The more leveraged a commercial product, the higher the risk. At least that's how it is handled in the financial industry. Therefore leveraged products belong to the highest risk class. It is not surprising either, because if you compare leveraged products with normal stocks, it becomes clear that at least stocks cannot fall below zero, while this is certainly true for some leverage products. However, it would be correct to say that it is not the underlying that falls below zero, but the value of the investment.
For example, if a trader invests in the DAX via CFDs and only deposits 1% security, currently around € 110, but its total capital does not exceed € 5,000, so the loss of the position can be higher than the existing capital. In the case of stocks, only the stocks in the portfolio lose value.
It is therefore not surprising that for traders of leveraged products such as binary options, risk management comes first and as one of the most important building blocks of a good trading strategy
Are binary options suitable as a diversification product?
Nowadays stocks definitely belong in a diversified portfolio. The monetary policy stance of many central banks is pushing investors into risky assets, including stocks and commodities or bonds that are at increased risk. At such times, leveraged products are increasingly in demand, as investors can use them to improve their performance. The following asset classes are currently of interest to traders:
- Equity Indices
- Industrial Raw Materials
stocks currently offer the trader very good opportunities. However, traders have to pick individual values that fit the current economic situation. In difficult times, i.e. economic downturns, stocks from the consumer goods industry are more suitable - in the area of food or household.
In the event of an expected turnaround, commodity stocks can become particularly interesting, as they increase the demand for commodities with regard to price developments anticipate. This knowledge can also be used to trade commodities, because commodity stocks can also be seen as indicators of changes in the commodities market.
Currencies are interesting either when monetary policy is extremely active, which is currently the case, or if countries are heavily dependent on the demand for raw materials. For example, this would currently affect the Canadian dollar.
Basically, it can be said that diversification with binary options only makes sense if options have a longer term. Then stock indices and currencies could be traded as options instruments with the same term. Raw materials or commodity stocks can also be used as an admixture. All of this, of course, taking conservative money and risk management into account.
Which instrument currently offers good opportunities?
The price for the crude oil grade WTI has been more than 70% in value since June 2014 lost. The decline in value can be justified with an ever increasing supply and stagnating demand due to poor economic performance, especially in the emerging countries and the EU. But a turnaround could currently be in sight. The ECB program stimulates investments, falling exchange rates stimulate exports. So the oil price could at least experience a major recovery in the near future, although it has to be said that the supply is still very high.
If you look at the whole thing on a technical basis, an attempt would be perfectly acceptable. The weekly chart clearly shows that the 10 moving average has now been broken and the weekly closing price was significantly above it. For traders, this is often a good signal for further upside potential.
If you look at the 1-hour chart, the trading opportunity becomes even clearer. The oil price broke out of its triangular consolidation on Friday and pulled back to the breakout line. This is also often a buy signal for the trader.
In summary, the following factors speak for the further rise in the oil price:
- An economic recovery
- ECB stimulation of investments
- Technical pattern indicates a trend reversal or recovery
- Oil stocks are bottoming out
- Euro is getting stronger
The following factors speak against the further sustainable increase:
- Oil supply still very high
- Demand not yet very strong
- Emerging countries like China still not over the mountain
- Strong US Dollar
2020 IQ Option Millionaire Strategy - Forex Vs Binary Option
Diversification using binary options can be advantageous for options with longer terms. For short to medium-term trades, stock indices and commodities such as oil would currently be interesting. The trading idea presented above could, for example, be implemented well with the broker BDSwiss.