Binary Betting - Examples
OK - here at last - now, we can look at some real examples and see how we can use binary betting to trade a variety of markets, but with a limited downside risk on each trade. In addition, we can close out our trades early, either to take a profit or to close out a loss. Even if we take no action in a losing trade, we will always know that our risk is capped and cannot be any greater than when we first opened the trade. ( This is very different to spread betting where losses can be unlimited.)
Binary Betting - The Markets
As you would expect there are variety of markets available, but the principle ones tend to be forex, market indices, and stocks. Let's start with a simple example using the UK FTSE index.
- Example one - The bet is that the FTSE 100 will finish the day up from the open. With 90 minutes to go until the close of the markets, the index is 40 points higher than the official opening and the spread being quoted is 82-86. We think this is a fairly safe bet as there is only a short time to the close, so we decide to buy ( we think the event will happen ) at 10p per point.
- Profit potential is : 100 - 86 *10p = £ 1.40
- Loss potential is : 0 - 86 * 10p = -£ 8.60
- So we know our maximum loss ( whatever happens ) is £8.60, and our maximum profit is £1.40. We go ahead and buy the bet and indeed 90 minutes later the FTSE is indeed up on the day and the bet closes at 100. We win £1.40
- Example two - The bet is that the FTSE 100 will finish lower on the day from its opening. It is early in the trading day, and the index is down 25 points, but having checked the charts and news, you believe that the index may be pushed higher in afternoon trading when Wall Street opens later in the day. The current spread being quoted is 65-68. You decide to sell at 10p per point. ( you do not think the event will happen)
- Profit potential is : 65 - 0 * 10p = £ 6.50
- Loss potential is : 65-100 * 10p = - £ 3.50
- So again we have a fixed loss of -£3.50, if we are incorrect and the FTSE does indeed finish lower, but a profit of £6.50 if our judgement is correct.
- Example three - The bet is that the GBP/USD will rise by more than 40 points in the next hour. It is 6 pm and you think that this will happen as you have just seen a bullish engulfing candle formation on the hourly chart which looks promising. The binary bet is currently 68 - 72 and you decide to buy the bet ( you think the event will happen and that the pair will rise by more than 40 points ) at 10p
- Profit potential is : 100 - 72 *10p = £2.80
- Loss potential is : 0 - 72 * 10p = -£7.20
- Now assume in this example that you have been watching the trade, and the GBP/USD has indeed risen but not as far as you expected. It is now 6.40 pm and the pair have risen 35 points so far, but you are not sure that this is going to continue. The binary spread being quoted is now 86-90. You decide to take your profits and close the trade. As you opened the trade with a buy order, you close the position with a sell order for the same amount. So in this case you would execute the following :
- Sell at 86 for 10p ( the lower price of the binary spread)
- Profit on the trade : 86 - 72 * 10p = £1.40
- So, in this case we have closed the trade completely and not waited for settlement which could have given us some more profit, but equally, there could have been a reversal and the trade would have settled at 0. This is one of the many advantages of binary betting, the ability of exit live trades, either to stop a loss developing, or to take some profit early. Now lets look at another example of closing out a trade.
- Example Four - Now, suppose in the above example we decided that though we were a little nervous about the next 20 minutes, instead of closing out the whole position, could we perhaps close part of the position - the answer is yes. Let's say we want to leave half of our position open. In order to do this we would place a sell order, but only for 5p per point
- Sell at 86 for 5p
- Profit on this part of the trade : 86 - 72 * 5p = £0.70
- Now we still have part of the trade remaining, but have reduced our risk by banking some of our profits!
OK - now let's look at some of the other issues surrounding binary betting which you need to be aware of before you start your trading.
