Selecting a publicly traded stock as the underlying asset to trade binary options allows the trader many opportunities because many stocks are quoted on stock exchanges. Also all binary platforms quote a variety of stocks from different parts of the world and trading times therefore the trader can generally trade at almost around the clock because there’s usually at least one exchange open per time zone.
Even though there are plenty of company stocks to trade, the trader should concentrate on a smaller number or on a given market sectors because the information requirements are huge and the information flow is a torrent. The trader needs to process this so as to have a chance of trading successfully.
For example, the trader needs to maintain price charts on the desired stocks to monitor price activity. The past can be a guide to future direction. Also learn up about the companies you’re considering. This means reading all news items and press releases, obtaining copies of their reports to the stock exchanges, and look at analysts’ reports and forecasts. This helps you, the trader, create a picture which will allow you to forecast the company’s future financial path.
A company’s filed financial reports are used to produce forecasts on financial data such as earnings per share, divide yield and book value. By comparing these to figures to other similar companies, the trader can get a feel for future price action. A feel for price action helps the trader determine his binary option strategy.
Share price determinants
News items and company announcements can influence the price, especially if they contain new unexpected information. The launch of a ground-breaking new product or service by a company can cause that company’s share price to rise but, equally, the market can reduce down the share price of its’ competitors because they may lose market share. Then consider buying a call option in the company’s shares and put options on the competitors so as to make winning trades.
The trader not only needs to analyze a particular company, but also the market in general. A company’s shares will be influenced by the industry, the market sector, and of course the general economy too. A company can be performing well but if the market is dropping, the company’s shares are likely to fall in value.
Companies don’t operate in a vacuum and will be affected by the country’s economy and even the global economy. The trader can see severe price changes even if company’s results are in line with forecasts because of financial gloom. All of these factors needed to be taken into account before executing a binary trade.
So as you commence trading:
- access your account
- look at the list of company stocks offered
- select the stock you have been analyzing
- consider a call stock option to open if you think the price will increase or a put option if the stock is likely to go down
- review your money management and enter the amount to be invested
- confirm the trade
- wait for the expiry time to see if your forecasted price action is correct.
Stay alert to the latest information as new information can radically change your and the market’s perceptions of a company. Thus there is time to monitor your trade and make profits.