Understanding Financial Markets: Part 3

Anyoption analyst Elise Blanford takes an interesting look at explaining the inter-connectivity of global financial markets. For more of Elise’s research see the Anyoption blog.


Oil Tanks & Bottoms Out Near $27 Before Upsurge Begins

oil price crash 2015

From well over $100 per barrel, the price of crude oil dropped to the upper $20 range by February 2016.

Now, commodities traders with an eye on the oil markets made a lot of money by shorting the commodity with oil futures. Commodities trading in the traditional sense requires vast sums of money because margin and leverage are used to take out substantially larger positions than you can otherwise hold with limited capital. Traders who were bearish on crude oil and natural gas and copper were rewarded handsomely with generous returns. However, profits generated in that way were only available to a select few traders who had the wherewithal and the standing to initiate such trades. The mass-market which typically watches Wall Street brokers from the sidelines simply had no skin in the game.

The collapse in the price of crude oil was closely correlated with equities markets. The positive correlation was evident on Wall Street and still is to this day. In other words, when oil prices rise, confidence in equities markets rises accordingly. Other commodities like gold also gained favour once again. With geopolitical uncertainty, investors typically look for safe-haven assets such as gold, platinum and silver to invest in and that’s precisely what they did. You will notice that gold prospers when the dollar is weak, and equities markets are weak. There is an inverse relationship between the strength of the USD and the demand for gold. This is an important economic reality to bear in mind.

s&p oil correlation

If we complicate this picture further by adding in interest rates, you will note that the Federal Reserve Bank raised interest rates for the first time on 16 December 2015 by 25-basis points to 0.50%. In the run-up to the interest rate hike, there was tremendous volatility in emerging markets. The South African Rand all but collapsed, as did the Brazilian real and the Russian ruble. Currency market trading activity thrives during times of high volatility, and this is precisely the right type of environment to profit off currency trading. Interest rate hikes cause an appreciation of the country’s currency since more money is being paid for investments held in financial institutions in that country. So, the US dollar index spiked, the USD gained on its major trading partners, and EM currencies depreciated.

emerging markets currencies 2014

You now have as close to a complete roundup of the past eight years as possible. We have neglected the Ukraine crisis, Iran’s reentry into the global oil markets, the political and economic chaos in Brazil and other major events for the purposes of simplification. You know enough by now to put this knowledge to good use with binary options trading. Let us now explore important aspects of binary options trading so that you too can profit like the investors sitting in their ivory towers on Wall Street. You don’t need an advanced economics degree, or to be a finance major at college to understand how supply and demand, interaction between financial assets and major economic indicators can impact on your overall trading activity. By seeing things clearly, you will have an advantage over lesser-informed traders to make the correct call or put options and generate a solid and steady income.

Minimize Risks and Maximize Opportunities

Remember, the goal in all instances is the same: minimize your overall level of risk in the financial markets by selecting a financial trading platform that caters to you in every way possible. Once again, this is not about dabbling in complex market mechanics; it’s about simplifying the financial markets so that anyone with a little common sense and a desire to learn about market dynamics can profit consistently. One of the first things that deters most every novice trader from the financial markets is the risk factor. Conventional trading appears too convoluted, too risky and too expensive to even consider for most traders. However, binary options trading turns convention on its head and provides you with a user-friendly trading platform and all the assistance you need in the form of resources such as auto trading, financial trading robots, promotional offers, educational resources such as webinars and expert advice. In fact, you are already leaps and bounds ahead of the competition because you have just completed an introductory education to the global financial markets!

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