When financial spreadbetting, markets typically remain open 'after hours' i.e. you are still able to place orders. A Binary Bet settles automatically at the expiry time whether this is an Hourly, Daily, Weekly, Yearly etc.
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Binary Bets are settled on Official Closing prices. Please remember that at the end of each trading day (e.g. 4.30pm in the U.K. and 9pm, U.K. time, in New York), there is always a settlement period and the price you see quoted at the official closing time is subject to change. For example, if you have a Binary Bet open for the FTSE100 to finish up between 0-30 points and it is up, say, 29 points at exactly 4.30pm then please be prepared for that number to 'settle' a few points either way.
The spreadbetting companies may stop accepting bets a few minutes before the official market closing time and once this situation occurs it is impossible to trade your position and you have lost control of your bet.
Binary betting is sometimes described as a halfway house between fixed odds and spread betting. This type of betting allows the trader to take a view on whether an event is going to happen or not. If the event is deemed to have happened the bet expires at 100, and if not then the bet expires at 0.
In financial spreadbetting a 'Margin' is required to open a position and funds need to be in your account to fund your 'Margin Requirement.' This is calculated by multiplying the financial instruments Notional Trading Requirement (NTR) by the size of your bet in £'s - i.e. if the NTR is 100 and you wish to bet at £10 per point then a £1,000 margin is required to open the position. Binary Bets also require a deposit, however, for all bets this is calculated simply by multiplying your stake in £'s per point by your Buy price i.e. the deposit is equivalent to your potential loss. For example if you bought the FTSE100 index at 75 to finish UP at £5 per point then the deposit required would be £375 (75 x £5) your potential loss if the bet settled at 0.
A point to note here is that if there are insufficient funds in your account to open a position. In these circumstances the more sophisticated software embedded in trading platforms would not allow the placing of a position beyond the available funds in your account.
Binary bets can be considered as complimenting rather than substituting other products like spread bets and CFDs. For instance if you believed that the FTSE 100 has risen too much on a single day, you could place a one-day 'down' binary bet. In this instance, even if the index whipsawed up and down during the course of the day you would still profit if the market ended down by the close of trading. With a spread bet or CFD, you would take a short position with a stop but you run the risk of being stopped out. The advantage here is that with the binary play you know your maximum risk from the outset so you don’t need to set a stop.
Finally, in this section, it is worth noting that the principles of Binary Betting remain the same whichever company you use, although there are some differences in how the market in Binary Bets is made. IG Index quote the 'odds' and you are effectively betting against them as, if you like, a 'bookmaker'. In the past there was a company called Binexx, a binary betting exchange, which, as the name suggests, was an exchange and as such it operated where bets were placed against other clients and not the market maker. Therefore, to place a position one would had to either leave a pending order and hope that another client would deal it or take a position that another client had left. This type of exchange relies on a large number of clients dealing to provide the necessary liquidity in the market.
This would, in our opinion, not only restrict the number of products that were able to be traded but, of course, restrict the number of trades that could be made since there is a possibility that not all your orders would get 'filled.' Timing proved us right and Binexx did in fact stop operating as an exchange and became market maker driven (no doubt due to lack of liquidity).
Please Note: All Prices and Spreads quoted in our examples are for illustrative purposes only and may not reflect actual quoted prices.
Note: IG Index offer you the alternative to use Decimal Odds to place trades. Decimal Odds are typically quoted on traditional betting exchanges and therefore some speculators prefer this type of pricing. Our view is that people who are familiar with financial spreadbetting might prefer this option.
Decimal Odds are mathematically equivalent to the binary bet price quoted. However, there is some slight difference in terminology. Instead of Buying an event to occur you would Back and, if you were Selling the event, you would Lay
The odds quoted are computed automatically for you at the binarybet.com website - simply select either Decimal or Binary from the pull down menu. If you wish to calculate the odds simply divide the quoted price into 100. So, if you see a Binary price of 74 - 78 quoted, the equivalent Decimal price would be 1.28 Back and 1.35 Lay. Similarly, Decimal Odds of 1.50 to Back and 1.62 to Lay would be quoted at 61.7 - 66.7 (please allow for rounding up or down of prices).
In Decimal Odds betting, the prices quoted are the full (including stake) return you would receive for each unit stake. So, for example, if you had backed an event at 1.50 at £10 (the minimum) and won, you would receive £1.50 for each £1 stake i.e. £15, a profit of £5 - equivalent to a traditional 'fixed-odds' bet of 3-2. If you lose, however, your loss is limited to your stake. Another way at looking at this would be that you are betting at £0.15 per point at 66.7 on a Binary Bet i.e. you would win £5 for a risk of £10.
If you Laid the above bet, £10 at 1.62, and won, you would receive a full return of £16.20 a profit of £6.20, however, you would also lose £6.20 if the bet went against you. I.e. The same £10 stake would win you £5 if you Back and win, but lose you £6.20 if you Lay and lose - a 24% difference!
Although the 'odds' in Binary and Decimal Odds betting are mathematically identical the risk/reward ratio is remarkably different. If we use the example above, we have seen that we can win £5 for a risk of £10 (the minimum) using Decimal Odds. If we use the Binary example and Buy at £1 (the minimum) at 66.7 we stand to win £33.30 but lose £66.70!
Decimal Odds bets, as with Binary Bets, can be closed at anytime before expiry whilst the market is open.
So, you have a choice between either a Binary or a Decimal, the choice is yours. The mathematics is the same, but it does appear that you can reduce risk (but also gains) by using the Decimal option.
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