Having looked at the basic concepts of $inary bettingt’s look in detail at how binary bets are presented and priced on the financial markets, and then look at some simple examples of binary betting trading in practice, and as you will see, one of the beauties of binary odds is that everything is presented in terms of probabilities or odds. As such, this gives us a very quick and immediate view of the market being quoted by the binary betting company. So how are these odds presented ?
Binary betting odds
As we have already seen, binary bets have a simple yes/no outcome, with the trader either winning or losing, and in the world of binary betting this converts into binary bets being quoted on a sliding scale of 0 to 100. A binary bet that wins will close at 100, whilst a binary bet that loses will close at 0, and whilst the binary bet is in play, then the quote will be somewhere between the two, depending on the odds or the likelihood of the event occurring or not occurring. Underlying this, is of course the simple concept of fixed odds, which form the cornerstone of binary betting. If we take a simple example of tossing a coin, then the chances ( or probability) of the coin falling with a head or a tail are equal while it is in the air, so this would equate to odds of 50/50 or 50%. Once the coin has landed ( assuming it is a head ) then the chance of a heads outcome is 100% and the chance of a tails outcome is 0%. So in the world of binary betting, a binary bet priced at 50, indicate that the binary betting company feels that the event has an equal chance of winning or losing.
Whilst it would be nice to see binary bets quoted with one figure, in practice of course there are two ‘prices’ or odds quoted, as the binary betting company makes its profit from the spread of the binary bet, in much the same way as for spread betting. Indeed this can be confusing as many companies refer to this as the binary spread, which of course it is, but it does appear confusing at times!
So let’s take a simple example of an event occurring, such as the FTSE 100 closing up at the end of the trading session. It is early afternoon and the FTSE 100 is trading around 5,250, having opened the morning session at 5,215. The binary betting company is offering a bet that the FSTE 100 will close higher on the day, and is quoting a spread of 79 – 81. What is this telling us? If we look at this from a fractional odds perspective, then the company is quoting an 80% chance that the event will happen – 80/100, so a very high probability that the FTSE will indeed close higher in the trading session. The converse of this is that the company is quoting a 20% chance that the event will not happen. In fractional betting odds terms the first event ( 80% probability) is an ‘odds on’ event at 4/1 on – in other words if this event occurs five times then we can expect it to win 4 times in 5. The 20% probability is an odds against event at 1/4 – in other words this event is likely to occur only once if the event is repeated several times, and if we were to bet against it happening than we would expect to win once in five attempts.
As we have seen from the example above, binary betting is based on the probability of an event occurring or not occurring, and from this we can highlight two points, one of which is self evident, the second of which is perhaps less so. Firstly, the binary spread being quoted immediately tells us the company’s view of the event being quoted, so if we see a quote of 89 – 91, them we know instantly that this has a very high probability of occurring. In betting terms this is a very short price, and therefore likely to close at 100 and therefore a winning bet, with the converse being a very low chance that the event will not occur – very long odds indeed.So by looking at any particular event being quoted, whether the FTSE 100 closing higher or lower, the euro vs dollar closing below a certain price, or indeed any other, we can immediately tell from the binary spread the binary betting company’s view of the market at that particular moment. In simple terms anything above 50 will indicate that the event is more likely to occur, and anything below 50 that it is less likely.
The second, and perhaps less obvious point is that we can either agree with the statement or disagree. If we agree with the statement then we would buy the binary bet, and if we disagree then we would sell the bet. In our FTSE 100 example above, with the binary spread of 79 – 81, if we believe the index will close higher at the end of the trading session then we would buy the bet, agreeing with the statement, and buy at 81, the higher price of the spread, but if we disagree with the statement and feel the index will close lower at the end of the trading session, then we would sell the bet at 79. This is the fundamental principle behind all binary betting trading, and in many ways it is the simplicity of the binary spread odds, coupled with the limited risk to the downside in the event of a losing bet, that characterise the market for many traders.