So we have a a nice run going for US and European stocks, but what are binary traders to make of this very strange and ostensibly frightening situation whereby bad news equated to positive results for the state of market forces? US stock markets headed higher despite yet another day of testimony provided by Ben Bernanke (head of the Federal Reserve) where he stated emphatically that the US economy was in a rather gloomy state. So why then did US markets climb higher? Was it due to the partially positive results seen from the US housing market? In our opinion, the answer is unequivocally; No. True, Housing starts were higher than expected. And true, housing starts are a very strong gauge of current market conditions in the home economy as it relates to the real estate market. But Building Permits were seen heading downward and although this is a less direct gauge of the real estate market as it's not possible to know for sure whether home owners looking to build will actually act on their permit or not, a negative reading is still a negative reading. This should have actually at least counter balanced the other news seen from the housing market, but it did not.
The bad review of the economy provided by President Bernanke coupled with the positive news in terms of Housing Starts, sent US stocks higher. That simple. The reason is primarily attributed to the fact that the slowdown in the economy is seen as a direct precursor to another round of quantitative easing by the Federal Reserve. "QE3" is what investors are waiting for and if Goldman Sachs' analysts are correct, we may see this round as early as September. But to get excited and start buying stocks with a buy and hold strategy would seemingly be an egregious error of judgment. To buy stocks is ok. To buy good stocks is great. But to buy and hold based on the current news is simply bad trading. Binary options trading on the other hand forces the trader to make good choices today without the need to think too far ahead into the future. This, to ordinary stock or forex traders, is counter-intuitive. How can you only focus on today's market action without looking ahead?
Quite simply, binary traders don't have a choice and this empowers them to make precision trading choices for the day. Of course, traders using binary options can always opt for a longer term trade. But 98% of traders and 99.5% of volume is same day options (according to the binary options broker GOptions.com dealing desk and corroborated by Banc de Binary as well). The way in which successful binary traders make such choices is by isolating those stocks, stock indices, forex pairs, and commodities that have the best chance of remaining above or below a specific level for a set amount of time. This may seem difficult, but it's much easier than doing this as well as choosing the right time to exit. The exit point is where the majority of non-professional stock and forex traders falter.
By eliminating the need to time the exit and remain focused solely on when and on what asset to enter a trade, binary options traders increase their probability of success as well as increases their margins of profit over the long term. Sure, forex traders can make a more profitable single trade. But in the process of seeking such big hits, they generally wipe out the majority of their account balance. Single bad trades in binary options don't have that same negative impact on the account balance as their is no leverage.
So binary traders simply have an advantage in markets like the ones we have these days. Until such time as a definitive trend is in place, it is safe to assume that the volume traded on binaries will increase while forex volume decreases.