Fundamental Analysis In Binary Options Trading
It’s important to understand the difference between technical analysis and fundamental analysis in binary options trading. There are always arguments over which school should be used. Today we’ll be learning the basics of Fundamental Analysis in Binary Options.
Fundamental Analysis is the study of an asset by taking into consideration all the internal and external factors that have the ability to influence its price. These internal and external factors can be varying levels of data, ranging from company data to global events. Many events are interrelated, affecting the price of different assets and the different asset classes.
It would be near impossible for a binary options trader to know and understand every piece of data that is released. However, after choosing a few assets to trade it is possible with the advent of the internet, to really focus on the assets. Also to focus on the fundamental analysis and events which move them. It is still important to keep up to date with the more general financial and worldwide headlines too so that you place information into a much larger context but areas to look out for when applying fundamental analysis to your trades include:
1. Fundamental Analysis Type - Natural Events:
At a very basic level, assets like Corn, Soya and even Oil can be heavily influenced by natural disasters and weather events. Like with any asset, the laws of supply and demand apply meaning that severe storms wiping out the corn fields in the US will mean a shortage in the supply of corn, pushing its price higher. Some natural disasters are easier to predict than others – a rainy summer season in the UK or Europe will mean that the tourism money received is reduced which in turn hurts consumer spending and unemployment. The flooding in Thailand in 2011 had a major effect on the Japanese Yen, as Japan was unable to export its goods through its favored export route through Thailand.
2. Fundamental Analysis Type – Politics:
Political events can have a huge impact on the prices of many different assets and that includes war. The tensions in Iran over the last year or so have meant increased volatility for the commodity Oil. Iran controls the Strait of Hormuz which accounts for 33% of all oil transportation and as the world’s 4th largest oil and gas producer, when there is a change in the production and supply of oil by Iran because of increased tensions or economic sanctions this has a direct effect on the price of crude oil. The effect that politics can have on an assets price movement extends to governments too. Different governments have different polices which effect key areas like public spending, public borrowing and growth methods.
3. Fundamental Analysis Type – Sentiment:
The financial markets are often driven by sentiment with a pessimistic market reflected in a downward economic trend. When sentiment amongst consumers is high, they generally spend more boosting other areas of the economy. Fear drives the markets – investors fearing for the future of the Eurozone and the Euro will find other areas to invest in – such as the USD or Gold. It was Spanish debt inspired fear in July 2012 which saw the value of Euro plummet over 1% in one day and pushed the EUR/JPY down its lowest level since the year 2000 and the EUR/USD down to its lowest in 2 years. The reverse of that was when the people of Greece voted in a Euro-friendly government and the Euro rose nearly 2% in one day.
4. Fundamental Analysis Type – Economic Data:
The release of economic data can have an instant effect upon the direction of the markets. Data that is released by governments, companies and research agencies have different degrees of importance but can have a noticeable effect upon an asset. This is where the use of an economic calendar is hugely important to the binary options trader, as a good calendar will not just give the time of the release of important but it will also provide the background to the data release.
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