It’s essential to recognize the differences among technical and fundamental analysis. Although some who trade binary options will tell you that one is more important than the other, the truth is that they are best when used in conjunction. There are times, however, when fundamental analysis will offer up fast and easy profits. Knowing what to look for is the key to making best use of this information.
Fundamental Analysis is the research of an asset which involves taking into consideration the many variables which possess the capability to impact its value. These variables can include anything from company specific financial data to worldwide events. Quite a few of these variables can be connected, impacting the price of various assets and even the entire asset class which they are a part of. All of this of course can be applied to the task of trading for profit.
It’s basically impossible for traders to take note of and process every bit of data which is published. However, by selecting a couple of assets to use in trades, it is possible to focus just on these and in doing so be quite successful. It does remain important to keep track of general economic and global headlines so as to not miss out on easy profit opportunities.
Key pieces of data for fundamental analysis include:
Natural Events: Assets such as wheat, corn, crude oil, and more can be greatly affected by natural events such as disasters and adverse weather. As with all assets, supply and demand are going to impact pricing. For example, if adverse weather damages coffee crops, you can expect the price of this commodity to increase and could enter into a binary options trade based on this knowledge. There are other ways in which these events can influence assets prices, such as bad weather which impacts tourism and harms an economy. Or events which negatively impact the ability to export products and thus impact specific stocks or the overall economy.
Politics: Politics plays a huge role when it comes to asset prices and therefore has an equally important role in trading. War is a prime example, as this can directly impact trade for the countries involved, which directly impacts the economy of each nation. The impact that politics has on price movement includes governments as well. Various governments have specific polices in place which impact areas such as public spending and borrowing, economic growth procedures, and more.
Sentiment: The financial marketplace is generally influenced by sentiment with depressed market conditions being shown in the form of downward price trends. Whenever consumer sentiment is high, they typically feel secure in spending more money, thus boosting the economy. The opposite of this would be fear, which results in reduced spending and thus a economic depression. Both consumer and investor sentiment should be accounted for whenever making decisions for binary options trade selection.
Economic Data: The launch of economic data often has an instantaneous effect on asset prices. Data which comes from government authorities, businesses and research companies may all have various levels of importance, yet each can influence asset prices. The wise trader will utilize an economic calendar, as this tool will not only provide dates and times of these data releases, but additionally provides supplemental information such as history and background of the report.
A few of the more important data reports include:
GDP (Gross Domestic Product): This is a way of measuring of the complete value of all of the goods and services generated nationwide, and therefore acts a key gauge of the overall economic health of a country. The GDP report is routinely used for selecting binary options trade parameters.
Interest Rates: These rates apply to many different areas of finance. They are utilized by central banks to alter the economic climate by having an influence on inflation, overall spending and financial savings. Increased interest rates usually equate to larger currency prices, as a climb in a nation’s interest rate will make it more beneficial for international investors to purchase and retain the currency of that country.
Retail Sales: These figures are derived from various retailers and are then measured to represent the overall economy of a country. In the United States 12,000 companies make up the sampling for the compilation of this data. Consumer spending accounts for the majority of a nation’s overall production, so it’s easy to see how this report can be used for trading binary options. Watch this indicator carefully when searching for profit opportunities.
Unemployment: Interested in knowing the overall economic conditions of a nation? Unemployment rates may tell you all you need to know. Economies which are thriving are going to have low unemployment, while the opposite is going to be seen whenever an economy is struggling. Each country will have their own individual situations which are driving employment rates, but each can create opportunity for the trader.
Data releases generate movement within the marketplace and thus create profit opportunities. A great economic calendar can ensure that you are informed in advance of important data releases. There are plenty of binary options strategies which are centered around this type of information. From beginner to advanced level traders, everyone can profit from mastering the simple art of fundamental analysis.