This is the financial instrument on which your binary option or spread is based. Assets are sometimes called markets. Asset classes included forex, stock indices, and commodity futures. Individual assets are things like the EUR/USD pair, Gold, or the S&P 500 index
The asset or underlying asset of any derivatives contract is what the contract is based on. The price movement of the underlying market impacts the derivative. A stock index binary option is a derivative based on a stock index futures contract. When the futures price moves it impacts the price of the binary option. The stock index futures contract is itself a derivative. It reflects the future expected price of a cash stock index.
Sometimes underlying assets and their derivatives are traded on the same exchange. In other cases they are traded in different locations. Either way, when the derivatives contract expires, the price settlement process uses the price of the underlying asset as the basis for the calculation.« Back to Glossary Index