An Introduction to Binary Spread Betting

BinaryOptionsNow | Published on September 11, 2011 at 9:59 am

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Binary betting has become really popular recently, and that’s probably because of two facts –

  • it is easy to understand, and
  • it limits your losses,

which are things that beginners always worry about when they think of trading in the financial markets.

Binary betting is a method of protecting yourself against enormous losses with spread betting. One of the major dangers of spread betting is that without a stop loss you stand to lose potentially limitless amounts. Of course, the temptation is that you also stand to win potentially limitless amounts. For example, in the current turbulent markets, the day the Dow Jones lost 770 points in value after the failure of the American rescue bill in congress could have made an individual who betted on the value to drop an absolute killing. On the other hand, most people expected the bill to pass and betted on the value to rise – thus losing massive amounts.

Binary betting is a protective option, it means that all you stand to lose is your original stake, and you also know exactly how much you will win, no matter how well it goes.

Binary Betting is not particularly complex, but it can be a lot safer than other forms of spread betting, because the losses are finite.   It helps that binary betting is very similar in workings to the more traditional type of betting involving horse racing for instance.  When you bet on the horses, you have a fixed odds bet. If your horse wins, you get a certain multiple of your stake which the bookmaker has already agreed with you at the outset, which depends on the probability of possible outcomes.  If your horse doesn’t win, then you lose your entire stake. With binary spread betting, you aren’t betting on horses, but on the stock market or other similar financial area. When you place your binary bet, you know exactly how much you will win, and what has to happen for you to win. If you don’t win, you stand to lose your stake but nothing more.  So your losses are limited just like the horse racing bet, and you don’t suffer the open-ended “how far is the market falling”, and deciding when to cut your losses and close your trade.

With binary betting you bet that the stock market will be higher (or lower) at a certain time in the future, it doesn’t have to be restricted to the market, it can be a single share, index, or commodity. You bet, if you believe that the market is going to rise on the top end of the betters spread (for example, 25-28). If you put a £1 bet on at 28, it will cost you £28. If you’re right you gain £72, if you’re wrong you lose £28. If you bet in the other direction, on the market to fall, you put your money on at 25, which costs you £75, if you are correct you pick up £25, if you lose you give up £75.

One thing to bear in mind is that if you are quoted under 50 it means that the bookmaker generally thinks that the market will fall, whereas if you are quoted over 50 it means that the market, according to the bookie, is likely to rise.

The event that gives you a “win” is usually very basic, such as will the FTSE 100 index (a measure of the London stock market performance) be higher or lower by the end of the day.   You can bet on either result, as you think it will be, and it will cost you a different stake depending on how your spread betting provider sees the probabilities. If you are right, you win a notional 100, if you are wrong you get nothing.

For example, say you were interested in placing a binary bet on the FTSE 100. Your spread betting company might quote you “49-54”, which means it will cost you 49 to bet that the index will be lower, and 54 to bet that it will finish the day higher. If you are convinced it’s going up, then you might bet a pound per point, that is £54. At the end of the day if it’s higher, you get £100, and if it’s lower you get nothing.

On the other hand, if you thought it would go lower you can stake £49 on a binary bet, and get the same £100 if you are right, or lose it all if the index finishes up on the day. It’s simple, clear-cut, and you know at the outset the exact cost and reward.

Most spread betting providers allow you to place a binary bet at any time of the day, and you can find bets where the bet is decided at a certain time rather than at the end of the day, or even ones that last longer than a day. If you are looking for a simple way to get started betting on the financial markets, then binary spread betting is worth a look.

For the average spread better, a wager of £75 is fairly big money, and you should bear in mind that spread betting is not for the average gambler. Spread betting companies are keen to make sure that all those who trade with them are experienced and know the risks that they are facing. If you are interested in spread betting make sure that you know the markets that you are playing and that you do your research thoroughly before you start, there are many different tips and tricks involved in spread betting, and it is best to learn how it’s done before you start wagering your hard-earned money on it.

 

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