Fundamental Factors For The Binary Options Trader
For many traders of binary options, technical analysis is the key method by which they will identify and time their trade entries. It provides one of the best ways in which you can time entries and is particular suited to the short term positions that are taken using binary options contract.
However if you want to enjoy the highest level of success as a trader then it is important that you also factor in fundamental analysis when assessing opportunities to take on your account. These form the core of what determines both short and long term trends and an imminent release of news or figures can be enough to unsettle the market and catch out the unwary trader.
There a number of key reports that are released each month which are important to factor into your trading plan. These are presented ahead of release on an economic calendar, so it will be easy to plan your trading around the times when data is expected to be released.
While the exact timing of these releases is important, the more experienced trader will recognize that often the market will anticipating these figures, long before they are actually announced. The more significant events such as the Non Farm Payrolls for example, can often dampen moves in the days leading up to the release. Many traders will simply sit out of the markets until the official figures are released.
To help reduce your trading risk, here is a list of the top fundamental factors that every trader of binary options should be aware of.
One of the biggest fundamental events on the news calendar is the Central Bank Rate decision. This determines the rate of interest which is paid on a currency and. The interest rate does not only hold important implications for movements in the currency markets as a changing rate is generally indicative of the underlying state of the economy.
To keep growth in check a Central bank will raise rates to temper growth or lower rates to stoke expansion. Watching out for rate announcements is essential for when trading both Stock and Forex binary options due to their reflection of underlying economic growth.
Inflation And CPI
Inflation figures are used to gauge price rises. For the trader they can provide an early indication of Rate changes and therefore it is important to keep an eye on these reports.
The two most common sets of data are the CPI (consumer Price Index) and the PPP (Producer Price Index). Of the two the PPI figure tends to more watched as it can provide an early indication of underlying price developments at the start of the economic chain (producer).
Gross Domestic Product
Otherwise known as GDP, Gross Domestic Product figures are often seen as a direct indicator of a regions economic growth. The snapshot of an economy that is given by these figures can therefore dictate economic expansion or contraction.
Figures tend to be present in a ‘year on year’ or ‘month on month’ format to allow for easy comparison to previous data. In addition to inflation rates, these figures tend to feed into Rate decision made by the Central Banks.
Employment and ‘unemployment’ figures offer an insight into the state of a country’s labor force. A high rate of employment will tend to indicate economic strength while a high number of unemployed is also likely to mean a greater burden on governments (less tax revenue, burden of state benefits).
Both figures are considered to be leading indicators of future economic growth with rising employment and falling unemployment indicating the potential for future expansion in the economy.
The Non-Farm Payrolls data is a US employment report which is complied each month by the US Bureau Of Labor Statistics. Released on the first Friday of each month it is seen as a barometer for worldwide economic growth, given the importance of the US economy in global affairs and therefore is widely anticipated by traders around the globe.
Figures from the report are compared to the last months date with an increase being generally dollar bullish and supportive of markets as a whole.
Trading around the time of the release can prove highly volatile and it is often good advice to site out of the markets until a few hours after the release, when the figures have been digested and a clearer indication of direction becomes apparent.
Other Fundamental Factors
The key fundamental events listed above can cause big swings in the markets. They are if you like, ‘the major’ factors to watch out for. Thankfully you can plan your trading around them with the use of an economic trading calendar which will allow you to check on upcoming scheduled events.
However if the main focus is on trading binary stock options, then you will also need to look for fundamental factors on a more ‘granular’ level. These are the news items that will affect sentiment on an individual stock rather than the market as a whole. This will include company news on trading performance, product announcements, regulatory news, results etc.
To track this sort of information there are several news wire services such as Reuters and news aggregator that you can use to follow company announcements. If you want to avoid any nasty surprises and also find good opportunities for profit then you should make it your task to reference these each day for any stock that you plan on trading on your account in the upcoming session.