Binary Betting is a form of spread-betting although it’s not as risky. The way Binaries work also means that you know when you place your bet exactly what you can win, and what you can lose. For those starting out in trading, its a great way to play the markets, as the money management skills required are considerably less than other forms of trading, which gives you more time to concentrate on placing winning bets.
Binary bets can be placed on indices (e.g. FTSE 100), commodities (e.g. Silver), and currency pairs (e.g. US Dollar/Euro), and are currently available through spread betting and fixed odds brokers. The bets themselves are also great for the ‘newbie’ trader, as they are quite straightforward, you are basically betting on whether something will or will not happen, all based on whether or not the market is going up or down within a given time scale. There are further variations on these bets, but the principle is the same.
First though, we’ll take a look at how binary betting works, and a simple example of how to place a binary bet. Then, we’ll look at the different bet types on offer.
How Does Binary Betting work?
- Bets are based on scale of 1-100
- If you are right, the bet settles at 100
- If you are wrong, the bet settles at 0
- You ‘buy’ if you think something is going up
- You ‘sell’ if you think something is going down
- (Don’t worry, you’re not actually buying or selling, merely betting)
- If you ‘buy’ at 46 and you are right, your profit is 34 x your stake
- E.g. if you buy at 46 and bet £5 per point, your profit is £170
- 100 minus 46 = 34 x 5 = 170
- If you lose, your loss is £230
- (0 – 46) = 46 x 5 = 230
Simple Binary Bet Example (Standard Bet)
- The FTSE 100 is looking up
- You decide you want to bet on its continued rise
- You are quoted a ‘spread’* of 65-68 n the FTSE going up
- You decide to buy which means taking higher price (68)
- You stake £5 per point
- It closes up 27 points
- You were right
- No matter how many points it goes up, unless you close the bet early (see below),
- you are either right, or you are wrong
- Because you were right your profit is £160
- 100 minus 68 = 32 x 5 = 160
- If you had been wrong, your loss would have been £340
- (0-68) = 68 x 5 = 340
- If you thought the market was going down
- (If you were selling or going short), you
- would sell at 65 (sell price)
- To ‘cover’ your bet, you need a margin.
- Your margin is the amount of money you need in your account to cover a bet that loses
- For example if you buy at 40 at £2 per point, and you lose,
- you owe £80 ((0 – 40) = 40. 40 x £2 = £80)
- Bearing this in mind, you need this amount in your account otherwise the bet cannot be placed
Bet Expiry – How Long Do Binary Bets Last?
Binary Betting – Different Bet Types
The bets listed below are quite common so they should be found on most binary broker sites, and they may also have other bet variations.
One Touch Binary Bets
- If your market touches a certain point within its expiry period,
- the bet settles at 100 – e.g;
- You bet on the FTSE 100 going up 35 points,
- as long as goes up 35 points you win,
- even if it falls back below during the bet expiry,
- as long as it has ‘touched’ the point once, you win.
Range Binary Bets
- This is similar to a one touch bet,
- however, it must ‘stay within the predicted range’,
- e.g. you could bet on the FTSE 100 going up 35 points
- but, a condition would be that at bet expiry, it is still up 35 points.
- This bet would be cheaper, as the odds are more stacked against the punter.
- There are a lot of variations on these type of bets, too many to mention here,
Bet Expiry – Closing Early
- You can close some bets early
- With a standard ‘up bet’, you could be winning, and with £5 per point staked
- you decide to get out while you are ahead
- if the market is up 15 points, you will get £75 back
- 15 x 5 = 75.
- You could also close early if your bet is losing, e.g.;
- If your market is down 8 points, you lose £40 on a £5 bet stake.
- (8 x 5 = £40)
Binary Betting – Advantages
- You know exactly what your potential wins and losses are
- Money management is not as difficult as with other trading platforms
- No commission the brokers mark-up is in the spread itself
- Betting method is very straightforward
- With Binaries it is easy to assess potential gain against loss before deciding to put on a bet
- e.g. If you buy a bet at 80 with a £5 stake, you can lose £400, but you can only win £100
- i,e, (0 – 80) = 80 x 5 = 400, (100-80) = 20 x 5 = 100
- (This makes decisions on whether or not to place a bet it a lot easier than on other trading platforms.
Binary Betting – Disadvantages
- You cannot place Stop Losses on your bets
- You can lose more than your original stake, however, as you have provide a margin before you place the bet, you can’t lose more than is in your account.
- You do have to deposit a margin
- Binary Bets are not regulated by the Financial Services Authority
Binary Betting is a great way to trade the markets, particularly if you are a ‘newbie’. As the method and software are so user friendly, the main thing you have to concern yourself with is learning about the markets themselves.