Challenges Trading Binary Options Based On News & Reports
There are often huge moves in various markets in response to financial news reports and geopolitical events. These price moves can propel you quickly into money fast if you can take advantage of them. Conversly, they can blow your trading account and cost you a lot of cash just as fast.
Whipsaws make for choppy market conditions and challenging trading. Most traders will lose money if they try to trade news reports alone. Understanding exactly what an underlying asset is going to do fundamentally based on recent or breaking news is an extremely difficult skill to master. Just because there is political unrest in the middle east does not automatically mean the price of oil is going to increase.
Many traders actually go out of their way not to place trades that overlap with important events and news releases.
One of the main attractions of binary options to many traders is the idea that they can make money when they believe they understand what’s going on in the economy. If you’re actually an economist, this isn’t an irrational idea. If you’re not one (and most of you reading this aren’t), you should think twice before you dive into trading fundamentals. Trading news and events is quite challenging and poses many unique risks. Before you get started, you need to form an understanding of those risks.
The other major hazard of trading news is that you probably don’t know what you’re doing. Most people think they know far more about the way the world works than they really do. This can become a matter of pride, but pride really does cometh before a fall. It’s okay to admit that economics and global transitions are way more complicated than you understand. At any one time there are numerous factors interacting to influence any stock price, currency value, commodity price, or index. There’s no shame in not understanding all those factors. The only shame is in placing irresponsible trades on things you really don’t understand. All that means is if you’re really serious about trading on fundamentals, you have a lot of studying ahead of you!
Now that you’ve been fore-warned, let’s look at what you should know to get started.
Important News and Fundamental Reports Watched By Traders
To get you started, you should begin learning about financial reports which move markets.
The most influential financial reports are usually the ones which come out of the US, partly because the USD remains the world’s reserve currency (at least at the time of this publication!), and partly because the US has such a large economy.
Here are the reports that are likely to result in the biggest market moves:
- The Non-Farm Payroll (NFP), which is the unemployment report
- the Retail Sails Report
- Trade Balance Reports
Learn everything you can about these reports and the factors that drive their numbers. Also be aware that elections, speeches, quarterly reports, shareholder’s meetings and many other events that influence businesses and countries can drive the market, but often in even more unpredictable ways. Another thing important for you to note is that the market often moves much more in response to predictions of events than actual events. Indeed, many times the market corrects when a report actually is released. Do you see how complicated this can be?
Trading binary options using fundamental analysis is possible, and there are people who do it consistently and successfully, but they are a tiny minority of all binary options traders. If you want to learn how to do this, be prepared for an uphill battle. You aren’t ready to trade just because you’ve read this introduction. Hopefully you see now how essential it is that you put time and effort into becoming a market expert before you invest your money.