If you are a Forex trader, trading binary options can be a great way to supplement your trading. However, even though binary options are simple to execute and understand, this does not make them easy to trade successfully.
You probably already know that domestic stock markets can play a large role in the value of a currency, but this method can be especially helpful when trading binary options. The market pull effect is a term used to describe the phenomenon when one financial instrument influences the price action of another. This can easily be seen in the relationship between the U.S. dollar and the price of gold. There is typically an inverse relationship between these two different assets; let’s examine why.
The U.S. dollar is the world’s most widely traded currency. Gold is viewed as the single most valuable way to accommodate for a currency. For example, people are likely to stockpile gold in anticipation of the event that a currency begins to lose value. Therefore, if the dollar begins to lose its value, people rush to supplement their portfolios with the next best thing: gold. So if the price of the dollar begins to drop, the demand for gold typically goes up. An increase in demand coupled with a decrease in sellers’ supplies means an increase in price. So when the dollar goes down, gold goes up. This is a simplified explanation, but the basic premise is here.
What does this mean for your trading? You have probably already incorporated these facts into your Forex trading, but the same principles can also be applied to binary options trading, especially the longer term trades. For example, if you find a gold option that is set to expire four hours from now, if the dollar is consistently dropping in appropriate markets, purchasing a call binary option on gold will be a good idea here. Long term action in one market translates to long term action in another.
The same is not quite as true for short term trades. A 60 second binary option might seem like quick money, but it’s just not that easy. Short term trends in the dollar do not always make for short term trends in the price of gold. For these lightning quick type trades, the market pull effect is not as prevalent and needs to only be exercised in rare occasions. The benefit of 60 second binary options is that they mature quickly. The big downfall is that random chance plays a large role and is a lot harder to have a good correct trade rate.
The market pull effect is a good way to supplement your trading and it will likely create many more good trading opportunities for you. This is important since you want to focus on the quality of your trading much more than you do the quantity. Conducting a lot of trades in a short time might give you big profits, but it also increases your risk of big losses. A few good trades will be more profitable than many uncertain ones.