Market Pull Effect in Practice

The term “market pull effect” refers to the fact that one asset’s price movement can have a direct affect on one or more other assets, even if they are seemingly unrelated. When you use it right, you can use your knowledge of one asset to help you trade several other assets with the same level of efficacy. It’s a great theory for traders–especially short term traders–to know because it can be such a great time saving piece of information.

Perhaps the most well known correlation is that between the U.S. dollar and the price of gold. They have an inverse correlation, meaning, when one goes up, the other goes down. It’s not perfect, but it is fairly reliable. Investors have used this knowledge for years to protect their wealth when one market stops producing. Using it for short term gains is a bit tricky, but it is possible.

However, this is not the only correlation you will find in the world of finance. There are hundreds of these relationships, and the more you can find that relate to an asset that you are familiar with, the better equipped you will be at finding new ways to grow your money. The stock market is one of the busiest places where this occurs, since some companies are so dependent upon other commodities for their survival. Looking at two charts side by side, or overlaying them on each other, is the best way to do this. Exxon Mobil’s stock (XOM), not surprisingly, is heavily dependent upon the price of oil. If you look at XOM’s stock with an oil-based ETF on the same page, you will see that they move in extremely similar fashions. XOM is stronger, simply because they offer more than just crude oil, but you can easily see the relationship with one easy to create graph.

The lesson to take away here is that sometimes, just one market isn’t enough for the type of knowledge you have. Forex brokers, where you can exercise your knowledge of the U.S. dollar, do not typically enable you to purchase futures contracts for gold. And a stockbroker, where you could buy and sell shares of Exxon, will not be able to sell you crude oil futures. Binary options, although they do not technically allow you to buy and sell assets directly, allow you to make money within simultaneous markets. You trade underlying assets, and they almost always allow you to trade stocks, indices, currencies, and commodities from the same trading platform. It is ideal for traders that have an expertise that ranges beyond just a stock, or just a commodity. With so many different types of assets available to trade, you could use just a binary broker for everything you need.

Of course, this will force you to miss out on other things. For one, binary options brokers tend to focus on just the biggest names in finance. You won’t have access to the whole NYSE, for example, but rather just a few major stocks. Exxon is usually featured because it’s such a major company, but you would be hard pressed to find a company like Aramark or Southwest Airlines on a binary website. These, you would need to trade in the traditional manner with a stockbroker. Binaries are best for those that trade the most popular assets, such as the biggest and highest volume stocks, major indices, major commodities, and currency pairs. Binaries are strong in this regard for creating noticeable profits with small amounts of cash, but they do not have the more obscure assets that some people wish to trade, making the market pull effect slightly more difficult to take advantage of.