Binary Betting and Options Trading
Serious traders and professional investment institutions alike are almost perpetually on the lookout for new methods of trading, and new investment tools that add flexibility to their portfolio. With the rise in online brokers and the increasing popularity of spread betting and other ‘out-of-the-box’ trading vehicles amongst consumer investors, a variety of alternative investment styles have sprung up to satisfy the demand for trading flexibility. One such style is known as binary betting, a fixed odd spread betting-like instrument.
Binary betting presents the trader with a binary option on a given market. The market will only move either up or down, and regardless of the extent of the movement in either direction, the trade presents an all or nothing outcome, awarded at either 100 or 0. In effect, this means the trader is essentially just backing the direction of the market, making no warranties on the volume of movement in a particular direction. Prices are quoted as spreads which represent fixed odds depending on the broker’s interpretation of likely market movements, and thus the spread represents the maximum profit and loss from the outset.
Here's a working example. The binary betting market for the FTSE 100 is quoted with a spread of 48-51, the interval representing the broker’s commission portion on the transaction. If a trader thinks the FTSE will have a positive day, he could ‘buy’ the spread at 52 at a rate of £1 per point. If the market moves up by 1 point on the day, the trade will be closed at 100, representing a profit of £48 (100-52 x £1). If the market closes 1 point down on the day, the loss will be £52 (52-0 x £1).
Note that even if the market moves up or down by 20 points on the day, or even 200 points, the binary bet will deliver the same return. The trader is merely taking a position on the movement of the market.
Binary trading is a great way to quickly take a position on the direction of a market, with fixed odds and no need to worry about the subtleties of market pricing. Delivering much of the same benefits to traders as spread bets, including significant leverage, binary betting is becoming an increasingly more widespread and profitable trading vehicle.