Trading Binary Options Indices: Facts
The concept of index (plural indices) in trading refers to a statistical measure of change in the overall performance of a given control group formed by individual companies. Before you start throwing eggs and rotten tomatoes at me, let me assure you that I will explain it again, this time using normal English because the first sentence makes my head spin too. Ok, one the most known, traded and talked about indices is the S&P 500 (Standard & Poor’s 500). This index contains 500 large and publicly traded American companies and its value is derived from the stock prices of each one of those companies. Each company has a different weight in the overall index value and this weight is determined in our case by Standard & Poor (S&P). The index value will fluctuate up and down based on the performance of the companies contained and it serves as a measure of short term overall economic health for its respective country. When I say “for its respective country” it’s because there are different indices for different countries: the most prominent ones for the USA are S&P 500 and Dow Jones; FTSE 100 for the UK, the DAX in Germany, CAC in France and Nikkei for Japan. These are just a few examples and because they are one of the most frequently traded assets, Binary brokers offer an impressive variety of indices for trading. The trading hours can be different from broker to broker and it’s always better to check with your broker’s Asset Index to find out the exact times.
Trading Indices: Effects
Trading indices through vanilla options or futures contracts would require huge amounts of capital and unfortunately for the regular guy like most of us, that is not always available. As a result, brokers started to offer Binary options on indices which are a much less riskier ways of profiting from their fluctuations. And speaking of fluctuations: what affects their movement? Like I said, indices are based on the performance of several large companies and all these companies are publicly traded. If they are publicly traded, then they have stock prices, right? That’s exactly what influences indices: the stock price of the companies in it. Then going even deeper, a company’s stock price is influenced by its overall performance and also Supply and Demand. Indices are also a measure of the overall state of the economy so in periods of an expanding economy, the indices in that country are likely to go up and vice versa for periods of economic regression. From a Binary point of view, the actual steps for a trade are the same as for any other asset. The principle is also the same: if according to your analysis the asset will go up, you will select Call and if you think it will go down, you will select Put.
The information about popular indices is widely available and almost every time you hear talk about the financial market, S&P, Dow Jones or FTSE are probably mentioned. Any reputable broker will provide you with live news, keeping you updated on the major headlines. When trading indices we must pay extra attention to events like powerful storms, hurricanes, earthquakes or even terrorist attacks because these kinds of events have a great impact on a country’s economy and consequently on indices.
My Trading Experience with Indices
We all have trading stories and today I am going to tell you one of my own… it’s rather a small discovery I came across by accident. One day I was trading the S&P… nice Call after a big drop that resulted in a bullish divergence. I’m not a big fan of trading reversals and I prefer to go with the trend, but this divergence was too good to miss. Once I place a trade I don’t like to watch it and bite my nails until expiry time and according to my habit, I selected the Call on S&P and started looking at other charts to see if I could spot another good opportunity. The first chart I looked at was EUR/USD… and then it hit me: the EUR/USD chart resembled a lot like the S&P chart. It had almost the same drop and bullish divergence was forming, but while my Call on S&P was already moving into profit territory, this chart was looking like it was just getting ready to go up, following the movement of the S&P. I don’t know if it was a rushed decision, but I decided to place a Call on EUR/USD as well. Fifteen minutes later it proved to be a good decision as both my trades closed In the Money. So in this case, EUR/USD followed the movement of the S&P, I doubled my profit and I was now sitting on my couch with a big grin on my face thinking if it was just an isolate occurrence or something that I could repeat in the future… well, time to wipe the smile off my face and start to back test the phenomenon.
High Profile Indices Info and Trading Tips
S&P 500 Overlook
Trading Exchange: NYSE, NASDAQ, NYSE Amex
Trading Hours: Five days/week, during the trading hours of the above mentioned exchanges (9.30 am – 4.00 pm ET/EDT usually). Your binary broker might have different trading hours for this asset so check with them for the exact times
Brokers offering Binary Options on S&P 500: Almost all Binary brokers offer binaries on S&P 500
My Advice on S&P 500 in 50 Words: The index is affected by the common stock performance of the 500 companies contained by it, but different importance is given to different companies. When trading S&P 500 it would be wise to keep an eye on extremely large companies like Apple, Google or Microsoft. Their performance will most likely affect the index more than a less known company.
Industrial Average Overlook
Trading Exchange: Components of the Dow can be traded on NASDAQ OMX and NYSE Euronext. Other Dow derivatives can be traded on the Chicago Board Options Exchange
Trading Hours: Five days/week, during the American session. Check your broker’s Asset Index for the exact trading hours
Brokers offering Binary Options on Dow Jones Industrial Average: Most Binary brokers offer binaries on Dow
My Advice on Dow in 50 Words: The Dow consists of just 30 large cap publicly traded American companies. Being composed of only 30 companies, it can be easier to trade sometimes because we have to be well informed about fewer companies and the importance held by one company’s stock price within the index is greater.
Keep discussing Indices on our Forum <- Click Here