Having looked at some of the basics of $inary bettingd how bets are quoted and priced, I thought it would be useful to look at some examples of how binary bets work in practice and in particular to take some examples from the various markets now available for binary betting, which in principle are the main indices, the major forex pairs, and finally of course commodities. Some of the binary betting companies are now starting to offer a limited range of stocks and shares on which to bet, and no doubt both the markets available as well as the products offered, will increase as the markets mature and develop.
One of the unique aspects of binary trading and betting is that since the bet is essentially one that has a yes/no answer, and the event being quoted will either happen or not happen, then binary bets or $inary optionsthey are sometimes called, provides us as traders with some interesting betting tools. In essence there are six major types of binary bet which can be applied to virtually all the financial markets and these are as follows: ( some companies do give them different names but the principles are the same)
- Ladder bet – a binary bet where the underlying market has to finish above the quoted price for the bet to close at 100
- Target bet – this is one where the company quotes a target price for the market to finish – ie – FTSE 100 to close 40 – 50 points higher at the close
- Hi – Lo bet – a binary bet on whether the high or low of the day will be a given distance from the previous close
- One touch – a binary option where the bet wins if the price quoted is touched within the time of the bet
- No touch – the opposite of a one touch, where the bet closes at 100 if the price quoted is not touched within the time of the bet
- Barrier – the binary bet has to stay within the upper and lower levels of two prices within the time of the bet
- Double touch – a binary bet which closes at 100 if two prices are touched with the time of the bet
These are the most common binary bets currently available and the barrier bet is sometimes referred to as the ‘tunnel’ bet as it is used for consolidation markets where prices are essentially moving sideways in a channel or ‘tunnel’. All the other bets I think are self explanatory, and demonstrate the enormous flexibility of binary betting and the yes/no outcome of each bet. So let’s look at some example from the various markets.
Binary betting indices
Let’s look at a simple ladder bet for our first example using an index. It is 3.15pm in the afternoon in London, and the FTSE 100 is trading at 5135 up from the opening price at 5100. The binary spread being quoted for the market to close higher on the day is 82-86, and following your analysis, you believe this is probably correct. You therefore buy the bet ( agreeing with the statement ) at £10 and wait until the close at 4.30 pm. The market does indeed close higher at 5142, and your bet closes at 100 as a winning binary bet. As a result you win (100 – 86) x £10 = £140, however, had the market reversed suddenly and the FTSE closed lower as a result, your loss would have been 86 x £10 = £860.
Forex binary betting
For this example let’s look at a one touch bet on the GBP/USD ( cable). It is early morning and having checked the fundamental news for the day ahead, you believe there are some major items which could cause the USD to weaken and therefore believe that the currency pair will rise as a result and break above key technical levels at 1.5250 during the day. The binary broker is quoting a one touch binary bet at 1.5280 during the trading session to 8pm local time with a spread of 52 -54. The forex pair are currently trading just below 1.52 and you feel this is a good bet, so you buy at £5 at 54. During the course of the trading session the news for the US dollar is good and cable falls as a result, and fails to touch 1.5280 in the quoted trading session. You therefore lose 54 x £5 = £270. ( had you been right then you would have won (100 – 54) x 5= £230.
Binary betting commodities
For our last example let’s take a look at an example from the commodities market, with a tunnel bet. In this case we can use our binary bet to benefit from a market that is trending sideways with little volatility, and for the bet to be successful we need this to continue for the defined term of the bet. In this case we are following gold prices, and believe that spot gold is likely to remain range bound for some time, trading between $970 per ounce and $1025 per ounce. We find that the quote for a binary barrier range bet for spot gold to remain between these prices over the next 7 days is 52 – 56 and we buy at £5. In 7 days we are indeed proved correct and the bet closes at 100, with spot gold having failed to touch either price, with a win of 56 x £5
Now it is important to realise in all the above examples, that we could easily have disagreed with the statement of the bet, and sold the bet as a result. Had we done this in the second example for the GBP/USD then we would have won, as the price quoted was not achieved and in this case we would have sold the bet at 52 for a profit of (100 – 52) x £5 = £230. Equally important is the fact that any of these bets could have been closed out at any time, either to take a profit early, or to stop a loss from increasing.
So having provided some examples of binary bets and the markets available, let’s compare some of the binary betting companies and the binary betting markets that they cover.