A Beginner’s Guide to Understanding Financial Markets

Getting started with any type of financial trading requires some level of knowledge of financial markets. Because binary options trading doesn’t actually involve the purchasing of an underlying asset – just an option for a particular outcome – many people view it as an easy way to get started with trading without having to learn about the markets. Individuals who take this approach often quickly find that they have made a mistake, and stop trading before they experience catastrophic losses. Make no mistake; understanding how the financial markets work is as crucial for binary option trading as it is for trading on the stock market or in foreign currency, for example. Understanding financial markets can also go a long way to helping make sense of financial charts, technical analysis, and various other aspects that come together to create your knowledge bank when you start trading. The biggest step you need to take when understanding financial markets is to discover which factors can influence these, and how this can translate into your binary option strategies.

How This Helps Binary Traders

Although you are trading against the price of an asset rather than purchasing an asset yourself, you still need to know what is happening in the markets in order to give yourself the best chance of buying profitable options.Multiple factors could come into play in respect of the markets, some examples are:

  • Companies releasing trading results.
  • Governments announcing new economic policies or measures.
  • New products being announced that impact a particular industry or commodity.
  • Media comments from authoritative brokers or analysts.
  • Common price trends, such as gold dropping after Christmas and rising steadily throughout the year.

If you know when these events are happening, you can do two things. First, you can look back at what happened in the markets the last time there was such an occurrence. For example, what happened to the markets when the United States last raised their debt ceiling? Is the same thing likely to happen should they do so again? Secondly, with the information you have, you can make decisions based on what is likely to happen and position yourself for some profitable trading activity. One binary options trading strategy you might consider is to trade prior to such announcements, when the markets tend to be calm as people are wary of trading before a potentially big change. As a binary trader, you can use boundary options or no touch trades to be profitable in such conditions. Look online for an economic calendar that you can download and place near your system, or even set alerts in your smartphone for a week or two before the event so you can research previous trends. In terms of taking advantage of flash stories, such as Apple suddenly announcing a new product, the experiences you pick up from binary trading will prepare you for doing this; clearly, if a story is happening now there is no point in researching the past, as you need to act in the present.While there might be obvious repeat trends around big announcements, apparent “good news” will not always help in the way you’d expect. For example, on the face of it, unemployment figures falling might seem a positive, but markets could react negatively if banks then decided this was a sign they could remove any easing or economic provisions that were in place. Act decisively in your trades, but ensure you understand what is happening rather than working on assumption and previous history alone.

Defining Financial Markets

What are the financial markets you need to be looking at, and how do they work? Defining something as a “financial market” is actually very general. A financial market is essentially anywhere traders can buy and sell stocks, shares, commodities, or foreign exchange. Most people will immediately associate a financial market as the stock market, such as the FTSE 100 or NASDAQ. At Bank of Trade, you can trade binary options on a range of markets, including, but not limited to:

  • Stock indicies. This means you are trading against the overall index price of a stock market.
  • The price of stocks and shares in specific companies.
  • Foreign currency performance against each other.
  • The price of commodities, such as gold and oil.

The areas where you choose to trade will determine where you look for the market information we highlighted earlier. For example, the performance of a particular company might not make a big difference to the overall index of the market they are listed on, but it will influence their own share price. Larger companies’ performance will likely have an influence on wider markets. For example, if HSBC announced huge profits or losses tomorrow, their results would affect the FTSE 100 market, other banking institutions, and probably have further permutations, too. All of these could provide separate opportunities for binary option trading.

Trading Outside of Known & Notable Events

Financial markets are open throughout the year, not just when announcements are being made. While your economic calendar has created a number of points of focus for your binary trading activities, you also need to be able to trade and be profitable at other times throughout the year. Thankfully, the number of possibilities that binary trading can bring means that you are able to do this even when the markets are relatively quiet. As you are trading against the price and not buying an underlying asset, you have an advantage in that you are not actually reliant on the upward movement of an asset to a certain price to be in the money.It is also worth noting that markets can still move dramatically even without there being any apparent background story behind it, so don’t just sit around waiting for the obvious opportunities.

Where to Learn Financial Analysis

You can access all the resources you will need to become a competent analyst of financial markets here at Bank of Trade. Most of what you need to know having understood the impact of external events on the financial markets will relate to spotting trends and patterns that enable you to make profitable trades repeatedly. Using these resources is a great way to make the link between what you know and what actually happens.This will help you enjoy profitable binary trading because you will become competent at working with financial charts and conducting analysis without the added benefit of knowing the likely impact an external factor will have. Of course, you should continue to take advantage of obvious market shifts and trends based on what is happening in the wider world, but ensure your binary options trading strategy enables you to trade and to be profitable at all times.

Creating Your Own Analysis

In addition to the factors we have already explored, you should keep a diary where you note trends based on other occurrences that may influence the various markets. For example, what happens to share prices in the United States when a hurricane threatens the East Coast of the country? Does snow across the United Kingdom influence share prices when the country is at a standstill? You can never really go too far in terms of your analysis. Remember that with binary trading you are only looking at whether a market will move up or down or trade in a particular range. You don’t need to calculate the level a commodity or foreign currency needs to reach before you make a profit, you only need to know how a market behaves and how this translates into a sustainable binary trading strategy in terms of your options expiring in the money.

Understanding the Markets

By signing up for a binary trading account with Bank of Trade, you can start learning about the finance markets from our team of trading experts while also means-testing the points we have raised here. Use your trading platform to analyse for yourself what happens when announcements are made, and put all that knowledge to use when you start to trade binary options. Understanding the financial markets is one thing, putting your knowledge to use and ensuring it turns into profitable trading is another. See how it works for yourself, couple what everyone knows about financial markets with your own analysis and trend spots, and enjoy successful trading whether you do it as a hobby or as a serious money making initiative.

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