Good And Bad Binary Options Trading Conditions
Good And Bad Binary Options Trading Conditions
Binary options trading, like other forms of speculative trade, separates itself from traditional trade and investment in a lot of critical ways. There are the very obvious, superficial characteristics, like binary options trading not needing to already have large amounts of money just to start. Or the fact that traders don’t need to hire—and pay—a broker with service fees and commissions in order to carry out trades on their behalf. And of course, there’s the big difference that binary options trading isn’t about buying and selling the way traditional investment works. Instead, it focuses on predicting price movements, because it is a speculative trade.
But perhaps one of the biggest things that separates binary options trading from something like traditional stock or commodities trading is the kind of market conditions that favor profit. In traditional trading, the strategy is still the classic “buy low, sell high” concept that has been a cornerstone of the business world for centuries. There’s only one kind of ideal market condition, and that is the price that you paid for a particular asset was lower than what the price will be at later date, allowing you to profit when you sell. If something bad happens, such as a big corporate scandal, then if the price on a stock plummets, so does your chance to make a profit.
So what makes a good or bad market condition in binary options trading? How does it differ?
The single biggest advantage binary options trading has over traditional trading is that movement is more important than the final result of that movement. In the example we used above, a traditional holder of corporate shares can only sell one way, when prices have gone up. If the hypothetical corporate scandal created a lot of negative controversy for the company and the value of its shares plunge, the stock trader has no choice; it’s either sitting on the stock until such time as prices climb again, or sell it now at a loss.
However, for a binary options trader, even bad news for a stock is good news for the trader. If a binary options trader with an interest in this company hears about such a negative, widespread controversy, that’s a valuable warning that price on the stock is about to drop. A trader can make a “put trade,” which means that the investment is being made on a prediction that by the end of the specified trading period, the stock price will be lower than what it was at the start. So regardless of whether the actual company, or traditional stock traders are hurt by these developments, a large, negative movement can still yield a tidy profit. This is one of the reasons why so many Forex traders took advantage of the lack of confidence in Asian currencies during the crisis that hit that region a few years back. Currencies like the Malaysian Ringgit became very unstable, and that created a good window for trading that the Malaysian government still claims dealt a psychological blow to the market in that area and adversely affected the currency in a negative way.
This means that good trading conditions for binary options are based on volatility. The less stable an asset is, with a lot of spikes and drops, the more potential there is for profit to take advantage of these changes. If a stock, commodity or currency is on the rise, this is a great trend to take advantage of, as most traders will do. However, if a stock, commodity or currency is doing poorly, with sharp drops, this is still a great trading opportunity, but only for speculative traders like binary options and Forex traders.
The other thing that defines good trading conditions is the range of movement. If you’re seeing big increases or big drops, this is perfect for binary options traders to take advantage of. If these trends persist, and the movement continues for sustained periods of time, traders have a lot of opportunities during these periods to make multiple, profitable trades.
As you might imagine then, when things are stable, and not much is happening in a particular market or asset, this is a bad trading environment for binary options traders. We see this occasionally in some of the commodity markets around the world. While stability is actually good for many businesses, and allows for more reliable long term planning, since variables don’t shift too dramatically, this limits the profit potential for binary options traders.
Some commodities such as various grains like wheat may not be popular commodities choices. Whereas some commodities like steel may experience big fluctuations such as trade wars, politics and other factors, something like grain can, at times, remain remarkably unaffected. When this happens, there is very little movement upwards or downwards in the prices of these commodities, and without that kind of activity, binary options traders can find it difficult to make meaningful trades.
Another area where bad conditions can become an issue is in the range of movement, which is especially true for Forex traders. Timing is everything for both Forex and binary options traders, but when movements are very small, creating a very narrow range, and the movements themselves don’t last very long, that’s a pretty bad place to be trading in. While it’s true that binary options traders may be able to make some trades within a narrow period of 60 seconds, unless you have a very good understanding the fluctuations and their causes, this small but unpredictable range of movement means that you may end up just making a series of bad trades.
It’s important to remember that while binary options trading is a lot more flexible in terms of viable trading conditions, that doesn’t mean every trade will be a good trade. You still need to develop a good business sense to make accurate predictions in a volatile environment, and be ever mindful of developments in the market. Every time a financial, political or corporate event occurs, this can have ramifications on the market that you can either take advantage of, or be surprised by.
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