Trading Indicies When Markets are Moving
Over the last few days, markets and individual assets all over the world have been dropping in price as more and more poor data emerges. The three major indices in the United States have all dropped, and the new market data coming out of Europe has begun to cause quite a bit of worry from that section of the world, too. There is also a prolonged concern that emerging markets are experiencing too much turbulence, thus driving long term investors away. The problem that has arisen is that traditional investors now have no idea where to put their money for the long haul.
Luckily, this isn’t the only way to make money in the markets. If you are trading in the old fashioned sense, it becomes difficult to make profits when markets are declining. It’s possible, but it can be difficult and costly, especially when you find that you need to adhere to margin guidelines as stipulated by the Federal government. Short sales, as they are called in the business, are possible, but a lot of people are not able to do them because they require a minimum balance in your trading account of $10,000, plus a few other requirements that can be dictated by the whimsy of financial regulators. A short sale basically is just borrowing some shares of stock from a broker and then immediately selling them. When prices drop, the trader buys them back and returns them to the broker for a small profit. Binary options can make this process a whole lot easier. You don’t need $10,000, and you don’t need to go through all of the application processes and checks to be able to do so. Instead of these hindrances, you can open an account with as little as $200 in many cases, and then trade the downside of trades for around $10.
So when you look at the morning financial news and see that index futures have dropped in the triple digits overnight, and you want to jump on the action when markets open up at 9:30 AM EST, instead of contacting your broker and setting up a margin account and pumping thousands of dollars into a trade, you can get a jumpstart on things and trade right away with far less risk to your cash.
The downfall of this strategy is that many brokers will not allow traders to access stock and index options until the markets have been open for 30 minutes. Usually, this is the busiest time of the day on the trading floor in New York City. Still, if the Dow drops 100-plus points overnight in futures action, the momentum will usually be prolonged throughout the day. You will lose out on a few minutes of trading time, but this shouldn’t have a huge impact upon what you’re able to do. The great thing about binary options is that you don’t need a ton of movement to be successful. If futures move a lot overnight, there will be strong movement in the first few minutes of trading. But when binaries become available at 10AM, there will still be change in price–just not as strong in its nature.
Binary options for indices also present a huge advantage during poor market times that isn’t as obvious. The government has at several times during history put a moratorium on short sales to protect the economy. This happened most notably during the Great Depression, and–more recently–for a few months after the 2008 housing crisis. It happens, and it cuts your trading choices in half. But because binary options do not affect market prices, it will not happen in this market. This is a strong advantage and it allows you to trade based upon actual market conditions, and not imposed or arbitrary rules.