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.
• This article will focus on how to invest in the Fed raise via binary options.

“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 Fed Funds Rate 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 is the way to go.

For those thinking the new target rate will be above 0.25 percent, Selling this Binary Option is the right play.

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.

Contract Specs

Finally, let’s take a look at Nadex’s contract specs for events binary options:

• Tick size is 1, and tick value is $1
• Minimum increment is 0.25
• Reportable limit is 12,500 for Economic Events, and there is no position limit

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.