Risk Assets and Binary Options

Risk Assets and Binary Options

The volatile assets whose price rapidly rises or falls are called risk assets. Unfortunately, any asset can be a risk asset; this is the nature of the stock market and the economy in general. An upset of fear in one part of the market can have huge consequences for a different part of the market, causing huge and unexpected changes.

Let’s try and get a better understanding of what risk assets are as opposed to normal assets. Normal assets are a market source that can be turned into cash because they have value. Not unlike a person’s other assets, such as a house, car, bank account or jewelry; the amount of value a market asset has can go up or down based on its current market price.

The biggest difference between a person’s normal assets and market assets is that when a person goes to liquidate a normal asset, they will get the agreed on price from whomever they are selling it to, thus they will know exactly how much they are getting and when. A market asset is not liquidated so simply; the price may change drastically in the short period of time between when you decide to liquidate the asset and the time the actual sale takes place. All this is what makes a market asset harder to put an exact value on because the market is constantly in flux. A market asset becomes a risky asset when it’s trend and price become very unpredictable.

So how do risky assets relate to binary options trading? We have said several times that one of the benefits of binary options trading is that you can profit when the market price of an asset trends upward or downward; this is unlike holding shares of market assets because you can only profit when their price is trending upward.

To understand this approach a little better it may help to know that many stock market traders will use this type of binary options trading to hedge their main trades. Whenever they buy a large amount of shares, they will be expecting those shares to rise in price. Of course, sometimes this does not happen. To prevent losing all their funds they will place a put option on the same shares. If the share price goes down, their put will pay out; if it goes up, their investment has been a good choice. Either way, the risky asset trade allows them to minimize any losses.

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