Published On: Thu, Nov 29th, 2012

Trading Commodities with Binary Options

You may have to make numerous complex decisions whenever you attempt to trade commodities directly on the stock markets. For example, you will need to evaluate the size of distance that the price of your selected commodity could achieve within a specified time period. You will also need to protect your account balance from substantial losses by locating well-positioned stop-losses and target-profits. Your trading psychology may have to be enhanced so that you do not allow your emotions to interfere with your trades. These skills are not easy to perfect and can take considerable time to master.

It is possible to streamline this process by deploying binary options to speculate on commodities because their inherent design contains many benefits that can help simplify the trading process. As such, you will then substantially improve your chances of successfully trading commodities, such as copper, silver, gold and oil. For example, you will now just have to contend with deducing in which direction price will proceed without needing to determine the size of its movements. This important feature implies that the price of your favored commodities just needs to finish at least 1 trading point in your preferred direction at expiration in order for you to record a win.

Despite simplifications such as these, you still need to adopt a cautious tone because commodities produce increased volatility compared to other investment types. For instance, the price oscillations of gold can be many times greater than those produced by a currency pair, such as the EUR/USD. Although such trading patterns provide you with better profit prospects, your risk levels will also increase dramatically as well. You therefore require a more perfected money management plan to provide increased protection for your account balance from the higher risk exposure associated with trading commodities.

You will also need to perfect your ability to detect those times when the price of a commodity begins suddenly starts to divert away from its standard pattern. This is because such instances present excellent opportunities to exploit the greater levels of volatility associated with commodity training. You certainly cannot depend on your wild guesses and premonitions otherwise you could sustain significant losses.

In contrast, you will need to perform detailed studies into the historical performance and new developments of those commodities that interest you. You can achieve this objective by enhancing your own skills at researching and analyzing the behavior patterns associated with commodity trading. Alternatively, you can utilize the services of professional bodies that generated quality alerts whenever a new trading opportunity arises.

Once you have achieved these objectives, you will then be in a prime position to initiate commodity trades utilizing binary options. For example, envisage that you deduce that the price of gold is set to appreciate in value over the coming days. You can exploit this finding by activating a CALL binary option using gold as its underlying asset and deploying the daily expiry time. If the price of gold is just one point higher than its opening price at expiration, you could then collect a payout as high as 85% of your wager.

Essentially, the process in trading commodities utilizing binary options is identical compared to that deployed with other asset classes, such as currencies and stocks. The big variance is that traders must be more aware of their risk levels because of the increased volatility. You must also have insights into their special trading patterns. For instance, since gold is classified as a safe-haven asset, its price can still climb even when the stock markets are plummeting.

You can bolster your profitability further by learning how to properly implement a number of well-tested binary options strategies that have been specifically designed for commodities, such as the commodity-stock-affect-trade. Many analysts assess this strategy as very effective. The basic concept is to trade diversifications in the correlated price actions of commodities and the stock of firms that depend upon them.

For instance, the share values of airline companies can be dramatically influence by sudden changes in the price of aviation fuel. This means that should you identify a price boost in aviation fuel then you should instigate a ‘CALL’ binary option. You could then hedge this position by initiating a ‘PUT’ binary option using the stock of an affected company as its underlying asset because you anticipate that they will plunge because of this new event.



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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.