Fundamental Analysis in Binary Options

The basis of a trade can be placed on the analysis carried out. Whether technical or fundamental, traders can still achieve success if they have a directed trading system. Although traders only need to estimate the direction of price movements to be able to get profit, analysis of price movements both technically and fundamentally still needs to be planned. Related to this, this article will discuss fundamental analysis that can be applied in trading in binary options.

Besides using technical analysis, binary options traders can also base their option placement on fundamentally conducted analysis. In general, fundamental analysis is carried out by observing market driving factors such as economic indicators and financial and non-financial news releases. This method is usually applied for long-term trading in the forex spot, because by listening to fundamental data that affect market movements, traders will be able to analyze outline price movements in a longer period of time.

Unlike forex spots, fundamental analysis for trading in binary options is more aimed at short-term trading. The focus of the analysis used here is trading news, where traders need to wait for the news results that appear to take an option position according to price movements after being affected by the release of data from the news. This is due to the way trading in binary options is done by estimating the direction of price movements. The absence of a stop loss also requires traders to be able to take advantage of the expiry time as well as possible, because the entire process of setting the risk is set before the trader places the option.

Many binary options traders choose to rely on trading news as the basis of their fundamental analysis. The anticipated data release in this case comes from economic indicators that have a major influence in generating volatility in price movements, such as GDP, benchmark interest rates, and employment data. For other markets, such as stocks and commodities, the observed indicators can be from more specific data such as company quarterly reports or other news related to price movements on certain instruments. For this reason, traders need to know the key indicators that can determine price movements on the instruments they trade. In this case, the core economic indicators that usually determine price movements in currency instruments will be explained further, considering the release of data from these indicators can also affect the price movements of other instruments and cause knock-on effects.

Economic indicators generally reflect the economic health of a country, so the good and bad results of the released data can have a direct effect on price movements. Some important indicators to observe are GDP, interest rates, and labor data. Fundamental analysis with trading news on these reports does have high trading opportunities because price volatility tends to rise after the data is published.

Short-term trading with fundamental analysis
In binary options, utilizing price volatility after the news release can be a trading strategy with high potential profit. You can determine your expiry time to limit your options period so you can end up in-the-money. Short-term trading is more advisable in utilizing news trading in binary options, because the direction of prices can move on a trend that is less predictable for certain after the impact of the economic data in question has lost its momentum.

Here are some ways that you can apply to be able to take advantage of fundamental analysis in your binary options trading:

1. Make use of Forecast
Before economic data is released, there is always a forecast that shows expectations or estimates of the results of the data. This forecast display is usually found in the economic calendar which is now available on financial sites with a complete display for traders.

Although prices can sometimes move in the direction of predictions up or down from the forecast, placing options at such times will be very risky. In this case, what you need to pay attention to is the comparison between the results in the previous period, forecast, and also the final data that appears later. For that, you need to wait a while after the data is released to be able to open options more safely.

If the results that appear are worse than expected, you can get ready to install the "put" option. Conversely, if the final results appear to be better than expected, the "call" options can be the right choice for your binary options trading. However, you still need to wait for the trends that are formed after the data release, before actually placing options. This is done to confirm whether the price movements are in the same direction or exactly the opposite of the results of the data released.

Data results that are in accordance with expectations usually lead to less promising movements. It takes longer to look forward to the trends that are formed in situations like this. Therefore, you can really observe the pattern of price movements that are formed after the data appears as expected, or choose not to enter the market to avoid analysis errors.

2. Hedging
Hedging strategies on binary options can be very promising because two conflicting option options can indeed secure one option position that has the potential to end out-of-the-money. When using fundamental analysis, hedging is done to anticipate truly volatile market volatility after being affected by the news which has a high impact on price increases. For example, the US NFP has a very large influence on the volatility of price movements after being released. Because the effect is too large and very risky for price movements, you can hedge by placing additional options in the opposite direction from your first option.

What you need to remember from using hedging is:

Make sure both options will end at the same time

  • To get profit, estimates can be focused on one option. The most trusted choices for ending in-the-money can be placed with capital and greater return profits
  • Learn the correlation between pairs if your broker does not allow hedging with the same pair

3. Using Trading Type Variations
Differences in types of trading in binary options can be used to maximize binary options trading with fundamental analysis. If you have been able to analyze price trends that will occur after the data is released, you can place options correctly based on the type of trading you choose.

This is related to the suitability of certain types of trading in certain volatility conditions. For example, touch trading is best to be conditioned on a market that is experiencing high volatility, because you only need to ensure the price to touch a target price before the expiry time runs out. With special conditions that allow you to be able to have a higher profit with a price target that is also farther away from the strike price, the placement of options in markets with high volatility will provide a very high chance of profit.
On the other hand, boundary trading is more suitable for use in sideways price movements. This is because, prices need to be inside or outside certain limits so that your binary options trading ends in-the-money. The narrower the limits set, the higher the profit you can achieve. Therefore, you can carefully calculate your profit opportunities with this type of trading.

This method can be associated with a comparison between the final results and the previous forecast. Of course, the acquisition of data that is far from the expectation number will cause a price surge, while the results that match the predictions are likely to not trigger high volatility in the market. Thus, touch trading can be used when the data results reach a number that is below or above expectations, while boundary trading can be used to obtain data in accordance with forecast. But you still need to make sure a few moments after the data is released to be able to run this strategy, because taking an option with a type of trading that is not suitable for market conditions can make your trading position lose.

Long-term trading with fundamental analysis
Although the chances of binary options trading with fundamental analysis are more emphasized on short-term trading, it does not mean you cannot use it for long-term trading. You can still place your options for a longer period of time by choosing a higher expiry time.

Of course, the observations you make for this method will be different from the strategy above, because you must be able to analyze price trends in the long run based on fundamental aspects in a certain period. Here, you must be able to determine the expiry time needed to be able to profit at the start of trading. In addition, the fundamental data needed will also not be limited to economic indicators, but also on factors from non-financial aspects that can affect the stability of the global economy. Therefore, this method might require a more in-depth and thorough analysis compared to just relying on trading news for short-term trading.

Utilizing fundamental analysis for trading binary options can be done easily for short-term trading. The things that need to be considered are economic indicators that have a large influence on price movements, figures that reflect expectations and previous results, and the final results of the expected economic data.

Short-term trading can indeed bring profits in a short period of time, but if it is not properly calculated, you can also bear losses in an instant. You can trade with the strategies in the example above, or place options with trading analysis based on expiry time placements specifically, such as trading 60 seconds or 5 minutes binary options. Using a variety of trading types and several other strategies can also be combined with fundamental analysis on binary options.
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