Fundamental Analysis in Binary Options Trading I Binary Options Guides

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How to Apply Fundamental Analysis in Binary Options Trading

When it comes to methods of analyzing the market movements in binary options trading, most traders focus solely on technical analysis. This is mostly because binary options trading is relatively short term in nature, therefore fundamental analysis doesn’t seem very important as it does in a more traditional way of trading.

With that said, it is indeed crucial to use fundamental analysis in binary options trading as it offers a much wider perspective, especially in conjunction with technical analysis. The fundamental analysis evaluates a lot of internal and external factors such as company information and status, and big market events which can all affect the price changes, among many others.

Ignoring the fact that fundamental analysis has a potentially big impact in binary options trading means that traders are not able to take advantage of all the information that can be acquired through fundamental analysis. Doing both extensive technical and fundamental analysis before placing a trade should be seen as a natural step to maximizing the chances of achieving the best possible results.

In binary options trading, precision plays a big role. Using fundamental analysis can help traders make much more precise and consequently accurate moves that rely on much more than just technical analysis, which on its own as we saw, is not enough. Seeing that binary options function of the basis of predicting the asset price movement it is so important to keep in mind that a huge variety of factors can influence price movement. For this reason, traders are encouraged to use every possible available tool to help them make the prediction as accurately as possible.

Natural events in Fundamental analysis

Many of the underlying assets available on various binary options broker platforms are largely influenced by different natural events. Those events range from earthquakes, floods to other natural disasters.

What exactly does that mean and how important is that information for a binary options traders? Well, let’s say a huge flood occurs that directly impacts produce such as wheat or corn. It is expected that the event will cause the price of those grains to rise since now there may be a shortage on the market. That’s a pretty logical supply and demand situation. This information is something that all binary options traders should keep in mind as these types of natural events happen quite unpredictably, but when they do they usually have an impact on the market movements.

Obviously, some events can be predicted more easily and measures can be applied to minimize the potential damage. Others, however, are not so easily predicted which can cause the instability of an affected asset or multiple assets. For this reason, beginner binary options traders should be aware that every information about the market events and general global changes should be tracked seeing that they can and usually will have an important impact on the values of underlying assets.

Political situations in Fundamental analysis

Apart from natural disasters, there are other types of events that can influence market fluctuations. Political events are one of those that have a great impact on the global markets and consequently asset price movement. War, refugee crisis, oil, governmental changes, or any other type of event that has its basis in the political framework can potentially influence binary options traders and their binary strategies.

Traders need to be aware of those types of changes and how they impact the global markets in order to shape their binary investment strategies accordingly. So, it is our advice that traders keep track of the market news , especially big changes, so they can try and predict the price movement of a chosen underlying asset.

Economic data as a huge factor in binary trading

Economic data is also one of the factors that can have a great impact on the overall market fluctuations. When companies and governments release certain data to the public, that can have a varied effect on how binary options traders need to calibrate their approach to binary options trading. Economic calendar, that some binary options brokers offer as a tool, offers information on all important economic data release which can be of great help when planning your trading moves. Economic data that needs to be included in the analysis is namely Gross Domestic Product , interest rate, and unemployment rate. These are considered to be of the utmost importance to binary options traders and they should always be taken into account when planning your trading moves.

Gross Domestic Product

Gross Domestic Product is one of the key measures that indicates the economic wealth of a country or a region, by determining economic performance.

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Interest rate

Interest rate describes the amount of money that banks pay to clients, whether to physical persons or other organizations, as an incentive for saving their money in the bank. The higher the interest rates the higher the currency level of that particular country.

This makes the foreign investors want to continue to keep the specific currency as it rises. This measure is used to apply changes to the economic situation of a country. This is obviously important to binary traders if their preferred asset type is currencies. Even if you have decided not to trade currencies, it might be a good idea to track interest rate changes through news as they can potentially have an impact on other assets as well.

Unemployment rate

Unemployment rates are one of the measures that clearly and fairly accurately can show the economic status of a certain country if you are able to analyze it correctly. High unemployment rates obviously indicate a poor economy, which would by association mean that low unemployment means good, stable economy.

However, that is not necessarily the case. Low unemployment rates can also mean that their companies could potentially stop employing people if they face a crisis.

