Binary Betting

• For a Binary UP bet you'll be offered a price on a market such as the FTSE 100 or Gold on whether it will close up on the day
• The binary bet be quoted anywhere between 1 and 99, perhaps 59-61
• Taking the FTSE as an example - if the index does indeed close higher on the day (by 1 or 101 points it doesn't matter, up is up) the binary bet will settle at 100 (at the close of business)
• But if the FTSE closes down on the day (again by 1 or 101 points) the binary bet will settle at 0

What is important to note is that binary bets work in a similar fashion to fixed odds bets offered by a high street bookie, ie your maximum profit and loss are always known beforehand. This is because the binary market cannot rise above 100 or fall below 0.

A losing binary trade

Binary bets can also be shorted

• Unsure what short selling is - see this LearnMoney.co.uk guide

Binary bets can also be shorted so you can back against an event happening. For example -

Binary Bets are always being quoted

Spread betting, binary betting etc is as much about flexibility as anything. And so binary bets are always being quoted right up to when the market closes. This means you can take partial profits, losses or even dump your position before the bet expires. For example -

The main Binary Bets are -

• Daily up bet - if the market closes up the bet settles at 100, if down it settles as zero
• Daily down bet - - if the market closes lower the bet settles at 100, if it closes higher it settles at zero
• Hourly up bet - If the market that hour, from say 10am-11am, closes up the bet settles at 100, zero if the market closes down in the time period
• Hourly down bet - if the market that hour, say 3pm-4pm, closes down the bet settles at 100, if up the bet settles at 0

And of course in the above examples, and indeed all Binary Bets, the markets are always being quoted so profits and losses can be taken at any time, ie the position doesn't have to be taken in the expiry where the maximum profit or loss will always occur.

Special Binary Bets

As well as the traditional binary bets listed above there are other bets which are called 'Specials'. These work in the same way - you bet on an event happening, if it does the bet settles at 100, if not it settles at zero.

• One touch - Will the market move through a certain level at any time during the bet's time period
• Tunnel - The market has to stay within a certain hi-lo range for the duration of the bet
• Hi-Lo - Will today's high or low be a given distance from yesterday's close
• Ladders - Will a market be above a certain price at a certain time of the day
• Extreme short term bets - 5 and 20 minute binary bets on the FTSE and Wall Street - incredibly volatile as you can imagine

Available markets to trade

Binary bet markets are offered on most of the big contracts such as the stock indexes, the larger and more volatile shares, foreign exchange and some commodities.

However, the range of markets offered does depend on which broker is used. Some only offer a limited range of Binaries.

Stockmarket/Trading Providers
Spread Betting brokers CMC Markets TD Waterhouse Spread Betting E*TRADE Spread Betting	Online Brokers E*Trade Hargreaves Lansdown Stockbrokers TD Waterhouse	CFD brokers Saxo Bank Online Trading TD Waterhouse CFDs City Index

They're similar to fixed odd bets

Sharp readers will have noted that binary bets are fixed odd bets in disguise. For example -

• If you buy a binary bet at 50 risking £1 a point your maximum profit and loss is both £50
• If you place a £50 bet at even odds via Ladbrokes your maximum profit and loss is also £50

Or

• If you buy a binary bet at 20 risking £1 a point your maximum loss is £20 with a maximum profit of £80
• If you place a £20 bet at 4-1 at Ladbrokes your maximum loss is also £20 with a maximum profit of £80 - Link to odds calculator

1 point higher/lower is no different from 1001 points

If you go down to the bookie and bet on a horse which in turn wins by the huge margin of 2 furlongs (400 meters) you won't get paid any more money. So the winning margin is of no importance, only that the horse won.

And it's similar with binary betting. You are betting on an event happening or not happening, the FTSE closing UP for example. So if it closes 1 point or 1001 points higher the winning bet still pays the same and the losing bet will still lose the same.

This is in contrast to traditional spread betting where both profits and losses are theoretically open ended. So when you're long or short you want the market to move as much in your favour as possible.

Binary prices can be very volatile

Binary bets are extremely sensitive to the price of the underlying and therefore can move very quickly, especially when the markets are volatile. New traders are advised to watch how and why the binary markets move and trade for several days before risking any capital.

Also, because Binaries can move quickly all orders have to be entered via the online trading platform and are not accepted via the telephone.

No commissions and no margin

There's no commission for dealing in Binary bets as the spread betting firm make their money off the bid-offer spread. Also, no margin is charged as the bet has a fixed risk but you will need to have sufficient money in your account to trade.

Binaries are not regulated by the FSA

Spread bets are regulated by the Financial Services Authority but Binary Bets are not. So in case of a problem a client won't be able to take their dispute to the Financial Ombudsman Service.

But are Binary bets any good, will they suit your trading?

Some love them, others think of them as slightly gimmicky. My own personal view is simple - any tool or product that adds flexibility to the financial markets is welcome. You might not want to use them today, this month or even this year but they're just another tool for your financial toolbox, one which might come in useful in the future. It's therefore unwise to dismiss them.

Finally, although Binary Bets are a welcome addition to the spread bet arena if there's one problem with them it's their inherently expensive bid-offer spreads, often 5%+.

Prospective traders should take note of this point as the cost of doing business is far more important when trying to generate profits in the markets than many people believe, especially those new to spread betting.

See also

• Binary Betting Odds checker
• Spread Betting - The basics
• Orders - What are the different ones - how they work
• FAQ section - Which Binary Betting firm do you recommend
• FAQ section - Any good books on Spread Betting