A great deal has been written about fundamental analysis and how it can be a binary trader’s most incisive tool when analysing the markets. Broadly speaking, fundamental analysis is the study of all the external factors that affect the value of an underlying asset. So as a binary trader whose preferred asset is a currency pair such as the EUR/USD, or a commodity such as gold (remember that trading binary options gives you the advantage of being able to place trades across four asset classes including currencies, commodities, stocks and indices), knowing all the factors that affect the value of these assets is essential if you are to place educated trades that expire profitably for you.
The factors that fundamental analysts observe closely include geo-political news events such as conflicts, elections, natural disasters, as well as quarterly growth reports (belonging to both individual companies and nations), and a host of other economic indicators such as employment, manufacturing output, retail sales, interest rate changes and many more.
Event traders are those who trade on the release of such economic data, waiting for the data to hit first, and then riding the market movement it generates to capitalise on any trends that develop in the wake of such releases. The same can be done when a high-impact piece of global news either adversely or favourably affects the value of an underlying asset. These “events” are often highlighted in trader tutorials that attempt to provide insights as to how a data release or a news item may steer the value of the assets most affected.
However, one aspect of these relationships that is rarely given any attention is the fact that the relationship between fundamentals and the markets they affect is not linear, by any stretch of the imagination. A lot of introductory guides will lead you to believe that fundamental A will necessarily lead to underlying asset B having such and such a reaction. This is not quite the case. The way the markets react is much more complex than this. Especially in our global age where the Internet ensures that every new piece of information is instantly available to anyone regardless of their geographical location.
Because of this it is extremely useful to know a few fundamental truths regarding how fundamentals operate, once you have these relationships down in your head you will be able to react much more efficiently to changes in the market because you will know the rudimentary relationships between assets and the economic blocs they affect and vice versa.
This guide has been developed with this in mind; to provide you with some bedrock type knowledge about the global markets which we feel will stand you in very good stead when trading. Whether you are a newcomer to forex or binary options the relationships are the same and your trading game can only be strengthened by taking some of these relationships on board.
So without further ado, read the following parts of this guide and gain an understanding of the complex dynamics that affect the assets you trade.
George Milios is the founder of onlineforextrading.net, the binary options and forex news portal which is dedicated to providing you with all the information you need to successfully trade.