Looking at Chicago for the Future

In December 2015, the Federal Reserve boosted the interest rate on lending for the first time in more than seven years. This was long expected, and many experts were surprised that it wasn’t done a couple months before then. This rate hike was introduced with the insinuation that another one will follow a few months later. As for the rest of the calendar year 2015 after this hike, everyone knows what happened. The market dipped over the last couple weeks of 2015, and then violently dropped over the first three weeks of 2016. Now, some signs of stability have finally returned to the market, although there’s a lot of damage that still needs to be undone.

If you look at current trading trends on the Chicago Mercantile Exchange, trader sentiment indicates right now that another rate hike will not occur until sometime in 2017. Obviously, this is just based on sentiment, and not linked to what the actual Fed decision will be. However, the 0.25 percent that the interest rate target was raised by was enough to influence stock prices—and all other assets, too. And the market overreacted, in a way. The correction that followed was the equivalent of at least three more rate hikes, and the CME’s actions seem to be based off of this information, and now the likelihood that another rate hike will follow soon after is up in the air. The final decision will be made by the Fed, though.

The Chicago Mercantile Exchange is a much smaller marketplace than the New York Stock Exchange, and it focuses on futures and derivatives. As a result of this, it does something that the NYSE cannot do—it gives traders a look at the future. Yes, these are predictions, but they are educated predictions by professional traders, and they take into account current stock prices, along with indices, commodities, currencies, and interest rates. From this perspective, the CME is far better equipped to make this kind of a prediction than any other marketplace in the United States. And because it specializes in U.S. based assets, even though it’s the second largest derivatives market in the world, it is the leading authority on this matter.

The CME is a good tool for binary options traders because it includes everything that a binary trader can access, but carries with it the opinions of what the professionals are thinking in terms of their own trades. It takes current conditions, but adds in what the professionals are doing, too. In essence, if you monitor things through the CME before executing your own trades, you can piggyback off of what others with far more experience, better tools, and better information are doing. It won’t always be accurate, but it is a good way to double check your own work and analysis.

Other than ownership, the salient difference between the CME and binary options brokers is that binaries offer traders access to far shorter timeframes than the typical future or option. For example, you can trade a 60 second binary option if you wish, but you cannot take out a 60 second futures contract. That would make absolutely no sense because the price of coffee is not going to change enough to make a future worthwhile on the primary marketplace, but the change of a single penny over the same 60 seconds can help a binary trader to make a decent rate of return thanks to the loss of contract fees from the one form of trading to the other. Secondary futures contract could make something like this approachable once in a great while, but the average trader does not have access to this kind of trading.