Fundamental Analysis in Binary Options Trading

Analysis of stock fundamentals is commonly associated with long term investing. However, fundamental analysis in binary options trading is equally important. The point of fundamental analysis is to understand the basic strengths and weaknesses of a given stock, the market sector, or the economy. The market prices stocks fairly according to generally available knowledge and investor sentiment. Those who do research on the stocks that they trade usually know more about the stock than the average options trader, stock trader, or long term investor. No matter what the price of a stock is today its eventual price will be determined by the fundamentals. Those binary stock options traders who do their homework commonly profit by their research.

Two Reasons

There are two basic reasons why those who engage in fundamental analysis in binary options trading usually win. One is that many traders are lazy. They do not bother to look into the specifics of a company. These folks miss things that turn out to be important. The trader who commonly does fundamental analysis in binary options trading comes to recognize what is important and is able to anticipate a rise or fall in stock price. Of course this change in stock price occurs when everyone else catches on. The other aspect of fundamental analysis in binary options trading is that not everyone watches every stock. If few analysts follow a given stock it may be very promising but still sell for a low price to earnings ratio. If you are the binary stock options trader who follows this stock you can lock in very nice profits with a thoughtful binary options trade.

Two Examples

In early 2003 the dying retail giant, Sears, merged with K-Mart to become Sears Holdings. It was priced at a few dollars a share. The mistake everyone made was to price it as a dying retail chain. What investors initially overlooked was the huge amount of property that Sear owned. When traders started pricing Sears Holdings with its real estate holdings in mind the stock price skyrocketed to over 150$ a share by mid-2005. Attentive fundamental analysis in binary options trading allows us to spot situations like this. Everyone one looks and only a few see. Diligent fundamental analysis finds profitable trades.

In the 1990’s Damark was a small company that sold high end electronics and other items by phone. It did well until one of the partners left and then the stock price faltered. It was selling in the 5$ a share range. It was a smaller company and analysts of the large brokerage houses were not watching as the company remade itself and was hiring for the coming holiday season. When its fourth quarter financial reports came out holiday sales had been spectacular and the stock flew up to the 30$ a share range. Traders who paid attention to this small company made handsome profits as the stock rose in price.

Part of the job of the binary options trader is to look for useful information about large cap stocks in order to trade profitably. Part of the job of the smart binary options trader is picking new winners by the use of diligent fundamental analysis in binary options trading.