As we can see, the economic calendar along with its important measures can be of a significant importance when it comes to data that deals with market events.

This is something that most beginner traders will find hugely helpful for the trading process as it assists in organizing and developing an adequate financial strategy. It can also possibly help maximize traders potential for profit when it comes to binary options trading.

Fundamental Analysis in Binary Options

As we have established time and again, binary options trading requires different kinds of analyses that pertain to market sentiment and price movement. These analyses are based from the ones used in traditional trading. Since binary options is a direct derivative of the market, these analyses techniques can easily be applied when trading binary options. The binary options trader should therefore look into these indicators if he wants to continue making successful trades.

We have mentioned before that there are two kinds of analysis. The first being the elementary fundamental analysis, and the second being a more advanced technical analysis. Technical analysis refers to reading quantitative data to look out for trends and indicators that tell the binary options trader when is the right time to trade and what binary option to purchase. Technical analysis makes use of the different tools that binary options brokers provide in order to provide the trader with the right information.

Fundamental analysis, on the other hand, is what binary options traders use to analyze market news and sentiment to predict the future value of an asset. Fundamental analyses of the market so “fundamental” in nature as far as using the news to trade the markets is concerned because unlike the quantitative nature of technical analysis, this type is a qualitative measure to analyze world market trends. Different sources and tools are used for fundamental analysis, and every binary options broker should know how to employ the data that they gathered to yield meaningful information for their trades.

Global Landscape

The binary options trader needs to look into a global landscape. Countries that are regarded as major players in world economics and politics are to be considered. The economies of other countries are dependents on the performance of these countries. For example, in an effort to rebuild the global monetary system after WW2, the US came up with the system. This is a system of monetary management that established the rules for commercial and financial relations among the world’s major industrial states established in the late 1940’s. This is the first example of a fully negotiated monetary order intended to govern monetary relations among independent .

Since then, the US dollar has been the standard currency on which international trade is based. In the 2000’s, China has also started to become a big key player in the market. It has also assumed a similar role and its vast industrialization has placed a huge demand on certain assets such as oil. Countries in Africa have been dependent on China for a number of resources. In Europe, Germany has the strongest economy. This country has been dominant as far as bailing out troubled countries affected by the establishment of the Euro.

How does knowing the global landscape help in trading? Quite simply, periodic announcements from key players, countries and companies, in the market affect price change in the market. When they give out a statement concerning key economic and political events that have an impact on world economics, the binary options trader should always be an earshot away. The markets monitor these announcements very closely because they will impact the future of the world economy at any given point in time.

Depending on the outcome of a key announcement by a country or company, the market may react differently. It may either assume a positive sentiment or a negative sentiment on the economy and currency of the country making the announcement. This in turn will have a domino effect on the sentiment and outlook of traders in other countries whose economies are dependent to the performance of these major players. Once market trend has been formed based on a specific sentiment, binary options traders are now able to trade assets based on the trend and could either buy more of the asset or sell it off and move to safer investments.

This is the reason why the news has such a profound impact in the market. Human emotions play an intricate role in the movement of the market, and it is in the news where we find updates on these emotions.

News announcements can be classified based on the extent of their global impact on the world economy and asset sentiments. News can be , , or .

More often, binary options traders pay more attention to news. This is because announcements create a greater effect on the world market than news. But, it is possible for a news item to transition to news, depending on the prevailing economic factors. For example, the housing data and the GDP figures of Eurozone economies like Spain, Portugal, Ireland, Greece and Italy are factors. They hardly made impact on the markets a few years ago. But now, these data are now major market movers because the economic dynamics have changed and made these data very important in the assessment of the economic health of US and Europe.

Here are some things to look for in a country or company when doing fundamental analysis.

  • Gross Domestic Product (GDP)
  • Employment Data
  • Manufacturing Data
  • Reports
  • Consumer sentiment
  • Retail sales reports

Analyzing Deviation

Fundamental analysis studies some component factors to help the binary options trader get a feel of market sentiment based on global news items. These factors are the following.

  1. Consensus or the Expected Number — This number is based on a poll of leading economists who will give an average figure which they expect the news to conform to.
  2. Actual Number — This is the actual figure mentioned in the news release.
  3. Deviation — This is the difference between the consensus figure and the actual figure.

