What do Asset Class and Underlying Market Mean?

In trading, an asset can be anything of value which has a price:

  • Dollar bill
  • Bushel of corn
  • Share of company stock
  • Bitcoin
  • Barrel of oil
  • Btock index futures contract

Assets are the basis of a derivative’s value and are thus called underlying assets or underlying markets. Even a number like the Federal Reserve's interest rate can serve as the underlying asset of a derivative. In fact, you can trade that rate on Nadex. In the week before every meeting of the Federal Open Market Committee (FOMC), Nadex offers a binary option on the Fed Funds rate and whether it will go up, down, or stay the same.

Derivatives are financial instruments whose value is based on the value of some other underlying asset. Binary options, spreads, futures contracts, and stock options are types of derivatives.

The binary option or spread's price reflects the underlying asset price

The price movement of the underlying market impacts the derivative. For example, if the price of a barrel of oil goes from $50 to $55, the value of a binary option based on that underlying asset would also tend to go up. The underlying asset in this case is the crude oil futures contract for the current front-month. 

The exact increase in the price of the derivative, the binary option, isn't predetermined by a fixed formula or decided by Nadex. The price of the binary is decided by the buyers and sellers themselves.

Because a barrel of crude oil is now worth $5 more, it makes sense that the binary option based on that asset would also be more valuable. Sellers will demand a higher price for it and buyers will be willing to pay more. 

It's important for traders to have accurate price data so they can be sure they are seeing the true price of the underlying asset. Because Nadex is CFTC-regulated, price data comes from trusted sources. 

Nadex offers trading on 29 assets in five asset classes

  • Stock indices: Dow®, S&P 500®, Nasdaq 100®, Russell 2000®, China A50®, FTSE 100®, DAX®, Nikkei 225®
  • Commodities: gold, silver, copper, crude oil, natural gas, corn, soybeans
  • Economic Events: weekly jobless claims, nonfarm payroll, Fed Funds rate

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