Rumors really can influence the price of an asset, and those rumors don’t even need to have a lot of strength behind them in order to make an impact. Look at what’s currently happening with crude oil as an example. Prices were all over the place on Friday, November 4th, as rumors about what OPEC would do with production levels grasped to find some sort of commonly agreed upon area. Regardless of what individual traders were trying to do, what we ended up seeing was more of a mass reaction to whatever news was occurring at the time.
At a recent meeting, sources indicated that Saudi Arabian representatives were frustrated with proceedings and that they had threatened to increase production rate to 11 or even 12 million barrels per day. This would drive the price of oil down considerably. Following this report, oil dropped about 2 percent in price, down to about $43.50 per barrel. There were also rumors that the Saudis would be withdrawing from further meetings and would not be consulting with OPEC for the near future when it came to their production levels. All of these things would have impacted the price of oil negatively for weeks, or even months.
Shortly after this “news” was released, a conflicting story emerged from the OPEC meeting indicating that none of this had actually happened. When this new report emerged—released by Bloomberg, which is a far more reliable source—prices skyrocketed back up to where they had been. This change occurred almost immediately. If you look at a chart for West Texas Intermediate (WTI) oil, you can see this change happening. It took more than two hours for prices to drop down 2 percent, but in the span of less than 30 minutes, they boosted back up to a healthy level. WTI is an American oil that is almost identical in price to crude, and acts as a good indicator of what crude prices will do on American soil.
Obviously this is an extreme example, but it’s one well worth pointing out, especially to commodity traders because of the inherently short life spans that their trades take. If you buy a stock in the traditional market, you can hold it for as long as you’d like, smoothing out ups and downs over the short term. Day traders can do this too if they wish, although they cease to become day traders in these instances. The point is that the stock market gives traders more flexibility when it comes to exit points. With futures and binary options though, their trades have expiration points built into them. If you buy a three-month futures contract, you need to act before that time comes to an end. If you have a 15-minute binary options trade, your trade better materialize in those 15 minutes or you will lose money.
Rumors don’t need to be true for them to hurt your trades during these timeframes. Although the oil debacle on Friday lasted less than four hours total, that was plenty of time to ruin a lot of profitable opportunities for traders—especially those in the binary market. Paying attention to what is going on in the news, be it true or not, is a key part of day trading success. And this is more the case when it comes to short term binary options than in any other type of trading. Because of their limited nature, they are more at the mercy of false news and rumors than any other type of trading. It’s very important that you have access to news as it occurs if you want to be successful.
Categories: Oil Trading