Home » Binary betting

Binary betting

As outlined in my introduction, $inary bettinga new addition to the world of financial betting, and one which is now gaining in popularity for several reasons, and as a result the spread betting companies are just beginning to offer this trading system alongside their more traditional platforms. So what is binary betting and why is it becoming so popular? Let me answer this question by explaining the basic principles of binary betting, which will no doubt provide some clues as to its increasing use amongst many financial traders around the world.

The starting point for explaining how binary betting works, is in the use of the word binary, which forms the basis of this betting system. For those of you familiar with binary numbers in mathematics, this is a numbering system based on the concept of every other number being created from two basic numbers, 0 and 1. Indeed this is the basic concept on which all computer chips and processes are designed, as with no intelligence, the humble pc is only capable of making a yes/no decision, based on whether the data sent is a 0 or a 1. This principle is that which lies behind binary betting at its simplest level, and from a trading perspective it is this;  that every trading position or financial bet has a yes/no outcome. In other words the event we are betting on will either happen, in which case we win the bet, or it will not happen, in which case we lose the bet. This simple concept is what lies at the heart of trading using binary betting, with each trading scenario reduced to one of success, or failure.

This success or failure outcome, also leads on to one other fundamental point with binary betting, which is perhaps even more important which is this; that whether the bet succeeds or fails, then the bet is closed as a result, with no further losses or profits arising. In other words, a binary bet has a limited profit profile, but equally also has a limited risk profile, making this an ideal betting strategy for novice and new traders, with your risk limited and defined before you open any trading position. This is all very different to a spread bet, where your risk and profits are both unlimited, and governed by your own trading decisions, and not the markets acting as the trigger on your trade.

From a psychological perspective this has several major advantages. First, your risk to the downside is known and limited before you open your position, and indeed as we will see, you can exit a binary bet at any time, reducing any losses further. Secondly, binary bets tend to be over shorter timescales, reducing the tendency for new traders to close out winning positions too early, and allowing losses to run. Finally these factors combine to provide a trading environment which is less emotional, leading to better trading decisions and lower stress. Whilst this is all positive news, there is one big danger with binary betting which is this – the simplicity of the trading system, and the low risk profile often leads traders to treat this as a ‘fun’ way to bet on the financial markets – fatal if you are proposing to make money longer term. Trading is a business, short and simple – trade for fun and the losses will mount up, whether you are trading using binary betting, spread betting or fixed odds. Indeed to reinforce this point about financial betting in general, some of the companies now offering binary and fixed odds bets, also have a section called ‘fun bets’ where you can bet on such outcomes as whether the next tick on a currency pair is higher or lower, or whether a currency pair will finish higher or lower in the next five seconds. This is gambling – short and simple, with the odds stacked against you, and is where the short term financial betting market becomes so dangerous. When boredom sets in as we wait for a market move, it is very easy to spend a few hours betting on tick data or small price moves – trust me, it is one of the mistakes I made and is very easy to become addicted to this form of financial betting. Just remember, the clue is in the title! These are fun bets – nothing more, nothing less!

Finally, the one major difference between spread betting and binary betting is this – spread betting is based on leverage and margin, whilst binary betting is based on cash. In other words what you win and lose in a binary account is your own money – you are not betting with borrowed funds from your broker as in a margin account. This is one of the great attractions and benefits for new traders, as the dangers of trading on margin are generally ignored or not understood, with the inevitable consequences!

Now having given you a flavour of binary betting and the underlying principles of how it works, let me explain on the next page how bets are priced, give you some simple examples, and review some of the binary betting companies and the financial betting markets they cover.