Binary Betting Markets

Binary Betting markets are extremely fast moving. Prices are constantly changing and time is an extremely important factor. Some unique financial binary betting opportunities present themselves, particularly for the short-term trader. Prices are quoted right up to the expiry point of the position and it is therefore possible to make extremely large profits in a matter of minutes. For example, if the FTSE100 was trading UP for the day, say 11 points, at 4.28 p.m. then ‘odds’ would almost certainly be quoted which would give an opportunity to place a bet for the Index to finish UP within the 0 – 10 range and UP within the 10 – 20 range.

All instruments would give this short-term opportunity if the underlying markets were trading in a tight range or near to its previous close etc. Remember too, though, that it is always easy to suffer losses on a larger scale – if the Index is bought at 75 the potential gains are 25 but losses 75.

All Binary Bet events have the opposite position quoted. What this means is, as in our example above, if the FTSE 100 was quoted at 72-75 to finish UP then it would also be quoted as at 25-28 to finish DOWN. The opposite Bid and Offer prices would always add to 100. Effectively, if you believe the Market will finish UP you can either Buy the UP at 75 or Sell the DOWN at 25 – if the market does in fact rise the UP bet will settle at 100 and the DOWN bet at 0, however, your profit would be the same whichever position you took – either 100 – 75 = 25 for the UP position or 25 – 0 = 25 for the DOWN Position.

To avoid confusion it is simpler, in our opinion, to always Buy the position – remember you can Buy the FTSE 100 to finish UP at 72 – 75 or Buy to finish DOWN at 25 – 28.

Binaries can be particularly handy when trading over important economic announcements since its possible to place a binary trade without committing large amounts of margin. For instance a trader might have an opinion on an overall market direction following an economic data annoucement but short-term market noise might get him stopped out unless he’s very well capitalised. Binary bets are possible from just £1 per point so you only need just, say, £60 of free available margin to stake £1 per point on the Dow over the payrolls. The only way to achieve this with a spread bet would be to tie in a guaranteed stop with the open position, which again might see the position automatically closed. Another opportunity that may present itself is, when trading volatile markets, a position may exist where the market is quoted to finish UP at 96 – 99 the opposite position therefore may be for the market to finish DOWN at 3-6, therefore if you bought this position at 6 and there was a reversal in the market, a profit of 94 points could be made with losses limited to just 6 points!

Indeed, it is possible to take advantage of a number of these less likely opportunities whether on a short-term or longer-term basis. Let’s say that the Dow Jones is trading at 10,500 and the Binary Bet ‘odds’ of it finishing the year below 8,500 are quoted at 3 – 7. If you place a position at say £20 per point for this event to occur you know that your maximum loss if it settles at expiry is £140 (7 x £20). However, if the position goes your way you could make 93 points at £20 = £1800 or if the market falls some 1000 points to say, 9,500 your position may now be quoted at 35 – 40 and you could ‘close-out’ at 35 for a 28 point gain at £20 = £560. This type of trading is similar to option trading where the small buy price is similar to the option premium one would pay for the right to Buy or Sell an Instrument, if a certain price level were achieved.

A few more nuances with Binary Betting, when compared to financial spread betting, are as follows.

1. When financial spread betting, markets typically remain open ‘after hours’ i.e. you are still able to place orders. A Binary Bet settles automatically at the expiry time whether this is an Hourly, Daily, Weekly, Yearly etc.
2. Binary Bets are settled on Official Closing prices. Please remember that at the end of each trading day (e.g. 4.30pm in the U.K. and 9pm, U.K. time, in New York), there is always a settlement period and the price you see quoted at the official closing time is subject to change. For example, if you have a Binary Bet open for the FTSE100 to finish up between 0-30 points and it is up, say, 29 points at exactly 4.30pm then please be prepared for that number to ‘settle’ a few points either way.
3. While spreadbets fills may be prone to spikes with stops being triggered and positions stopped out due to intraday market movements, binaries will run to maturity unless you decide to close it early.
4. The spread betting companies may stop accepting bets a few minutes before the official market closing time and once this situation occurs it is impossible to trade your position and you have lost control of your bet.

In financial spreadbetting a ‘Margin’ is required to open a position and funds need to be in your account to fund your ‘Margin Requirement.’ This is calculated by multiplying the financial instruments Notional Trading Requirement (NTR) by the size of your bet in £’s – i.e. if the NTR is 100 and you wish to bet at £10 per point then a £1,000 margin is required to open the position. Binary Bets also require a deposit, however, for all bets this is calculated simply by multiplying your stake in £’s per point by your Buy price i.e. the deposit is equivalent to your potential loss. For example if you bought the FTSE100 index at 75 to finish UP at £5 per point then the deposit required would be £375 (75 x £5) your potential loss if the bet settled at 0.

