Fundamental Analysis in Fixed Return Options Trading

Fixed Return Option (FRO) was launched in 2008 by the American Stock Exchange (AMEX). Today, it is better known by the common term, binary options. As the name suggests, fixed return options offer a predefined payout when the option expires in-the-money, with respect to the strike price. Despite its simplicity, successful traders know that before getting into any trade, they must do their homework. They must analyze the market to understand its behavior. Like traditional options trading, FRO traders rely on good analyses to help identify price trends, price targets, buy signals and sell signals. There are two main ways to analyze the market, through fundamental analysis and through technical analysis. Both methods may be used independently or combined to help the trader gain an edge.

Fundamental Analysis

Fundamental analysis is a method of prediction that looks at available facts to come up with an idea of how the market will move. These facts may come from public statements, news reports, current events, and virtually anything else that might impact the value of an asset. The fundamental analyst then examines that collected data to try to predict new trends in the market. For example, an analyst looking at currency pairs might watch for a public report from a country on their GDP, or an announcement from their central bank. An equity analyst might look at what a company’s quarterly reports show about their performance, or listen to announcements from a CEO to gain some insight into the direction a stock might take. It’s important for a fundamental analyst to keep both a broad view and a specific view, noting what is happening in the world at large, as well as what is happening on the micro scale in regards to their specific assets. Unlike objectively-based methods of analysis, fundamental analysis is largely subjective. People may have different interpretations of what a CEO’s announcement means about the health of the company, or how an earthquake will affect the price of oil. Since there are no rules set in stone, fundamental traders are generally referred to as discretionary traders – they use their own judgment to decide what course of action to take, after analyzing all the data they have available. Because it is subjective, most fundamental analysts find their ability to predict things like market direction improves as they get more practice. Fundamental analysts become experts at reading between the lines, to understand what exactly a data point might mean, and they also learn to connect the dots, combining many discrete data points into a comprehensive overall picture. In most cases, leading options brokers like OptionBit and AnyOption will offer real-time news feeds and economic events as part of the trading platform.