Serious traders, as well as skilled investment firms, are almost constantly looking for new trading strategies and new investment techniques that bring flexibility to their portfolios. With the growth in online brokers and the growing adoption among consumer investors in spread betting and other ‘out-of-the-box’ trading vehicles, several alternative investing models have arisen to meet the need for versatility in trading. One such style, a fixed odd spread betting-like instrument, which is commonly known as binary betting.
In certain ways, binary options and spread bets are close. Both allow traders to forecast a wide range of underlying assets’ price fluctuations and gamble money on those forecasts. Neither binary options nor spread bets directly buy the underlying asset in question, all of which merely encourage the investor to gamble on the price movement.
Fixed risk arrangements are binary choices. This means your benefit and loss is set anytime you position a conditional option transaction and can only work out one of two ways. Just a certain amount can be won, or you can only lose a certain amount. This varies from betting wins for financial spread because losses will be potentially infinite. If you do not set stop loss points to make a profit with spread betting, depending on the extent of market movement, you will win or lose. This is where you can learn more about them. In fact, in some way or fashion, much of the content on this site is linked to exchanging binaries.
In a given market, binary betting provides the trader with a binary choice. The price can only shift up or down, and the exchange offers an all or nothing consequence, awarded at either 100 or 0.0, irrespective of the magnitude of the motion in either direction. In essence, this suggests that the investor only follows the direction of the market, providing no promises on the volume of movement in a given direction. Prices are quoted as spreads which, based on the broker’s understanding of possible market fluctuations, represent fixed odds and hence the spread represents from the outset the maximum benefit and loss.
With set odds and the need to think about the subtleties of stock pricing, binary trading is a perfect way to easily take a position in the direction of a price. Binary betting is becoming an ever more common and lucrative trading vehicle, providing much of the same advantages to traders as spread bets, including considerable leverage.
Binary options allow individuals over a set timeframe – most commonly a few minutes or hours – to take a stance on the price movement. For instance, someone could bet over the next 30 minutes, Manchester will beat Liverpool. If that occurs, many brokers guarantee that up to 70% of their bet plus the return of their initial stake will be won by the punter. The exact return depends on the option’s negotiated terms. If the opposite happens, the stake is lost.
Few advantages of Binary Bettings are:
- The upside and downside probability is already understood when a position is opened, so you can not lose more than the purchasing price less than 0 and you can not win your purchase price more than 100 less.
- Bets are put such that the ‘odds’ are essentially in your direction on the chance of the occurrence happening.
- There are highly short-term prospects for gains.
- Positions are decided at expiry, with the reverse bet, no need to close out positions.
- Market close rates are possible for intraday trade.
- No Stop or Restrict Orders required.
- Profits may be ‘locked-in’ and constrained by losses.
- Easier opening of accounts.
While Binary betting has so many advantages, it comes with a fair share of disadvantages: Drawbacks of binary bets are:
- Because of short-term uncertainty, substantial losses may be achieved.
- On a trend shift, you’re restricting future gains.
- Unable to put Stop and Restrict Commands.
- Closure of the early market loses control of the place. Over rather short-term timeframes, most binaries are played and as such, more random and more difficult to forecast when markets appear to fare predictably in small timeframes.
- Payouts range from 70 to 90 per cent, but the long-term chances are always against traders (assuming traders playing without an edge).