With binary options, finding the right asset to invest in is one of the most important steps to becoming a successful trader. Especially for new traders, however, it is often a difficult task to find out how to choose an asset from the wealth of available options.
To make things easier for you and help you enjoy a successful trading career, we have created a guide, How to choose an Asset, on what you need to consider when you choose an asset.
For each type of asset, trading times vary greatly. Depending on where you live, this makes some assets difficult to trade, which is why time zone considerations should be at the top of your list when picking an asset.
The asset type that is influenced by time zone considerations the most are stocks. Each stock is traded at its home stock exchange. Since stock exchanges only open for 8 hours a day, there is a very limited time in which you can invest in each single stock. If you live on the other side of the world, a stock might be traded while you are in bed, thereby putting it out of your reach.
To invest in Asian stocks, American traders would have to trade in the middle of the night. The same applies to Asian traders who want to invest in American stocks. If you have to work during the day and have a family, spending your nights trading binary options is probably not an option for you.
Therefore, you have to pick an asset from a more convenient time zone. Depending on your daily routine, this could be an American stocks, which you can trade during the day, or a European stock, which you could trade in the morning on your way to work.
Indices share the same time zone limitations as stocks. With currencies and commodities, however, things are different. Currencies and commodities are traded on every major stock exchange in the world. During the week, there is always an open market that allows you to invest in currencies.
If you do not like the stocks you could invest in based on your time zone and daily schedule, currencies and commodities offer you an alternative with a better availability.
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Although commodities and currencies are available during the entire day, not every time is equal. Depending on which stock exchanges are currently open, the number of players in the market varies greatly. Consequently, the trading volume is much higher during times in which many major stock exchanges are open than in times during which all major stock exchanges are closed, thereby requiring fundamentally different strategies.
When both the European and American markets are open for trading, for example, trading volume is high. The Tokyo stock exchange is another big player. When all of these stock exchanges are closed, however, you can expect a much lower trading volume.
Most strategies have a clearly defined preferred trading environment. Most strategies that involve price formations work better when volume is high, but there are some strategies, for example trading gaps that work, best when volume is low. Depending on your strategy, you should choose an asset that offers the right environment at the time you trade it.
Stocks and indices also feature periods of high and low volume, but for different reasons. Because stocks and indices are only traded for a limited period of time every day, they have an opening and closing time. During these times, the market behaves fundamentally different, showing higher volume after earning and lower volume shortly before closing.
Combining knowledge and trading is a difficult topic. In how to choose an asset it is important to know that some traders think that knowledge about an asset is an advantage, some think that it is a disadvantage.
Traders that consider knowledge an advantage prefer assets that they know a lot about, for example stocks from companies that they have studied or the currency of their country. These traders argue that their additional knowledge helps them to predict what will happen, enabling them to anticipate the price direction more effectively than if they did not have this knowledge.
Other traders think that knowledge only is a distraction. These traders argue that technical analysis is the only way to predict what will happen in the market, and that knowledge only clouds your judgment. For example, if you think that a company is doing well, you might ignore the obvious signs that point to falling prices, thereby making bad investments and losing money.
In this matter, there is no absolute right or wrong. Whether you should invest in assets that you know or not depends on how well you can combine your knowledge and technical, you strategy, and whether knowledge stops you from making objective decisions.
Most traders can achieve the best results by testing their success with both types of assets and then staying with the type that they achieve the most success with.