Trading on Commodities in Current Times: Risk or Security?
The world’s major newspapers continue to headline with the progress that Donald Trump is making in putting together his cabinet. Economists and financial strategists are watching with keen interest whom he will appoint to key positions, as the people he appoints will play a large role in allowing him to push through with his stated economic, fiscal, and foreign policies.
According to Myra P. Saefong of marketwatch.com, “volatility in commodities has been high in the wake of Donald Trump’s presidential election victory, but as the initial shock wears off, a more clear picture of what his presidency means for gold, oil, and industrial commodities has emerged.”
How will price volatility impact binary options traders?
Binary options traders trade on whether the price of any particular asset moves up or down within a specified timeframe. The options of trading on commodity price movements is one of the categories offered by most binary options trading companies. Therefore, the question that most binary options traders should be asking is: How will Trump’s economic and foreign policies affect the price movement of the commodities I am interested in trading in?
Unfortunately, no one really seems to know the answer to this question. We all know that the picture will become clearer as time goes by. A few brave economists have ventured an opinion; however, they seem to be proven wrong every time.
What financial analysts are noting is that the prices of commodities such as copper and iron ore are increasing as a result of Trump’s indication that he plans to improve the USA’s infrastructure, which will consume a lot of those particular commodities. However, Trump’s plan to ban Chinese imports is going to hurt inflation; consequently reducing the demand for oil. Therefore, it is expected that the oil price will drop; however, on the other hand, the gold price stands to gain from any increase in USA inflation.
In general, commodity prices are directly affected by the supply and demand paradigm of course. In the case of rising inflation figures, the cost of living increases and so diminished disposable income leads to a consumer drop in demand for oil. This results in an oversupply of oil, which in turn, causes a drop in the price of this commodity.
Gold, on the other hand, is seen as a safe-haven commodity. Therefore, the more that inflation increases, the greater chance there is that the USA will move back into a recession with the obvious consequence that more investors will move their investments out of the riskier stocks and into safe-haven stocks, hedge-fund stocks. This, in turn, will cause a demand for gold so the gold price will increase.
Confused? Help is at hand.
The good news is that binary options traders, who trade with world-class brokers, do not need to wrap their heads around the nitty-gritty details of how the political landscape will impact the price movement when trading on commodities as underlying assets.
It goes without saying that a company such as Stern Options is a world-class brokerage, and because of their success in this business they retain some of the best financial analysts in the world. These experts spend their time collating and extrapolating data from all the current events that could possibly impact the volatility of commodity prices. The results of their analysis are available for their online traders to review before making trades. The financial analysts can also make recommendations which, again, are available on Stern Options’ website for ready perusal by their clients.
Is market volatility a good or a bad thing?
I don’t believe that large swings in commodity prices are necessarily a bad thing. Binary options traders only need to indicate whether the price of an underlying asset will move up or down within a stated timeframe. They don’t have to indicate by how much the price will increase or decrease. If traders analyse the markets correctly, and with proper professional support, it is possible to trade successfully under volatile market conditions such as those ensuing the recent US Presidential elections. The biggest challenge to a trader’s risk management strategy lies in determining at what point the price of a commodity will swing from going in one direction and turn in the opposite direction.
Unfortunately, global market volatility is going to be with us for a while longer. We cannot get away from this simple fact and actually in binary options we should not want to completely because you can make profits in binary options whether the markets moved up or down. But understanding the underlying reason for episodes of volatility is crucial and not merely for routine strategies in binary options but also because these episodes contain enormous potential for careful traders to make profits in binary options.