Traders look into these figures when using the news to trade the markets. The binary options trader may specifically look into the deviation to look for market surprises. In this situation, the deviation is much higher than the expected figure, either to the upside or downside. For traders, this gives a very good and reliable, tradable signal.

There are ways to measure the deviation to see if a deviation is tradable or not. Generally speaking, the deviation benchmark is obtained by comparing the expected figure and the previous number. The difference now serves as the benchmark to the upside and downside, and depending on how far above or below the deviation is from the benchmark, the market will react accordingly.

Using the news to trade the binary options market will depend on how the trader uses the information. No matter how the trader uses the news, global markets will still be affected by how humans in control of countries and companies move. This sentiment is what produces the greatest trading opportunities.

So, if you are a binary options trader, it would be wise to start watching financial news and subscribe to financial news websites. Meanwhile, we will. continue to provide you with help as you start profiting from binary options trading.

Fundamental Analysis

Besides technical analysis, fundamental analysis is also considered to be very significant in binary options trading. It works on principle that it evaluates all important factors that can influence the price, both internal and external. Those factors include data, ranging from company information to the big global market events. Some events affect asset price more intensely than with some other underlying assets.

For traders it can be difficult to monitor and follow all the time all relevant market news in real time. It is just too much information. However, it is recommended for traders to choose an asset and focus on one and use specific trading strategies to achieve success while trading binary options. Further in this article, traders from South Africa can read more on what type of events on the financial market, can fundamental analysis be applied.

Fundamental analysis based on natural events

A lot of underlying assets, such as corn, wheat, soya, oil etc can be at large extent exposed to market changes, influenced by different natural events, such as floods, earthquakes, hurricanes and other disasters. So in case of a flood, there will ocurre issue with wheat, let’s say. It will result with supply shortage and therefore, price of wheat will be higher than before the flood. It is pure supply and demand. Some natural events is easier to predict while other are more difficult which can finally result with a big market trends and instability of a particular asset. Back in 2001, when huge flood happened in Thailand, Japanese Yen was extremely hit with this disaster and Japan was not able to export goods to Thailand. This is an example of how natural disasters can have a large impact on a wide range of assets and change current trend without having time to prepare yourself for the upcoming events.

Fundamental analysis based on political situation

When you participate on financial market, political events can largely influence on price direction of particular asset. These political events can include war or sudden change that happened. For example, oil is affected due to tensions in Iran and that situation has increased volatility of oil commodity on the market nowadays. Changes in governments of some countries can also influence in price movement of certain asset; stock, currency, commodity or index. All these elements have to be taken in consideration before placing a trade because market situation can happen in any moment and traders should be aware of that fact. This is why advise our readers to read market news and try to predict will a particular asset be more or less affected on financial market.

Fundamental analysis based on economic data

Besides natural and economic events, release of different economic data can also influence on price movement of particular underlying asset. Different data, released from companies and governments have a wide range of importance levels for traders in binary options industry. In situation like this, traders in South Africa mostly use economic calendar to keep on track all relevant economic and financial data, that are being used in the trading process. A good quality economic calendar will provide traders a complete review of economic data release. Most significant data include GDP, unemployment and interest rate.

GDP

GDP stands for Gross Domestic Product and it is known as key indicator of economic health. GDP measures a total value of goods and services on a national level.

Interest rate

This is an amount, which banks pay to people, businesses or other organizations for keeping the money in the bank. Interest rates are used by central banks in order to change economic situation. As a rule applied, higher rates mean higher currency level as a rise in that country’s rate makes is more appealing and worthwhile for foreign investors to hold on a particular currency.

Unemployment

As on of the key indicators of fundamental analysis in binary options trading, unemployment can show exactly how good or bad and economy can be. It only requires to monitor unemployment rates to get the bigger picture of a particular economy. For example, economies who have low unemployment rate are doing very well, but their companies can face with a crisis and stop hiring people. This is seen as bad sign for this one economy. Once again, economic calendar can be of great help and will provide you the latest information on important market events. This is especially useful for traders beginners who can use economic calendar to turn their trading process in a profitable binary options trading that can assist traders to maximize profit when trading binary options. Fundamental analysis can be of great assistance during trading process.

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