Trading Commodities Using Binary Options

If you have traded commodities, you know that volatility can be a concern. Not to mention the margin requirements to trade commodities require you having access to margin usually well over $1000. However, this trend is changing since the introduction of commodity binary options. Most binary option sites now offer such commodities as oil, gold, corn, indices and bonds. Like the rest of the binary options available, commodity binary options have the same goals: expire above/below the purchasing price in a fixed amount of time.

Like the rest of the investment vehicles available on binary options, you must have a solid background in order to be successful. This means you must have prior knowledge on commodities and their price action. Similarly, you must also have some knowledge of fundamental and/or technical analysis. However, since binary options are a short term investment, technical analysis would be the more ideal way to analyze trades.

In order to place a trade, you must login to your broker’s website. Once there select your commodity and analyze that particular commodity’s price action. If we see oil, for example, has some downside pressure we may elect to purchase a put. Conversely, if we believed oil was positioned to rise, we would buy a call. Once we have opened a trade, we must wait 30 minutes to see if our position expires in the money (profit) or out of the money (loss). Remember, binary options that expire in the money walk away with 80% return on investment. However, losing trades can see 85% of the initial investment disappear.

Commodities do face some risks that other investments do not when it comes to binary options. One fact is that oil for instance is the fact that the US Department of Energy releases inventory updates every Wednesday. Similar reports come out for other commodities such as natural gas as well. If you trade commodities you must find out whether weekly reports are published and when. Unless you are a seasoned trader, I would avoid trading commodities during report releases. However, once the report has hit the markets, you may be presented with a trading opportunity.

For a beginning trader interested in commodities and futures, binary options are the way to go. As I stated before, high margin requirements (assuming they would be approved for margin use) really limit what sort of commodities you can trade. The margin requirements to open 1 contract of crude oil come in at $6,885. Most new traders do not have this sort of capital available, which closes the door to commodity trading in the traditional sense. However, binary options for oil require no margin.

The bottom line here is that binary options have opened up another investment vehicle to new traders and traders who do not have large accounts. Be warned, commodities are much more volatile than stocks which can be a little overwhelming for those who are not used to it. This sort of volatility requires that you have strong prior knowledge in technical analysis at the very least. Additionally, new traders should keep their binary option positions on the smaller side. Do not risk all your capital on one trade or it could destroy the entire account. Remember, a losing binary options trade takes away 85% of the initial investment. This means if you traded $100 of oil and the option expires out of the money, you only have $15 after that trade. That’s why you must take the proper steps to preparing yourself for these types of trades. They can be lucrative but they can also be destructive. In the end, if you properly prepare yourself, there is a world of potential gains at your disposal.

Also interesting is this article at Optionsellers.