The Four Fathers of Binaries – Commodities

Trading Binary Options Commodities: Facts

One of the best things about Binaries is that you can trade them on a lot of underlying assets and in a way they merge all the important financial markets together. By using a single platform, you can trade Binary Options on Currencies, Stocks, Indices and Commodities. Today we are going to focus on Commodities as a tradable asset. Let’s start with the basics: what is a Commodity?  The term “commodity” is used to describe an item produced to satisfy certain needs, but has almost no qualitative differentiation in the market. Ok, I am going to use examples: Rice is a commodity, but we cannot tell where or by whom it was produced just by looking at it or by tasting it. Copper, Gold and Silver are commodities, but they are almost the same all over the world and their respective prices are universal. For you to better see the difference between commodities and other types of products, think of cars or mobile phones; they have very different characteristics and prices.

 

Other examples of commodities are Coffee, Tea, Wheat, Corn, Coal, Soybeans and one of the most traded, Oil. Although there are a lot of commodities, most brokers offer Binary Options just on Oil, Gold and Silver and these can be traded around the clock starting Monday morning and ending Friday evening. Because the trading hours can differ a little from broker to broker, you should check your broker’s Asset Index section.

 

 

Trading Commodities: Effects

Now that we know what Commodities are, we must find out what makes their prices fluctuate. The answer is Supply and Demand. Think of it this way: if everybody needs oil (Demand is high) but if there isn’t enough for everybody (Supply is lower), than the price of oil will go up. On the other hand, in times when Demand is low and there is enough oil to cover all the needs and then some, the price will go down because the buyers are not willing to pay a high price for the commodity. These are the basic principles behind Supply and Demand and the balance between them can be influenced by many things. Let’s assume that a new electric car is invented with extraordinary characteristics, similar to a Ferrari and it costs just about $15,000. Now that would be nice and I bet everybody will rush to the nearest car dealer to get one. I know I would! But if that car doesn’t use oil anymore and the whole world now owns one, who will be left to buy oil? No one or very few. This means that the Demand for oil suddenly dropped, but there is a lot of Supply. The result can be seen in the price of oil:  it will drop like a wingless airplane.

 

This is of course a fantasy scenario and it will probably not happen; at least not very soon, but I hope you get the whole Supply and Demand idea. Any event that influences the Supply and Demand of a certain commodity will have an effect on the price of that commodity and consequently, on the Binary Option price which fluctuates the same way as the price of the commodity.

 

 

My Trading Experience with Commodities

Commodities like Oil, Gold or Silver can sometimes have stronger moves than Currencies or other assets so we need to be more careful not to get caught on the bad side of a trade. I consider a strong move to be one that covers a big distance in a short amount of time, or one that stretches over a longer period of time without having a significant retracement. To better understand what I mean, just look at an oil or gold chart at the time of the US Election’s Official Results and then compare it with the movement of any of the currency pairs that contain the USD. You will see that oil and gold moved a lot stronger.

 

The thing about commodities moving stronger makes me think about a time when I was working for a trader who was so sure of himself and his trades that he would not get out of a bad trade even if the market was screaming to do so. During an important event for oil that was expected to drive the price higher, he placed a Buy trade, but the price soon started to drop hard, disregarding what market participants “wanted” it to do. His trade was closed at a loss… and I thought his next trade will be a Sell as price continued on its downward path. But his stubbornness kicked in and he continued to Buy oil… constantly increasing the amount traded. Unfortunately, just two hours later, the oil price dropped about 300 points and he was down more than $11,000. In case you are wondering… yes, this is a real story, but he can afford the loss; most of us can’t, so whatever you do, don’t try to prove to the market that you’re right, or take revenge on it because it will come back to bite you hard. Try to keep a balance between the fundamentals and technical analysis and even if a financial event makes you think that the price will go in a certain direction, always try to confirm it from a technical point of view.

 

 

 

High Profile Commodities Info and Trading Tips

Oil Overlook

Trading Exchange: NYSE, NASDAQ, NYMEX and other important exchanges

Trading Hours: Monday – Friday but your binary broker might have different trading hours for this asset so check with them for the exact times

Brokers offering Binary Options on Oil: Almost all Binary brokers offer binaries on Oil

 

My Advice on Oil in 50 Words: Its price is highly influenced by wars (during times of war more Oil is used for the Army) and by Oil spills: if a sea platform owned by a leading Oil extracting company is hit by disaster, that company will extract less Oil so the Supply will go down, making price to go up.

 

 

 

Gold Overlook

Trading Exchange: Most of the important stock exchanges, including London, New York, Paris, Mumbai and Zurich.

Trading Hours: Monday – Friday but your binary broker might have different trading hours for this asset so check with them for the exact times

Brokers offering Binary Options on Gold: Almost all Binary brokers offer binaries on Gold

 

My Advice on Gold in 50 Words: Gold was always regarded as a good back up reserve and in times of economical instability, people buy Gold to compensate for inflation and lower wages because its price goes up during those times. Also keep in mind that XAU/USD is positively correlated with EUR/USD.

 

 

 

Coffee Overlook

Trading Exchange: New York Mercantile Exchange, New York Intercontinental Exchange, London International Financial Futures and Options Exchange

Trading Hours: Differs depending on broker. Check their Asset Index

Brokers offering Binary Options on Coffee: Most of the leading brokers offer binaries on Coffee

 

My Advice on Coffee in 50 Words: Brazil is the world’s largest Coffee producer, followed by Vietnam, Indonesia and Columbia. Since it is an agricultural product, grown in the open air, the quantities harvested are closely related to meteorological conditions in the countries mentioned. A year affected by drought will lead to less coffee being produced so less Supply and a consequent increase in price. 

 

 

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