By trading binary options using commodities as their underlying assets, you have the exciting opportunity to speculate on products such as oil, gold, silver and copper, etc. There are many advantages to trade commodities using binary options as opposed to doing so directly. For example, when you trade commodities directly, you have to evaluate the magnitude of their price movements. In contrast, using commodity options is simpler because you just need to focus on determining in which direction price will advance without worrying about the size of the movement.
However, despite this attractive simplification you must still adopt caution because commodity trading involves much higher levels of volatility compared to other asset types, such as stocks and currencies. For example, the oscillations of gold prices can exceed twenty times the size of the equivalent ones of the EURUSD currency pair generated within the same time-period. This attribute presents you with a great potential for large profits but with a significantly increased risk exposure.
Consequently, the key to success when trading commodities using binary options still depends on careful analysis and research. For example, if you are assured that the price of gold will rise constantly over the next few months then you could confidently open a ‘call’ binary option using gold as the underlying asset. Similarly, if you deduce that a new surge in the global production of industrial and electrical products is imminent involving a large increase in the usage of electrical copper wiring, then you should activate a ‘call’ binary option utilizing this metal as the underlying asset.
The importance of keeping up-to-date with all the new developments influencing commodities is prominent if you want to be successful at trading binary options using them as underlying assets. Basically, you must develop an appreciation about when to expect the prices of commodities to shift either downwards or upwards. You will have to undertake extensive research in the global demands and trends of all commodities that interest you, albeit if they are precious metals, petrol or natural gas, etc.
Fundamentally, the actions required to trade binary options based on commodities are exactly the same as all other asset types. The only major difference is that you will need to undertake more extensive research so that you can take advantage of the higher levels of volatility produced by this type of asset class in order to optimize your profits and minimize your risks.
However, although there are increased risks involved, there are also significant opportunities to gain worthwhile and consistent profits by using binary options to trade commodities as opposed to trading this asset class directly. This is because your call options just need to finish at least one point higher than their opening prices at expiry time for you to be in-the-money. Similarly, your ‘put’ options only have to be at least one point below their strike price for you to receive a payout.
In addition, binary option brokers provide a comprehensive selection of expiry times ranging from as low as a minute to in excess of a week. Consequently, if you are confident that a commodity will appreciate in value over an extended period, then you have the prospect of executing a series of very profitable ‘call’ binary options. You can also increase your ability to make even greater profits by mastering binary option strategies such as the following one.
Commodity stock affect trade is considered by many experts to be a very powerful and effective binary options strategy. Fundamentally, the concept is to exploit the impacts of the price variances of commodities on the share values of companies that trade them. For example, significant changes in the price of aviation fuel can seriously influence the share values of airline companies.
Consequently, if you know that an increase in the price of aviation fuel will occur soon then you could initiate a ‘call’ binary option with this commodity as its underlying option. You could also hedge this bet by activating a ‘put’ binary option using the shares of an appropriate airline as its underlying asset since you are expecting them to fall in value. By doing so, you would provide yourself with the opportunity for a double payout.