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Will The Fed Raise Or Not? Here's A Binary Way To Play The Event

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Will The Fed Raise Or Not? Here's A Binary Way To Play The Event
  • Binary options provide investors the opportunity to take positions in upcoming events like the Fed Funds Rate, Jobless Claims and Nonfarm Payrolls announcements.
  • Let's look at one way to play whether or not the Fed will raise interest rates this month.

“The Federal Funds Rate is the interest rate that institutions like banks use when lending among themselves,” Nadex explained. The rate is revised several times per year and is a main component of U.S. monetary policy.

“The actual rate is determined in the open market, but the FOMC sets a target Fed funds rate as a guide. The Fed can further influence the actual rate by buying and selling government securities in the financial market,” Nadex added.

What’s interesting here is that, via binary options, investors can put money down on the results they expect, with limited risk.

How To Trade A Fed Rate Decision With Binary Options

A classic Fed Funds Rate Binary Option contract may be: Fed Funds Rate <= 0.25 percent.

For investors thinking the new target rate will stand below or at 0.25 percent, buying this Binary Option could make sense.

For those thinking the new target rate will be above 0.25 percent, selling this Binary Option is a reasonable strategy.

The FOMC’s next meeting is scheduled for Wednesday, December 16. Binary Options on the Fed Funds Rate will start trading at 8am (ET time) on the first business day of the week before the FOMC meeting.

Another way to play the event? US 500 binary options based on the E-mini S&P 500 futures. The U.S. equity market is expected to move -- one way or the other -- in response to a decision by the Federal Reserve this month.

Posted-In: NadexPreviews Options Federal Reserve Markets Trading Ideas Best of Benzinga

 

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