Since the emergence of binary options in the financial markets,
this new market has largely been viewed as a speculative way of
making money online. This is primarily because of the short-term
nature of trading binary options as compared to traditional vanilla
options. Binary options have expiry periods ranging from 60 seconds
to about two weeks in most cases.
This is why most traders tend to focus more on technical analysis
than fundamental analysis disregarding the fact that the price of
the underlying asset could significantly be influenced by the
fundamental outlook of the stock/asset in in question.
Ignoring the potential impact of fundamental analysis in binary
options is a huge risk, and traders should actually embrace doing
thorough analysis before placing their trades. Jason Collins, a
senior analyst at OptionsClick, agrees that in order to succeed in
binary options traders must utilize both technical and fundamental
In a recent conversation he said, "While binary options are
typically a short-term method of making money online, traders
cannot ignore the role played by the intrinsic aspects of the
underlying assets, [which are long term in nature], because price
movements of stocks and indices are generally determined by the
activity of traditional investors (exchange based trading
activity), and these investors base their decisions primarily on
In general terms, fundamental analysis is a method of evaluating an
asset based on both the intrinsic and external factors that are
likely to affect its price over a given period. Such factors
include macroeconomic events, interest rates, financial and
political policies, and environment, among others. In valuing
stocks, items such as price to earnings ratio, profitability
margins, earnings events and management changes as well as
insider/institutional investor transactions can affect the price of
the underlying asset.
Fundamental analysis in binary options
Now, in binary options, traders have the opportunity to trade
currencies, stocks, indices and commodities via the same platform.
However, as many traders will find out, there are not many analysis
tools to use when analyzing stocks and other assets. As such, wise
traders try to use the trading platform in conjunction with
third-party analysis tools and platforms such as the MetaTrader 4
platform to analyze the price of the underlying asset.
However, for some assets such as stocks, the MT4 platform may not
be the ideal tool to use especially when attempting to analyze the
fundamental aspects of the stock. In this case, traders have to
turn to websites/platforms that provide financial data about stock
trading and general investing. Some of these platforms also provide
timely updates on market moving events such as insider transactions
and guru picks which can be very useful in helping traders to make
smart investment decisions.
For instance, if an insider takes a huge position in
), the shares of Twitter are likely to react accordingly. Knowing
this in time could help traders make the right call. While
long-term investors are more interested in following what Gurus
(institutional investors and hedge fund managers) are adding to
their holdings, traders would be interested in following their
activity as timely as possible because for them, the important
thing is to determine what direction the price of the stock could
move in the coming trading sessions.
This is particularly important for binary options traders because
with many binary options platforms, it is now possible to trade the
), among others. Therefore, if a trader wants to have the right
picture before making a trade, then it would be right to also
understand what positions major holders are taking in a particular
stock. This provides a signal of what is likely to be the general
direction of the stock (i.e., upward or downward) given the
sentiments shown by major holders.
Most binary options are short term in nature, but some of the top
binary options brokers have option types that take months to
expire. Some even have end-of-year expiries, while others have
six-month period expiries.
This means that fundamental analysis such as P/E ratios, P/S ratios
and earnings growth can be applied in trading these types of binary
options, and most importantly traders are able to apply more than
just the technical view when making their decisions.
As such, traders can make more accurate decisions because in this
case it is not just about interpreting technical data to predict
the next move. Utilizing fundamental analysis in these types of
binary options is likely to yield more than trying to use just
technical analysis because a lot of events are bound to happen
before the expiry period elapses.
With binary options, you only need to get the direction of the
price correct to make a potential return of more than 80% among
most brokerage platforms and thus getting your prediction correct
is the difference between you making an 80% gain on your
investment, or losing everything. Therefore, it is important to
consider everything that could affect the price of the asset in
question and that involves doing through fundamental analysis.
The bottom line is that fundamental analysis is the cornerstone of
investing, and any type of investor including binary options
investors and exchange-based traders rely on this type of analysis
in making the right investment decisions.
Therefore, traders should not overlook this type of analysis
even when trading short term instruments like binary options. This
could be the difference between making money and losing all of
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