How to Trade Binary Options Around News Events

A short guide for trading binary options before, during and after economic announcements, IPO's and company news as we understand

newsEconomic and business events are where the action takes place, whether in forex or binary options. Volumes, emotions and tempers all rise together before rate decisions or a new company product is being unveiled. The main reason for this is that everyone gets a point of reference about the financial instrument involved. This causes a surge in confidence and in decision-making. The so-called “risk-on.”

With binary options there are several points to take into consideration before trading an event. First is the magnitude of the event – will it move the price enough to give a clear indication for the duration of your preferred option and will it give enough information about its direction? Second is the duration of the option that should be chosen – is this event going to have a long-lasting effect or will it cause short-term volatility before it simmers down?

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Choosing between high/low and touch options is the next step. The former are the most popular in such cases, but this would definitely be the best time to use the touch (or one-touch depending on their availability with your preferred broker) options. Bare in mind that the levels for touch options usually vary for the times when there is an event.

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The difference a piece of important news makes to the price is that it gives it momentum. The ripples are stronger right after the splash. With the binary options for five, 15, 30 and 60 minutes (not to mention the ones that last less than a minute) you can capture these waves right after they happen. This is among the strong points for such options, as well as the fact that events can give a strong indication of future movement which can also be taken advantage of with longer binary options.

There are also cons for trading these options. Even after a clear direction is established, there might be occasional deviations from the straightforward movement and some trades might fall within them with a duration that is too short. So selecting the entry point and length of the options is crucial, as well as good risk-reward ratio calculations.

Of course you can choose to go with a more proactive approach – trying to guess in advance if the event or announcement go your way and choose long-term options – daily, weekly and monthly – to be in line with research that you have made. There might be indications that a rate hike is imminent, or some leaked data shows a big change in the demand for oil, so you can trade on them if you believe the data or analyses. Only here, unlike forex, your possible gains and losses are predetermined.

Events offer rich possibilities to trade in binaries and the more available instruments there are, the more opportunities there will be. It is the simplest way of trading and can be done by simply looking at the price changing after the news breaks, but with some technical analyses it can have a higher success rate.

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