Choosing an asset is an important step to becoming a successful trader. There are a few things you need to know, though.
How to choose an asset: What you have to watch for
Time zone implications
The first and most important aspect you have to consider when choosing an asset is the time zone the asset is traded in. Trading times vary greatly for each asset type.
Stocks are traded in their home markets. This means, you can only invest in a binary option based on a stock when this stock’s home market is open for trading. When this stock’s home market is closed, there will be no price movement for this stock. Therefore, you cannot invest in a binary option based on this stock.
Depending on where you live, time zone implications can make some stocks almost untradable for you. To trade American stocks, Asian traders would have to get up in the middle of the night. The same applies to American traders wanting to trade Asian stocks. Most traders don’t want to spend all their nights from now on trading binary options. Therefore, they have to make sure the asset they are choosing to trade is available during a convenient time. With stocks, this mostly applies to stocks from your home market.
Currencies, on the other hand, are traded on every major stock exchange around the world. Therefore, there is always an open market. As a result, you can trade currencies continuously from Monday to Friday. The same applies to commodities. Commodities, too, are traded on every major market and therefore available from Monday to Friday.
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Choosing a high volume or low volume trading period
Some brokers limit the trading times for commodities and, to a lesser extent, currencies to somewhere around 16 to 20 hours per day. This has to do with the number of traders in the market at any given time. While there is always an open market for currencies and commodities throughout the week, the number of active traders varies strongly based on how many major markets are open for trading.
When the European and American markets are open for trading, volume is high. When all major markets are closed for trading, on the other hand, volume is considerably lower. Both types of market environments show different trading characteristics and are ideally traded with different trading strategy.
Stocks, on the other hand, are only traded on their home market. Therefore, they do not show the same characteristics as currencies or commodities. Instead, their market environment is influenced by having an opening and a closing time. Around these times, traders, especially day traders (traders who do not hold positions over night), will behave in special ways that influence the market.
Depending on your trading strategy, you should choose a trading environment that either shows the characteristics of stocks or the characteristics of currencies and commodities. Traders with a gap strategy, for example, should invest in stocks. Traders with a long trend strategy, on the other hand, should consider currencies.
Knowledge is a double edged sword. Depending on where you are from and which asset you are trading, you either know a lot about the asset you are looking at or you know next to nothing. Some traders try to use their knowledge in their advantage, and some traders only trade assets which they know nothing about.
If you are born in America, for example, you will have natural contact with most of the American assets in which you can invest with a binary option. Some traders argue that this knowledge gives you an inherent advantage. You know how the company is doing, which is why you already have a rough idea of where its price can go.
Some traders, however, argue the exact opposite. They say that technical analysis is based on cold-blooded chart analysis, not on preconceived notions about a company. Therefore, they say that the less you know about an asset, the better. Then, your knowledge does not interfere with your technical analysis.
A trader who considers knowledge an advantage will trade assets from his home market to invest in, his own currency, or commodities he is familiar with. An American trader might invest in Bank of America, the US-Dollar, and oil. A trader who thinks knowledge is a disadvantage will trade assets that are from a market he knows nothing about. An American trader might invest in Chinese banks, the Australian Dollar versus the New Zealand Dollar, or Copper.
Unfortunately, there is no right and wrong in this matter. As a trader, you have to decide for yourself which approach to follow. We recommend you try both approaches and stick with the approach that works best for you. Make sure to keep a detailed account of your trading results to arrive at a good decision.