Technical analysis and fundamental analysis are two important aspects of binary options trading, however there are differences between them. Here, we look at the basics of using fundamental analysis to be successful in binary options trading.
Fundamental analysis in binary options will help you to understand how different events in the market can affect your trading day. In involves studying an asset by weighing up all of the external and internal factors that may influence its market price. These factors may be various levels of data from global events to company information. It is also possible for events to be interrelated, affected several assets’ prices. Although it is virtually impossible for a simple trader to be able to fully understand each piece of released data, thanks to the internet, it is possible to focus on just a few chosen assets which can then be traded. While it is still essential to stay up to date with general world headlines and financial data for overall context, there are some specific areas to pay attention to when using fundamental analysis to inform your trades. These include:
The price of many assets can be influenced by weather events and natural disasters. For example, if a storm wipes out corn fields or poor weather affects tourism, this can cause an asset’s price to either plummet or rise dramatically.
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Political events all over the world are able to affect the price of a wide range of assets. Tensions, war or economic sanctions have a direct impact on market prices, and government policies like public borrowing or spending also has a role to play.
Sentiment can drive the financial markets, with pessimistic markets being reflected in an economic trend that turns downward. If consumer sentiment is high, they will usually spend more and this boosts other economic areas while fear can also see the markets plummet.
Any release of economic information can instantly affect the market’s direction. If a trader uses an economic calendar they can easily see the release times of important news and essential background information regarding the release. Some key data includes:
- GDP – the gross domestic product measures the total value of services and goods produced by a nation and represents the economic health of the country.
- Interest rates – a rise or fall in interest rates can impact upon a country’s financial markets.
- Retail sales – split into several categories, retail sales reflect consumer spending and is a major indicator of a nation’s economy.
- Unemployment – keeping an eye on employment figures is key to seeing how well or how poorly an economy is doing.
Important data is being issued all the time all over the world, and this creates movement within the financial markets and in turn, presents a multitude of investment opportunities for binary options traders. In order to benefit from economic data releases, an investor should use a good economic calendar which will help them to stay abreast of important upcoming events and announcements as well as keeping an observant eye upon the political and economic situation globally. By paying close attention to factors such as natural disasters and market sentiment, it is possible to make a reasonable prediction about the direction in which the market may turn.
It is, however, important to remember that in order to make the best use of fundamental analysis in order to trade news releases, it should also be used in conjunction with technical analysis. This gives the investor the best possible chance of achieving success and gaining a profit in their executed trades.
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