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Gaining a better understanding of the stock index markets can open up new trading opportunities, especially when you learn to trade binary options contracts. This can make stock indices more accessible to traders who don’t want to spend large amounts of capital buying shares.
(Learn more about binary option contracts based on stock index futures, what they are, and how to trade them on Binary Options Broker Reviews Click here)
Types of stock indices
Stock market indices measure the value of a section of the stock market, via a weighted average of selected stocks from particular companies. These companies are usually selected from a certain industry or market sector.
It’s very important to note that there are various stock indices that serve different purposes. There are the cash markets such as the S&P 500 listed on the New York Stock Exchange (NYSE). There are also futures markets such as the E-mini S&P 500® listed on the Chicago Mercantile Exchange (CME). Plus, there are exchange-traded funds (ETFs) and options indices.
On many brokers, when trading a binary option on a stock market index, you will always be trading a contract based on the stock index future. It is very important that any analysis done is conducted on the correct underlying market.
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WHAT is A STOCK INDEX BINARY OPTION?
A binary option is a financial instrument that enables traders to speculate on markets without owning the underlying asset. A binary option based on a stock index future is a contract used for speculating on a particular stock index, such as the futures derivative of the S&P 500 or the NASDAQ 100. Traders buy or sell binary options depending on whether they think the underlying market will move up or down.
What do you need to know before speculating on the stock index markets?
Many external factors affect the performance of stock indices. You need to know about these when trading binary option contract, anything that affects the performance of stock indices may also affect your market predictions.
Some of the main factors that can affect the performance of stock indices are:
The way investors feel about a market will directly affect their actions, which in turn can have an effect on stock index prices. If investors are losing faith and selling stocks, this will cause prices to drop. If other investors see this as an opportunity and buy stocks, then prices will rise again. A general awareness of market sentiment can help you trade binary option contracts more successfully.
Any major news events affecting companies that feature on a stock index should be a key consideration for traders. Keep an eye out for news concerning mergers, acquisitions, and earnings. These can all potentially have a major impact on stock prices, which in turn can affect the overall index.
Changes to rates implemented by governments can affect companies and have a bearing on share prices. Remain aware of new policies and rates when you’re trading.
You need to take these factors into account when trading binary option contracts based on stock index futures, as they will likely affect the predictions you make and the strike prices you choose.
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