According to the U.S. Federal Reserve, there are 31 major banks, and all 31 of them passed a stress test this week. The test was designed to gauge whether or not the banking industry was still on pace to rebuild in a healthy manner after the financial crisis of a few years ago. In the past, not all banks have passed, but this year, they all did. Last year, for example, Zions Bancorp did not clear the minimum threshold of 5 percent, but this year, they came in at 5.1 percent in model test runs. The tests included a housing market price drop of 25 percent and a stock market drop of 60 percent, and the weakest bank of the 31 still passed the test.
It’s encouraging news for the banking industry in particular, and the financial industry as a whole. It indicates that the economy is actually quite strong right now, and that there is still a lot of room for upward motion all over the markets.
There’s more to it than this, though. Passing this test was just the first stage, and if the banks pass a second set of tests, they may get permission to start with the increasing of shareholder payouts, including dividend payments. If the banks all pass this test, it will be a strong indicator that they are completely healthy and can be a news item that could trigger higher prices amongst the bigger and stronger of the 31. In other words, this is an industry that could begin to increase drastically in price as consumer confidence rises quickly.
The second set of tests will have their results published some time next week. Here, the Fed will assess how well risk is managed. Two banks are predicted to fail at this point–the U.S. units of Deutsche Bank and Santander. If they do fail, expect the international prices of these companies’ stocks to go down a bit, too.
Right now, the news is encouraging, although the future is up in the air. For the next couple days, it’s a good possibility that stocks in these banks will go up, and that makes long positions the best choice. However, most people are unable to access day trading because of the margin requirements involved, and even fewer are able to do so at a price that would make short term trading worthwhile. As of right now, banks like Zions and Santander are seeing increases in price because of the current news, but even here, the rises are less than 1 percent. To make $100 in profits trading these, you would need to risk well over $10,000, and this hardly seems worthwhile. The other choice is to use binary options since they allow for much bigger profit rates on much smaller price changes. For example, you can profit at around 80 percent on a single trade at only a 0.1 percent change in price. Using binaries on fluctuating prices like this is a good way to maximize your profit making potential when you aren’t sure how much prices will actually change.
The other thing to consider is the fact that these changes might not last for long. It’s very possible that next week, when data is released by the Fed, that all of these gains will be reversed. You don’t want to still have exposure to these markets when this happens, and binaries prep you for this perfectly since they are generally very short term in nature. You can stay in a position for a minute, a few hours, or another timeframe of your choice. In a situation like the financial industry’s current state, this is a great precaution that you would struggle to find elsewhere.