Fundamental analysis is a technique for binary options traders which focuses on the basic economic influences which underlie all financial markets. These influences include government policy, monetary policy of central banks, employment, political instability and natural events. They are the major trend-setters as all of these fundamental drivers have the power to influence the sentiment of investors and traders. This sentiment creates long term trends in supply and demand for stocks, currencies and commodities and are therefore highly influential for those looking for longer-term binary options trades and for those investors wanting to trade in line with the current trend.
The importance of fundamental information for binary options investors
Some of the key fundamental drivers of currency markets are the interest rates which are set by central banks. These interest rates will determine how popular a currency is and whether international investors will want to purchase this. If the interest rates of a currency are high it is seen as attractive to these investors and the demand for this will rise against currencies with a lower interest rate. This is important for binary options traders to consider, especially during the meetings of central banks where even the slightest indication that rates may rise or fall will affect the fundamental demand, and therefore value, of a currency. For both long term and short term binary options it is worth considering the interest rate situation as this has a tendency to prop-up or push down a currency. Purchasing options in the direction of the general market sentiment will therefore be advantageous and increase the probability of success in some longer term investments.
Binary options and non-farm payroll announcements
An additional key fundamental event which many traders are told to avoid is the US non-farm payroll figures, released on the first Friday of each month. This single event has the ability to create high levels of volatility in the markets due to the fact that it is a measure of US employment and economic performance which affects the global economy. Strong US employment figures mean that the US economy is performing well and will positively affect exporting countries, global stock markets and riskier currencies. An announcement of poor performance will create negative volatility, pushing up the value of safe haven investments such as gold and government bonds as investors move away from riskier stocks. Again, for binary options traders, having a reasonable understanding of the market sentiment before and after the announcement of this fundamental data will help in making decisions to purchase binary options in line with the underlying trend.
Trading binary options in line with the underlying trend
For commodity traders, it is important to have a good grasp of fundamental analysis in order to ensure that purchasing gold, oil, copper and other soft commodities is in line with the underlying market sentiment. For binary options traders purchasing options for longer than the intra-day fluctuations in the price of commodities, these trends can be highly influential in the success of the trade. As we have seen, one of the main reasons why gold prices move higher is when investors become nervous. Gold has an intrinsic value and whenever poor economic data or political instability such as war or terrorism occur it tends to rise in value. Purchasing long binary options during these periods of instability would be trading with the underlying trend and increase the probability of these options expiring in the money. Having this in mind, for shorter-term binary options it is also worth taking this in to account and avoiding short investments in gold when the fundamentals suggest negativity in the equity markets or surrounding negative political events.
The effect of fundamental events on oil prices
Other commodities, such as oil, are also very sensitive to changes in fundamental market conditions. Due to the fact that the demand for oil is driven by the larger economies, any notification of poor performance by China, the US or Europe will create an expectation of reduced future demand. This will limit the possibility of price rises in oil and will result in the price for this commodity falling with demand. Ensuring that binary options in oil are in line with this underlying trend will also help to increase the probability of longer-term binary options expiring in the money.