News Trading

News or events trading is one of the most popular strategies for binary options, but it isn’t as straightforward as it might appear. Trading binaries using the news requires both knowledge of how specific events are likely to affect certain assets, and the right instincts to read the market and take advantage of announcements.

This beginner-friendly guide will explain how to set up a binary options news trading strategy. We also look at the benefits and drawbacks of a news-based trading system, and share tips and tactics to help binary options traders find and interpret headlines.

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News Trading Basics

The idea behind news trading is simple – events that happen in the world affect the price movements of certain assets, sometimes significantly. Binary options traders who ‘trade the news’ look for such events and use them to predict which assets are going to fluctuate in price.

At its most basic, trading the news means scouring headlines for events that could positively or negatively affect an asset’s performance and placing trades accordingly. For example, stock markets tend to react swiftly to news that interest rates are rising, so a binary options trader may place a short-term low/down trade on the respective country’s stock index.

Since binary options usually only require traders to correctly predict which direction the price will move to earn a payout, even a small movement in your favor can result in large gains.

You can trade the news on almost any underlying asset. Historically this strategy has been most popular with stocks, forex, and commodities.

However, the growing interest in volatile cryptocurrencies has also made the binary options news trading strategy popular with investors looking to take positions on established and emerging digital currencies.

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How To Trade Binary Options Using The News

The point of binary options news trading is to gain a signal about the direction of future price movements. However, since thousands of retail traders, not to mention institutional investors, have their eyes constantly glued to the news ticker, it is difficult to gain an edge from simply trading on whether breaking news is positive or negative.

In fact, markets will usually price in upcoming news events as traders open positions based on their prediction of how an event will play out, and how they assume the market will react.

In aggregation, these positions may result in price movements before the event takes place, as the market sentiment reaches a consensus regarding the asset in question.

So, when the news event occurs, experienced binary options news traders may instead try to gauge whether it is better or worse than the market had been anticipating.

Another strategy involves making a prediction of your own about how a new product release, for example, will play out before the official launch occurs and placing the appropriate trade.

Example

Let’s look at a simple example of trading the news using binary options:

You have been using your binary options broker’s economic calendar to track upcoming announcements and you see the US Bureau of Labor Statistics is set to release its latest unemployment figures.

You know unemployment figures are important because central banks often make decisions on short-term monetary policies with the data. You also know from your own wider market research that a negative jobs report could be coming, which will likely lead to the Fed deciding to keep interest rates down which could have a positive impact on the stock market.

With this in mind, you open a high/up binary options contract on the S&P 500. You stake $1000 and the option will expire in two hours. Your binary options broker offers a 70% payout.

As predicted, the latest unemployment figures are higher than expected, causing a surge of market activity and an increase in the value of the S&P 500, which rises by nearly 1% over the next two hours.

As a result, your trade finishes in-the-money and you receive $1,700 ($1000 stake + $700 profit).

Note, if the value of the S&P 500 had fallen, you would have lost your $1000 stake. 

Benefits Of The Binary Options News Trading Strategy

The biggest advantage of the binary options news trading strategy is the opportunity it gives traders to base their positions on real-life events, reducing the element of chance.

News events have been key to trading for as long as markets have existed, and a binary options trader who has the knowledge to deftly analyze market events and announcements can do so without in-depth technical analysis.

Drawbacks Of The Binary Options News Trading Strategy

It can be challenging to assess how the market is going to move. Since trading the news isn’t just about predicting what the news will be, but about reading market sentiment, the results can sometimes take traders by surprise.

Online trading is now available to millions of people across the world, and therefore it’s difficult to know whether they are all planning to place trades on the same news items. This means the market can fall when the news is good, or rise when the news is bad – there is no surefire way to know if this is going to be the case.

Price movements can also be very short-term, so if your expiry isn’t set suitably, you may find that your trade expires while the price is unfavorable.

pocket option trading platform

Binary Options News Trading Tips

Use News As A Sign Of Momentum

The great thing about trading the news is that you don’t have to use it as the sole means of making decisions. Rather, binary options traders can take news events as a loose indication to frame their other forms of market analysis.

A benefit of news trading is that it can point to assets that are likely to experience large price movements. Since many online brokers offer both low- and high-yield binary options contracts, based on the extent of the expected price movement, this can give traders an opportunity to earn larger profits.

Breakout Strategy

The breakout binary options news trading strategy is easy to implement and perfect for beginners, but it should only be used if the market movement is predictable, and you are confident of the effect on the underlying asset.

It means trading on the market right as the news breaks, to capitalize on the changes before anyone else can. A good example of such predictable movements is the effect of interest rate changes on currency pairs, which typically results in relatively predictable market changes – when the interest rate rises, the value of the currency increases, and when the interest rate decreases it falls.

Find A News Source

There are countless sources for binary options traders to find the news they use to place trades. The key is to ensure you can access relevant news at the right time, with minimal extra effort. For this reason, we recommend using a specific trading news calendar that can be downloaded and viewed alongside your trading platform. Such tools will present the information in a way that is specific to trading, and therefore will include forecasts of variables too.

Popular sources among binary options news traders include:

Know What To Look For

A large part of trading binary options using the news involves becoming aware of the kinds of global events that affect market movements the most.

This comes from practicing your strategy and learning firsthand, but also keeping an eye on things like new government regulation, the earning records of large companies, and reports on energy subsidies, for example.

Product Variations

Trading news predictions can be done using a number of basic tactics and products, including high/low, one-touch, and ladder options.

Out of the three, the ladder strategy is the riskiest and must be approached with care. High/low options are the more common alternatives and are easier for beginners to master.

Use Technical Analysis

Bringing technical analysis into a binary options news trading strategy can make it more effective regardless of the asset you are trading. Using tools like moving averages, oscillators, and pivot points can help you to see which price movements are likely to occur during news events. They can essentially be used to inform and confirm your hunch.

Final Thoughts On The Binary Options News Trading Strategy

News trading can be adopted using a range of simple strategies, ideas and tactics that can help traders to make profits from binary options. But importantly, trading the news can be risky given that it’s hard to predict which way the market is going to move, so make sure you take a careful approach to risk and money management.

Head to our list of the best binary options brokers to start trading on the news. We have reviewed and ranked the top binary options platforms in 2022.

FAQ

What Is A Binary Options News Trading Strategy?

The straightforward definition is that trading the news refers to placing trades based on market movements that occur as a result of major events and announcements. The news affects the market all the time, and if you can read how the market is going to move, you can profit with straightforward high/low binary options product.

Is It Safe To Trade The News With Binary Options?

Trading the news with binary options is risky; just like all kinds of trading, but there are ways to minimize the risk. Start in a demo account, adopt a straightforward money management principle like not risking more than 1% of your total capital on a single trade, and educate yourself on the market and assets before taking a position. You can also use technical analysis to complement your binary options news trading strategy.

What Are The Risks Of News Trading With Binary Options?

News trading can be risky primarily because it’s hard to predict which way the market is going to move when news events occur. Market movement is based on supply and demand, so based on the predictions of others, it is possible that markets will fall even if the news is positive and vice versa.

Can I Make Money Trading The News Using Binary Options?

Trading the news with binary options can be profitable – you are looking for indicators that tell you exactly where profitable opportunities in the market will lie. However, you must refine your approach if you want this to be the case and ensure that you know how to make accurate predictions. See our guide to building a winning binary options news trading strategy to get started.