Binary Bet on FTSE
Today I thought I’d try something new. For those following my Twitter feed, you’ll read that I placed a binary bet on the FTSE closing lower today. A binary bet has two outcomes – win or lose so it’s a simpler form of trading.
With a binary bet you will know your maximum loss vs your maximum gain so it’s good in that respect. You are able to better manage your risk and are less likely to get involved with the anxiety that traditional trading brings.
For example, if I take my trade that I made today. I got a price quote of 38-40 for the FTSE to close lower. This means that I pay buy at 40 and the maximum that it will reach is 100, therefore my profit is 60 on a £1 bet. Similarly, the lowest number is 0 so my best could go from 40 to 0 meaning that my maximum loss would be £40 on a £1 bet. You can bet as much as your account will allow and you would simply multiply these numbers against the maximum win and loss as what I have done.
The other thing about binary bets is that you can get in and out of your bet. If the market is particularly volatile, you’ll see the price quotes move up and down.. from potentially 0 to 100 and back again. The price quotes only stop moving when they expire. The trade I went for was a bet that the FTSE will close down. The FTSE market closes at 4.30pm UK time which is when the price quote would stop moving and the position liquidated. The price quote can only settle on 0 – meaning price closed above the open or 100 – price closing below the open.
There are many other binary bets which you can bet against. There are 5 minute bets where you can bet if the price is higher or lower 5 minutes from now or even bets if the price of an instrument is higher a year from now.
For my trade, at one point the price quote put me in the positive but generally it didn’t look good. I closed out at a price spread of 10-12 which means I lost £28 (if I left it to completion, I would have lost more). Binary bets can be good for slow moving markets but I think the lower timeframe markets (like the 5 mins) can be very dangerous if you don’t know what you’re doing.
