Binary Options News
Traders buy or sell a currency pair or other financial instrument for various reasons. Some simply don’t like a product and because they can sell it, they simply do. Others, look at various indicators (trend indicators, oscillators, volume indicators, etc.) in the hope they can forecast the next move the market makes. These are technical traders.
Beside indicators, there’s a variety of trading theories part of the technical analysis world. The Elliott Waves Theory, Harmonic Trading, Drummond Geometry, Gann, and so on…all form a special part of technical analysis.
And then there are fundamental traders.
Fundamental Analysis in Binary Trading
Fundamental analysis deals with interpreting the economic data before taking a decision to buy a binary option. If traders think the piece of data is negative for the product they trade, they’ll buy a put option as its price should fall. On the other hand, if their analysis should be positive, they’ll buy a call option. The price should rise.
Binary options brokers offer different types of financial products, starting with currency pairs like in the Forex market and ending up with individual stocks, gold, oil, other commodities, indices like S&P500 and Djia in the United States, and so on.
However, besides the economic news, other news affects trading too. Geopolitical world binary options news move markets.
Think of elections in different parts of the world. For example, last year when the U.S. Presidential elections took place, the markets were strongly affected by the outcome. Or, when the United Kingdom voted for leaving the United Kingdom. The Brexit vote created large volatility swings on the market.
On top of this, natural catastrophes, like hurricanes, floods, and so on, or the start or end of a war…all these represent factors that affect financial markets. When trading, all of them fall under the same umbrella: fundamental analysis.
In trading, there’s no right or wrong as long as the trade ends up in a profit. As such, it doesn’t matter what the trading decision was based on, if a profit resulted. However, as a general rule, fundamental analysis alone doesn’t work in the long run. Neither only trading based solely on technical analysis.
A combination of the two is a must. Entering a trade must be the result of a due-diligence process between the two.
Binary Options News That Affect Currency Pairs
Most binary options products offered for trading are currency pairs. Hence, what moves currency pairs is important for the binary options broker too. This binary options news is similar to the ones affecting the Forex market.
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When deciding upon the direction of a currency pair, traders look at different news from the two countries that make the currency pair. For example, if you want to trade the USDCAD pair, you must consider the economic news from both the United States and Canada.
In a way, traders compare the two economies. If the economic data is negative or disappoints, this is negative for that economy. Hence, the currency should suffer.
On the other hand, positive news is bullish for a currency and traders will act accordingly. The news to be released is known in advance for the week/weeks to come. The economic calendar displays them all and it can be found with a simple Internet search.
The economic news is grouped into three categories: very important news, second-tier data and less important news. Of course, any trading decision that considers fundamentals looks at the news that makes the first category.
The value of a currency is given by its interest rate. As a rule of thumb, the bigger the interest rate is, the stronger the currency becomes.
In a way, this is normal. Everyone wants to own a currency that pays the biggest interest rate. It is like wanting to put your money in a bank deposit. As such, you’ll choose the one bank that offers the biggest interest rate for your money.
Central Banks and Interest Rate Decisions
For currencies, central banks’ decisions regarding the interest rate matter the most. If a central bank hikes or raises the interest rate, this is bullish for the currency. On the other hand, if it cuts the rates, the currency will suffer. As such, all traders do is to interpret the economic news in between two central banks meetings. This way they will have an educated guess about what the central bank will do next time it will decide on interest rates.
Central banks around the world meet regularly to decide the monetary policy for the currency they represent. Binary options trading strongly depends on what a central bank does with the interest rate and how the monetary policy changes.
The most important central bank in the world, the Federal Reserve of the United States, meets every six weeks, on Wednesday. The ECB (European Central Bank) meets every six weeks too, but this time on Thursday.
And so on, with every major central bank in the world having its own calendar. Volatility is low in the week before the central bank announces the rates, and spikes right after. Trading binary options should consider an expiration date long enough so that the volatility surrounding these events will not affect the outcome.
Inflation is part of every central bank’s mandate. For a capitalistic economy, a central bank keeps inflation below or close to two percent. Without a specific inflation level, an economy doesn’t have a healthy growth. Too much inflation and the economy is overheating, too little of it and deflationary pressures appear.
