Trading commodities with binary options can offer one of the most profitable ways to make fast returns on global price fluctuations. Derivative markets such as binary options allow traders to move away from the classic way to trade commodities, traditionally involving the physical and often large purchase of the commodity itself, to allow small and rapid speculative investments. Binary options can typically earn returns of between 85% and 500% on ‘in the money’ expiry’s. They can also be purchased with an expiry time of just a single minute which makes them one of the most flexible forms of investment, involving no commissions or spreads and simple the decision of whether the price will be higher or lower after a certain amount of time.
What knowledge is required to trade commodities using binary options?
Whilst binary options have opened up the commodity trading market to smaller, home-based investors, it still involves a degree of skill and analysis in order to consistently make money from the fluctuations in global commodity markets. With one of the major attractions of binary options being its low barriers to entry including small stake investments, fast expiries and the underlying simplicity of trading these highly profitable options, it has seen a rapid growth in popularity. The available profits has attracted many novice traders to try their luck at the seemingly 50-50, higher or lower, calls that binary options require. However, experienced traders will be quick to point out that the risk on regular binary options is always slightly higher than the reward, meaning that every trader requires an ‘edge’ to remain consistently profitable and move away from pure gambling.
Generating an edge to find consistency
Investing in commodities using binary options allows those who can develop their knowledge, and ultimately their edge, to search for highly profitable opportunities. This knowledge comes from understanding how commodities markets move and also how they may be interconnected to other markets. These interconnected markets are available on all binary options platforms, which offer a vast range of underlying assets to trade in one place, and often provide an insight in to the supply and demand issues that influence the daily fluctuations in commodity prices.
Trading oil, gold and metals with binary options
For news traders, gold and oil provide two of the most straightforward commodities to purchase binary options either for short term price spikes or for longer-term holds. Gold is heavily influenced by the demand for the US dollar and is seen as an investment ‘safe haven’. For this reason it tends to be at its most volatile during periods of global instability. The rationale for this is that demand rises and falls with the sentiment of traders towards the global economy as a whole. Oil is similar in that price will make very rapid movements with any news which may affect the supply of this popular commodity. Binary options day traders will be alerted to potential price movements caused by political unrest in the oil-producing regions to the discovery of significant sources of accessible oil fields.
Commodities are also linked to individual economies and the GDP data of the powerful and raw material-hungry economies. Copper and steel, for example, are heavily reliant on the consumption patterns of China as the largest global consumer of these resources. Chinese data releases which point to lower growth will instantly lower the demand and therefore price of these metals. For binary options traders simply looking to trade these news releases, taking a slightly longer-term position, once the news shock has hit the market can be a profitable as the fundamental market trend is established as a result of the change in demand.