Fundamental Factors Influencing Binary Options

Fundamental Factors Influencing Binary Options

Submitted by adil on Wed, 04/24/2013 - 10:04

Binary options are an exotic form of derivatives and as such, they are an extension of normal options. This implies that the fundamental factors, which influence normal options trade, also affect the binary option trade. There may be other fundamental factors affecting�binary options, but now and pending effective research, they are all but hazy.

Related Fundamentals

These additional factors are likely to be based upon the inherent contractual nature of binary options. For example, availability of leverage, available expiry limits, payout ratios and sentiments of the trader, are likely to influence the demand or supply of the binary options. If there is more leverage available, a higher variety of expiry limits or a big payout ratio, it will encourage a trader to trade in a particular asset. Other factors can also be included among fundamentals. If platform become informative, have risk mitigating tools, or give the traders comfort in making decisions through various knowledge-based tools, it will again encourage binary options trading. These other factors will be elemental if the industry as whole adopts an attitude to aid /ally with the trader.

Options Based Fundamentals

All the options/derivatives are influenced by factors affecting the value of an underlying asset. They include general economic conditions, financial reports, government policies, etc. These factors are known as fundamentals. You should be aware that there are different fundamentals for different classes of underlying assets. Commodities, indices and currencies are affected by different sets of fundamentals.

Fundamental factors for options based on commodities include the general demand and supply conditions of the commodity, for e.g. discovery of major oil field. It will also include availability of credit for producers of that commodity and any change in special government rules or regulations pertaining to a commodity.

The fundamental factors affecting currency options are based in macro elements. GDP growth, discount rates, inflation and balance of payments represent the strength or weakness of an economy and therefore its currency as well. Government actions to restrict exchange rate movement, budget announcements and jobless reports also act as fundamentals.

Similarly, indices based options have their own set of fundamental factors influencing them. They range from daily stock reports to general economic performance/ data. Often the financial results of blue chip companies indexed in a stock exchange are observed to find out how the index is performing.

Lastly, it can be duly noted that all these asset classes often share-in different fundamental factors. Inflation will influence options relating to all three classes, as will the discount rate.