Types of Binary Bet: Handicap
While Up/Down bets form the staple of binary betting, there are also unsurprisingly a range of other outcomes that can form the basis of any binary trade. One of the second most common of these, and arguably a slightly more profitable form of binary betting is the handicap bet, so-called because the market must move in a certain degree in order to deliver the return – i.e. any positive market movement is actually ‘handicapped’ by the interplay of a further stipulation.
This can be a particularly effective way to capitalise on market movements when you believe the markets to move heavily in one or other direction, and represents a sort of halfway house between spread betting and binaries. Whereas normal binary bets make no provision for the degree of movement in the underlying market or index, handicap bets require the market to breach a certain threshold, beyond which the depth of movement is insignificant.
Take the following example as an illustration. Strong economic reports from the UK coupled with days of strong trading in the US and anticipated positive trading announcements from the UK banking sector look set to almost guarantee a rise in the FTSE. The binary spreads on an ‘up’ bet offered on the FTSE might be set to 90-95 in reflection of this, which leaves very little scope for profit if the market does indeed rise. In this instance, assuming a £10 stake, the maximum profit that could be taken is £50, while the maximum loss that could be realized is £900.
As you can see, the odds in this example are skewed to represent the enhanced likelihood of the markets moving upwards – in this case, set at 95% by the broker, factoring in his commission portion.
However, assuming you are confident that the market will rise substantially on the day, you might be more attracted to a binary on the FTSE closing more than 10 points up on the previous day, which could have odds of 61-66. While this is obviously an increased ‘handicap’, this proposition allows the savvy trader to more readily capitalize on his position and to put his analytical skills to good use in generating a strong return on his investment.
Handicap bets can be an excellent next step for the trader looking to capitalize on market movements beyond the most simple of binary bets. While harder conditions to satisfy, as the name implies, handicap bets nevertheless deliver an enhanced return to the trader, and are thereby favoured in some instances amongst savvier binary bettors.