As a result, its counterpart the Canadian dollar will weaken, provided that traders do not anticipate any change in Bank of Canadas monetary stance and there is no supportive economic data. Thus, with some of the currencies already experiencing interest rate hikes, the carry trade is back in business. In carry trades, a trader sells a low-yielding currency or borrowing money to do so and buys a high interest rate currency.
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Thus, demand for high-yielding currencies is typically high, which further raises its value. However, keep in mind that a very strong national currency is bound to begin dragging on growth.
Currencies
An expensive currency will leave the country with a disadvantage on the international trade scene, and as export growth begins to stall or exports even decline , this will have a direct impact on the economys performance. When the national currencys value leaves the boundaries generally targeted by the central bank, so that economic growth and price stability are no longer ensured, the central back has the influence and means to intervene and bring it back in the desired range.
Each trader, including binary options traders, should be on the lookout for central bank interest rate decisions, as well as speeches by central bankers.
Due to the central banks impact, in most cases they dont even need to take any measures, rather just speak out how the currency is undervalued or overvalued and that they dont like that. As a result, the general public almost always reacts in the way the bank desires. Very often you will see central bankers step out in front of media and hint that possible action might be taken, but usually they resort to these measures only, if the verbal interventions fail. Demand for commodities has strong positive correlation to economic growth.
During times of recession, commodities are generally trading at lower levels as economic activity, particularly industrial production, stalls. However, this principle does not apply in full force for all commodities, and we will mention some of the specifics in the next paragraphs.
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- Interest rates as a key fundamental indicator.
Crude oil prices are driven by the supply-demand balance and any accompanying speculations regarding a possible imbalance. Logically, demand will be high when the global economy is in an upturn, and lower when economic activity declines. On the supply side, prices will tend to drop when supplies are ample and there are no fears of disruptions.
Conversely, when an infrastructure accident curbs output, or geopolitical tension threatens to decrease production and exports from a country especially a major producer , this is seen as bullish for oil. Crude oil prices are also influenced by the strength of the US dollar. Because oil is priced in dollars, the two tend to have an inverse relation.
What is binary options trading?
Strengthening of the greenback makes not just oil, but all dollar-denominated commodities, more expensive for foreign currency holders and limits their appeal as an alternative investment. In addition, when oil prices are high, this widens the US trade deficit since the US is a major oil importer, while exports are capped at a fraction of total consumption , which lowers GDP. Moreover, prices of certain commodities seem to be strongly correlated to the currencies of major producing nations.
A prime example for that link is presented by the Canadian dollar. Canada is a major exporter of crude oil, and one of the few highly-developed economies with a net export of energy.
Up/Down Options
Thus, the higher oil prices are, the more Canadian dollars foreign buyers will need in order to purchase oil. This in terms will drive demand for the currency up and add to its value. An interest rate option provides a way to manage interest rate risk. If you are a buyer, you get the right to pay for a maximum interest rate , or to receive for a minimum interest rate at a predetermined strike price or interest rate for a set period.
Interest Rate Options - Part 2
If the interest rate goes against you, then the option will compensate. If the interest rate goes in your favour, then the option expires worthless. The option makes payment to compensate for a change. If you are the writer of an interest rate option, then it is your obligation to make up the difference between the prevailing interest rate and the strike price agreed to, so that the buyer receives the interest rate contracted. Not as complex as the regular options, but included here because of the name, binary options are really just a form of betting.
There are two outcomes to a binary option, either you win and get paid a set amount, or you lose and get nothing. For this reason binary options are often referred to as all-or-nothing options. Binary options only require that you have an opinion of whether the market is going up or down, and the degree does not count.
Typically they are traded on a very short time span, sometimes just hours, and usually not more than a day or two.
How fundamentals affect binary options trading - Mc Binary
The dealer makes an assessment of the likelihood of the index or major stock going up or down, and sets the payouts appropriately. You place your bet, and either you get paid a set amount, or get nothing. The stakes for betting upwards and betting downwards total to more than the payout — at least one is bound to cost more than half the payout amount.