A point to note here is that if there are insufficient funds in your account to open a position. In these circumstances the more sophisticated software embedded in trading platforms would not allow the placing of a position beyond the available funds in your account.

The advantages of binary bets appear to be:

• When a position is opened the upside and downside risk is always known, so you cannot lose more than the Buy price less 0 and you cannot win more than 100 less your Buy Price.
• Bets are placed on the likelihood of the event occurring so the ‘odds’ are effectively in your favour.
• Extremely short-term profit opportunities exist.
• Positions are settled at expiry – no need to close out positions with the opposite bet.
• Intraday trading on Market Closing prices is possible.
• No need for Stop or Limit Orders
• May be used to hedge a financial spreadbet position
• Profits can be ‘locked-in’ and Losses limited.
• Easier Account opening.

The disadvantages of binary bets appear to be:

• Large losses can be made because of short-term volatility.
• You are limiting potential profits on a trend move.
• Stop and Limit Orders cannot be placed.
• Early market closure loses control of your position. Most binaries are played over very short-term timeframes and as such more random and harder to predict since markets tend to fare randomly in small timeframes.
• Payouts range from 70% to 90% so the odds are always against traders in the long term (assuming traders playing without an edge).

Note: Some binary betting platforms offer you the alternative to use Decimal Odds to place trades. Decimal Odds are typically quoted on traditional betting exchanges and therefore some speculators prefer this type of pricing. Our view is that people who are familiar with financial spreadbetting will prefer the Binary Bet option.

Decimal Odds are mathematically equivalent to the Binary Bet price quoted. However, there is some slight difference in terminology. Instead of Buying an event to occur you would Back and, if you were Selling the event, you would Lay.

If you wish to swap between Decimal or Binary display simply select either Decimal or Binary from the pull down menu. If you wish to calculate the odds simply divide the quoted price into 100. So, if you see a Binary price of 74 – 78 quoted, the equivalent Decimal price would be 1.28 Back and 1.35 Lay. Similarly, Decimal Odds of 1.50 to Back and 1.62 to Lay would be quoted at 61.7 – 66.7 (please allow for rounding up or down of prices).

In Decimal Odds betting, the prices quoted are the full (including stake) return you would receive for each unit stake. So, for example, if you had backed an event at 1.50 at £10 (the minimum) and won, you would receive £1.50 for each £1 stake i.e. £15, a profit of £5 – equivalent to a traditional ‘fixed-odds’ bet of 3-2. If you lose, however, your loss is limited to your stake. Another way at looking at this would be that you are betting at £0.15 per point at 66.7 on a Binary Bet i.e. you would win £5 for a risk of £10.

If you Laid the above bet, £10 at 1.62, and won, you would receive a full return of £16.20 a profit of £6.20, however, you would also lose £6.20 if the bet went against you. I.e. The same £10 stake would win you £5 if you Back and win, but lose you £6.20 if you Lay and lose – a 24% difference!

Although the ‘odds’ in Binary and Decimal Odds betting are mathematically identical the risk/reward ratio is remarkably different. If we use the example above, we have seen that we can win £5 for a risk of £10 (the minimum) using Decimal Odds. If we use the Binary example and Buy at £1 (the minimum) at 66.7 we stand to win £33.30 but lose £66.70!

Decimal Odds bets, as with Binary Bets, can be closed at anytime before expiry whilst the market is open.

So, you have a choice between either a Binary or a Decimal, the choice is yours. The mathematics is the same, but it does appear that you can reduce risk (but also gains) by using the Decimal option.

Note that binaries aren’t limited to financial markets either. IG Index for instance is currently making a binary market on Obama to be re-elected. The binary is presently price at a spread of 64-67 which essentially means that your winnings on, say a £10 bet is £330 but your risk if Obama loses is £670. In traditional fixed odds bookmaking odds, Obama is a 2/1 on shot.

Which brokers or companies offer Fixed Odds / Binary Betting products?

There are a number of brokers around the world who offer fixed odds trading and binary trading / binary options products – the problem is that most companies who offer them are based in Cyprus and aren’t properly regulated (some don’t even answer their phones). In general if a provider markets the products as a high-return, get-rich quick scheme, you would do well to steer clear. We would suggest Binary.com (previously known as Betonmarkets) and IG Index, both companies are fairly robust and properly regulated and will allow you trade throughout the day, end of day and in many cases weekly, monthly and quarterly. The most popular binary markets tend to be the FTSE 100, Dow Jones and the euro/dollar currency pair.

Note: Binary markets move very fast and require close attention, whereas my other trading methods are less intensive to monitor. The spreads of course do make it hard work as well!