Binary Options Education
Chapter 1 – The World of Global Trading
The first instrument is: Currency pairs
Currency pairs are currently the most traded assets in the world. They refer to the ratio between the currencies of two different countries. The first currency in the pair – the one on the left – is the base currency, while the one on the right is called the counter currency. In trades involving currency pairs, the trader buys or sells the base currency at the current market price, and then takes a profit or a loss according to the movement of the base currency relative to the counter currency.
In today’s market, not only currency pairs but also commodities and raw materials are traded, including metals such as gold, silver and iron, and agricultural products such as corn, coffee, rice and wheat.
A futures contract is an agreement which states that a certain product will be bought or sold at some time in the future, at a predetermined price. Oil has a potential for future profits, since as countries develop, the demand for oil grows higher and higher. The price of oil is mainly influenced by varying levels of supply and demand. Crude oil is the main source of energy in the world today, and has become more and more popular over the past 50 years among traders of various kinds.
Stock indices provide information about the performance of certain groups of stocks.
A stock index has a value that changes according to the total performance of the group of stocks represented by it. The index can be, for example, the weighted value of all stocks in the group. Indices can be invested in the same way as single stocks, with returns that are proportional to the change in the index.
Supply and demand form the foundation of economics – To understand this principle, we need to understand that as demand for an asset increases . or as its supply decreases . the asset’s price will rise, and vice versa.
The following is an example that illustrates this principle:
Let’s say a farmer has 5 regular customers. Each day, his chickens lay 10 eggs. One day the chickens only laid 5 eggs, although the same number of clients wants to buy eggs, there aren’t enough eggs for everyone making his clients more willing to pay more for each egg, resulting in an increase in the price per egg. In other words, the supply decreased (less eggs), but demand did not decrease, resulting in an increase in the value of the eggs.
This can also go the other way around:
Let’s say that one day, the chickens decided to lay 15 eggs. So now, the supply has increased, but the demand remains the same. In order to be able to sell all the eggs, the seller must lower the price of the eggs. In other words, the supply increased, causing a decrease in the value of the eggs.
Demand is also subject to change – for example, if one day the chickens lay their usual 10 eggs, but fewer customers come to buy them. The seller may find himself left at the end of the day with unsold eggs, requiring him to lower their price.
In other words, the supply remains the same, but the demand decreases, so the value of the eggs also decreases.
The following is an example from the global trading market: