the analytical data in order to determine the potential price movement within a specific timeframe. Once you have made your decision, it is time to place your trade. Your success depends on your prediction and whether in the outcome the value movement followed your prediction.
What are indices and securities?
indices offer great opportunities to make profits from binary options. A financial market index is an indicator or statistical measure of change in a securities market. In the case of financial markets, stock and bond market indices consist of a portfolio of securities representing a selective market or part of the stated market.
For the uninitiated, a security is a financial instrument which represents the ownership of a particular stock or bond, or in the case of options trading, it represents the rights to the ownership of a particular stock or bond. In summary, a security is a commutable, transactional financial instrument that represents some sort of monetary value. In a nutshell, a security represents an investment and a means by which companies can raise new capital. Companies generate capital through investors who purchase securities when they are initially issued.
Each financial market index has its own method of calculation. In most cases, the relative price movement of an index is more important than the actual value of the stated index. In layman’s terms, investors are more interested in the day to day movement of the index value than the index value itself.
Binary Options Indices Trading
Before we get to the specifics of trading on the world’s top indices, let’s recap what binary options trading is. Binary options trading is a form of trading on the global financial markets where you only have two options. The word binary means “having two parts.” You also trade on the price movement of an underlying asset. You do not buy or sell these assets.
In its simplest form, all you need to do is predict whether the price of an underlying asset will go up in a specified timeframe. If you think that the price will go up, you place a “Call” and, if you think the price will move downwards during the specified time, you place a “Put”. If your prediction is correct, you are “in the money”. Conversely, if your prediction is incorrect, you are “out of the money”. In order to accurately predict the price movement of an underlying asset, you need to become more familiar with it by doing some research into its price movement trends as well as the general market trends. Once you are certain you know which way you think the price will move, then you will place your trade.
Trading on Indices
Indices make up part of the binary options trading bouquet that registered, regulated brokers offer. You trade on these indexes in the same way your trade on any other underlying asset. There are many advantages to trading indices versus trading individual stocks. The first is that indices are much more diversified and therefore carry less risk than trading on individual stocks which can sometimes present surprising price movements. For instance, having your binary-option trade on the entire index instead of an individual stock, means you are spreading any risk of there being an unpredictable price movement across the whole index. Indices have a general trend that reflects the sentiment of that entire market. Binary options are wonderful for speculating on Indices as the general movement is usually consistent and more readily predictable. Therefore, indices offer great opportunities to make profits from binary options.