Even a bet on whether the FTSE 100 index will go up or down on a particular day is rarely 50%. Bookmakers usually quote lopsided odds, because each Footsie session is likely to reflect the tone set by Wall Street the night before.
Jean-Yves Sireau, director of Binary.com, an online bookmaker in Malta, says: "We see quite a number of people doing high probability bets, risking 10 to make 1. They go for strategies they think are a sure win."
On Binary.com yesterday, I could have bet that the pound would not rise from 1.6920 to 1.71 against the dollar before midnight- tomorrow. At the odds-on equivalent of around 1-8, an 89.30 stake would produce 100, including 10.70 profit. Sireau is sceptical: "My own view is that markets are perfectly efficient in their pricing," he says.
THERE is a strategy for gambling in casinos that goes like this. You walk over to a roulette table and put 10 on red. If the ball lands on black, you put 20 on the next ball landing on red. If that lands on black too, you put 40 on the third ball landing on red. You go on doubling your bet until you win. Then you walk out of the casino with your profit.
This "martingale" strategy has superficial appeal, but it is flawed. The ball may land on zero, which is neither red nor black - thus the theory of a 50% chance of winning does not hold - and there is a small chance of losing so many times that you can no longer afford to keep doubling up.
Is martingale possible in finance? There are few, if any, market events that have a probability of exactly 50%.
Even a bet on whether the FTSE 100 index will go up or down on a particular day is rarely 50%. Bookmakers usually quote lopsided odds, because each Footsie session is likely to reflect the tone set by Wall Street the night before.
The nearest equivalent of martingale may be people who speculate time after time on high probabilities. They hope to make money because the markets price-in excessive uncertainty.
Jean-Yves Sireau, director of Binary.com (previously known as Betonmarkets), an online bookmaker in Malta, says: "We see quite a number of people doing high probability bets, risking 10 to make 1. They go for strategies they think are a sure win."
On Binary.com yesterday, I could have bet that the pound would not rise from 1.6920 to 1.71 against the dollar before midnight- tomorrow. At the odds-on equivalent of around 1-8, an 89.30 stake would produce 100, including 10.70 profit. Sireau is sceptical: "My own view is that markets are perfectly efficient in their pricing," he says
High-probability trades are most evident in the options market. An option is the right, but not the obligation, to buy or sell a market at a particular price.
Many experienced traders sell out-of-the-money put or call options on the FTSE 100 index or Wall Street's SP 500 then wait, with crossed fingers, until they expire.
One such trader, Robin Tracey, says: "I try to work out where I think the market is unlikely to go in a particular time span.
"Just now, I think the SP is unlikely to close above 1070 this year. So I would look to sell December SP call options with exercise prices above 1070. When you sell options, you are being paid to take a risk."
Chris Davie, head of options at City bookie Cantor Index, says: "People who sell options are effectively saying, 'I will back the favourite every day.'
By and large they make money, but occasionally they come a cropper."
It can be a huge cropper too.
There can be no limit to the losses that sellers of options suffer if a low probability outcome occurs and the market moves violently against them.
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