Central banks fight inflation by hiking or raising rates. When inflation falls, central banks lower rates. As such, traders look at the inflation data to anticipate the next move the central banks do. In economic terms, inflation is given by the Consumer Price Index (CPI). The CPI is released monthly for all the important fiat currencies. Different central banks use different “variations” for the CPI.
For example, the Federal Reserve of the United States looks at the core inflation data. It means it won’t consider the changes in prices of food, energy, and transportation. They are too volatile and distort the data.
Latest in binary options, the jobs data influences the way a currency moves. In the United States, the jobs data is even part of the Fed’s mandate. The Federal Reserve’s mandate is dual: to keep inflation below or close to two percent and to create jobs. Because the Fed sets the interest rates for the dollar (the world’s reserve currency), the jobs data in the States is closely watched.
The actual data comes on the first Friday of every month and is called NFP (Non-Farm Payrolls). The number shows the change in non-agricultural jobs. The higher the number is, the better for the currency. When it misses the expectations, the currency falls.
As such, the unemployment rate shows the state of the jobs market and traders will anticipate the next Fed’s move on rates based on what the jobs data shows.
Still, on the jobs data, other indicators offer an educated guess about the state of the market. ADP (private payrolls in the United States), labor participation rate, the employment component in the ISM Manufacturing and Non-manufacturing release, Initial Jobless Claims, Continuing Claims, etc.…traders look at all these to have an idea about the Fed’s next move on the dollar.
The jobs data brings volatility in other currencies too. When the unemployment rate rises, the economy suffers and the central bank will start stimulating it to recover. It will cut the rates and even go on with further stimulus, as it was the case lately in many parts of the world.
PMI’s are Purchasing Managers Index releases. In fact, the release is a survey. It considers various aspects of an economy and the result is compared with the fifty (50) level. The PMI releases look at the economic sectors in an economy. The sectors differ in different regions.
For example, in the Eurozone, traders look at the PMI Manufacturing and PMI Services releases. The number shows the state of the respective sector. If the PMI Services release comes below the fifty level, it shows the services sector shrinking. That is not a positive economic sign and traders will sell the currency consequently.
The lower the number, the worse for the currency, and the other way around. The central bank will take note of the change and will cut or hike the interest rate accordingly.
In the United States, the survey is conducted by the Institute for Supply Management (ISM). Therefore, the releases’ names are ISM Manufacturing and ISM Non-Manufacturing. In fact, they’re identical with the PMI numbers, with the interpretation being similar too.
In other parts of the world, like Australia or the United Kingdom, the PMI Construction is released too. It shows the health of the construction sector and its interpretation is similar for traders.
Other Important Economic Data
In between two central banks meetings, traders look at the economic data to form an idea about how it may impact the interest rate. This is what makes the data being bullish or bearish for a currency. The GDP (Gross Domestic Product) shows the total value of the goods and services an economy produces. The higher the number is, the better for the currency.
The Retail Sales indicator shows the state of the consumer. Consumer spending is the engine for economic growth. As such, when Retail Sales increase, traders buy that currency.
These are just two examples of other economic news and how they influence trading. Every economic data represents just a piece of a puzzle for the trader in his/her quest to find out what the central bank will do with the rates.
The economic calendar is a free resource to use. Simply search the Internet for it and you’ll find out there are plenty of sources for it. The beauty of it is that the news is known in advance. In other words, before the start of the trading week, traders look at the economic calendar ahead to see if any high-impact news is due.
For binary options trading, this is especially important. Traders will adapt the expiration date for their options in such a way to avoid volatility when economic data hits the wires. Because the currency pairs represent the most popular financial products among binary options providers, then the news affecting them matters the most.
When trading binary options on other products, the news becomes more specific and selective. For example, if you trade a binary option based on oil, you should look at specific oil-related news like U.S. inventory levels, production levels in the OPEC (Organization of Petroleum Exporting Countries) countries, OPEC meeting dates, and so on.
But mostly, financial markets move based on what the central bank does with the interest rate. Even the stock market depends on the interest rate levels, just to give you an idea about a financial product that is not a currency pair.
Fundamental analysis is made of all economic news and data that can potentially affect markets. It should be part of any trading decision and, together with technical analysis.
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