Economic indicators play a vital role in providing an insight into how the economy of a country is performing. The economic indicators of a nation provide information about the growth prospects and past growth of a nation. The release of this information has a deep impact on the movements of the derivative and equity markets. And since, the underlying assets in binary options trading generally come from these markets; economic indicators affect binary options too. So how can one make use of economic indicators to trade effectively in the binary options market? Let us take a look.
The economic indicator information affects the value of certain types of assets and investors need to understand how the movement in value of these assets can be used to make profits from binary options that have these assets as their underlying. Thus what is required is the ability to understand how the value of any asset changes as result of economic information that flows into the market.
In case of binary option contracts that are based on the stocks of specific companies, there are primarily two important economic indicators which can be used for the purpose of finding out the movement in prices, thus determining the best time to invest in these options. These two economic indicators are retail sales and durable goods orders. If there is an increase in any of the two indicators or both these indicators, the stock price of the company is likely to rise in the future. This means that there exists an opportunity to profit by purchasing a call binary option on the stock of that company. For example, for a company like Walmart an increase in retail sale indicator would lead to more investor interest in the company and a subsequent rise in the stock price. This would be a good opportunity to invest in a binary call option that has the Walmart stock as an underlying.
Another case is when the binary option is based on an asset rather than the stock of a company. In such as case, a number of economic indicators can help you in finding out whether the asset value is going to rise or fall in the future. For example, if a binary option is based on price of wheat. In such a case an economic indicator that indicates a surplus crop of wheat is going to cause a fall in prices of wheat thus creating an opportunity to make a profit by purchasing a put binary option having wheat as an underlying. Another case can be of a binary option based on the S&P index. In such a case a GDP growth can lead to a sell off that may lead to lowering of the S&P index thus creating an opportunity to make a profit from a put option based on the S&P index.
Thus, it can be seen that economic indicators have a deep impact on the profitability of binary options and any information about these indicators needs to be analyzed for affects on the prices of the underlying while investing in the binary options market. Only after this has been done, should an investor think of investing in the binary options market.