All traded assets in the world of binary options carry a certain degree of risk. However, the term ‘risk asset’ is used in specific reference to assets that display a significant degree of volatility in their market prices. The most common kinds of risk assets in general trading and in binary options include equities, high yield bonds, currencies, real estate and commodities.
When taken in the context of an investment held by an individual or institution, risk asset is used to refer to an asset that displays fluctuating prices as a result of changes in interest rates, credit risk, supply and demand, among other factors. Another common use of the term is in the case of equity in a company that is undergoing financial difficulties or is almost bankrupt. This is because any claims by shareholders rank below the interests of bond holders or creditors of the company.
Comparison of Risk Assets against Traditional Assets
In order to gain a better understanding of what a risk asset is, you need to first grasp the concept of an asset as a whole. An asset is anything that provides some kind of income to its owner. One common asset could be a rented house or apartment, which earns the owner a monthly income. Another class of asset is the stock of a company which is owned by a shareholder, such as shares in the petroleum giant, BP. So, what’s the difference between the two?
In the case of the rented house or apartment, the likelihood of the owner incurring losses is much lower than the chance of receiving rental income. In addition, the apartment owner already knows how much they will earn in advance, and even knows exactly when they will receive their money. Dealing in stocks is harder, since a person who owns stock has no way to know in advance if they will receive any income or when this may happen. In addition, there is also the very real possibility that they will actually suffer losses. This is exactly what happened to BP shareholders when a rig operated by the company was involved in one of the biggest oil spills in history in 2010.
Risk Options and Binary Options Trading
How do risk assets relate to binary options trading? Because the major distinguishing feature of binary options is the ability to profit from an asset regardless of whether the price rises or falls, if you are able to correctly predict falls in share prices, you will gain a profit, which would cover losses you suffer in case you hold stock in the same company. This is largely thanks to the large yield of binary options, which is 60 – 90% on average.
In short, risk assets can best be summed up as assets that have unknown returns in the future. The prices of these kinds of assets are highly dynamic and depend on a range of market conditions, both favorable and adverse. As a rule, the risk assets traded most by binary options traders are shares and securities as well as certain commodities.