Binary betting on financial markets is a form of financial spread betting. It involves, however, less risk than traditional spread betting because the exact maximum amounts that can be won or lost are known at the time the wager is placed. In this sense, binary betting has much in common with fixed odds betting.
Compared to trading shares on a financial exchange, financial binary betting offers several advantages apart from knowing the exact potential profit that can be made. First, the potential loss is limited to the value of the initial stake times the binary value. Second, profits from binary betting are tax free. Third, there are no fees or commissions to pay.
Binaries provide an excellent starting point for those who are new to financial trading. Money can be made whether the markets rise or fall. Wagering is convenient, too, as many online bookmakers, such as ladbrokes, offer financial binary betting options as part of the gaming portfolios. Also, binary betting is offered not only on market indices, such as the FTSE 100, US 500 or European 50, but also for currency exchange rates and commodities markets.
Binary bets are based on scale of 0-100. A winning binary bet will settle at 100, while a losing binary bet will settle at zero. Wagers can be made on a market going either up or down—“buying” for a value to go up and “selling” for a value to go down—at a fixed price per point. The methods of placing the fixed odds bets may differ slightly from one book to the next, but the basics are roughly the same at each.
Take, for example, a bet placed on the FTSE 100 when the trading level is at 5200.0. A wager can be made on the index being higher than 5200.0 at market close at a binary of 55. That means for a wager of £1 per point on the market to go up—a binary “buy” bet—the potential payout is (100 – 55) x £1 = £45. The potential cost of a loss is (0 – 55) x £1 = -£55.
A slightly different way in which binary bets can be placed is using a fixed stake and a “decimal” binary. Using the same example as above, with the FTSE 100 trading at 5200.0, a wager of £100 could be made on the market to rise at a binary of 0.55. That means a stake of £100 x 0.55 = £55 would be deducted from the bettor’s account.
If the FTSE 100 closes at 5220.4, the binary bet will return a full £100 for a profit of £45. If the UK 100 closes below 5200.0, the £55 stake is lost. And if the UK 100 closes at exactly 5200.0, then the wager is deemed to be a “dead heat” and half the stake pays full odds, so £50 is returned and the net loss is £5.
With financial binary betting, the individual making the wager has full control over the amount to be won, when the bet ends, the bet type and the market levels. The binary is calculated and displayed on the computer screen along with the minimum stake required.
Unlike financial spread betting, there are no “stop loss” orders in binary betting because the maximum potential loss is capped automatically. Also, unlike financial fixed odds betting, the bettor decides how much he/she wants to win, not how much can be risked.
The time periods for expiry of binary bets can be specified by the hour, by the day or by the week. Some bookmakers allow “One Touch Binary Betting” so that if the market reaches a certain point within its expiry period, the bet will settle at 100, even if it falls back below that point again. All that matters is that the point be “touched.”
Other bookmakers offer a feature called “early expiry.” This is a bit similar to the one-touch option, but the bet must be closed by the bettor, not automatically. Also, early expiry can be used in either of two ways: to collect a guaranteed profit or limit losses,