A few companies like Binary.com (previously known as Betonmarkets) and IG are now offering fixed odds betting prices. This is much closer to other forms of betting such as betting on horse racing. In other words you can bet on things such as whether the FTSE 100 will be over a certain level by a certain date or time. Or you can place a bet to say that the FTSE 100 will be up or down by say, 10 points by the end of the day. Your bet (stake) is your total risk and you will win an amount based on the odds quoted at the time you opened the bet (such as 5 to 1).
Fixed odds betting is growing in popularity but is not available through all companies nor is it available on a wide range of indices/stocks - yet!
Remember, there is on-screen help available from the trading company Internet site so if you need further explanation on anything offered by a particular trading company you can use that or you can always phone them up and ask. They will be only too happy to explain because they will want your business as a happy trader.
This is the latest product offered by spread betting companies and again, is not yet offered by all companies and is usually only available for the major markets like key Index markets and main currency pairs. Before I explain what it is let me stress that you do not have to use this form of spread betting (to be honest I don't use them often) but I explain it because it is available. I can see one advantage and that is when the market is particularly quiet and you wish to trade simply on whether it is up or down by one point or more by a certain time. Having said that, it is possible to close your bet at any time during the trading day.
Binary bets are usually only available during trading hours.
Binary betting allows you to take a simple view on whether you think a market is going to be up or down by a certain time. The key difference between this and a normal spread bet is that you know from the outset exactly what your maximum loss would be and you also know the maximum gain you could make. The word binary means dual or twofold, hence there are only two outcomes, the event will or will not occur. All Binary bets are quoted on an index between 0 and 100. Just like a spread bet you buy or sell for a certain amount per point depending on your view.
Let's look at an example of a binary bet -:
You decide that the FTSE 100 Index will be up by 10:00 a.m. and the spread offered for this binary bet is 48-52. To bet that it will be up you need to buy at 52 and you decide to do £2 per point.
The FTSE does go up by 10:00 a.m. so the bet expires at 100 (you are correct). You win 100 - 52 points = 48 points x £2 = £96.
If the FTSE were to go down by 10.00 a.m. the bet would expire at 0 (zero) which means you lose 52 points x £2 = £104.
You can make similar bets on whether the Index will be up or down by the market close or even year-end.
If you decide to close your bet before it expires (before the event happens) you will close at the spread price available at that time to realise any profit or loss.
The spread will move throughout the day based on how close the market is to going up or down by the deadline time. For instance, let's look at the Dow. It opened at 10,440 and you want to place a bet that it will close up today (10,441 or higher). Ten minutes after the open the Dow is at 10,430 and the binary bet spread might be 85-89. You would make 19 points if you are right but lose 89 points if you are wrong. You decide to leave it.
After a few hours the Dow drops to 10,390. You are still convinced that it will close up on the day and the binary bet spread offered now is 35-39. Now if you win you will make 61 points (100-39) and if you are wrong you will lose 39 points (39-0).
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