Commodity binary options refer to commodity assets that are listed on a typical binary options platform. Commodities are peculiar assets to trade in the market ordinarily, as they do not usually respond in a straightforward way to some of the market news that are released on the forex news calendar. A commodity will usually have its own unique set of news that affect its market price, or have a peculiar way it will respond to market events.
Most commodities are affected by forces of demand and supply. The global nature of the use of commodities is what makes them valuable assets to trade. For instance, if silver were not previously used as money, and not used currently as an important raw material in the mobile phone, pharmaceutical and metallurgical industries, it probably would not be worth a thing. But when there are factors operating in the global economy that affect the demand or supply of a commodity, we would see an immediate reaction from the commodity market arenas as well as the binary options market. Trading commodities is therefore a skill that traders have to master in the conventional market and the binary options market.
When trading commodity binary options, there are two approaches:
The Fundamental Approach
The commonest traded commodities in the binary options market are gold, silver, crude oil, platinum to some extent and selected agricultural products (corn, coffee, wheat, sugar). These commodities all have one thing in common. They are very sensitive to factors that affect the demand and supply of the individual assets. A single factor that affects production, or a problem in the distribution chain, can lead to severe price disruptions.
For instance, the latest strike in South Africa which crippled nearly 90% of the world’s platinum and gold production in that country, caused the price of the assets to skyrocket in the global market as a result of the market perception to the depletion of platinum and gold stocks. A similar situation was seen when Cote D’Ivoire was in turmoil over who would assume the presidency of that country, which is the world’s largest cocoa producer. Prices hit the roof while that problem lasted.
Agricultural assets are even more susceptible to factors affecting demand and supply. Drought, disease, and civil conflict all shutter in supply, which leads to increase in prices. These factors that affect the price of a commodity are what binary options traders can capitalize on to make money. The challenge is usually how to time the trades so that the opportunities to make money are not lost.
In a nutshell, using news that point out what is happening in terms of the supply or demand of a commodity will show where the commodities assets are headed. Precise entries can then be made using technical analysis.
When taking a technical approach to commodity binary options trading, it is best to keep it very simple. Using chart patterns and candlesticks, either in a standalone fashion or in combination, will always point out clear opportunities to make money.
A solid approach would therefore be to:
- Follow commodity news from commodities trading resources online.
- Pick out news items which specifically point to factors that could possibly affect the demand or supply of a commodity.
- Place the trade after conducting the analysis on a technical and fundamental basis.