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Binary bet types

Binary betting has some curious terms which may be unfamiliar to you, so I will try to explain as many as possible along with some worked examples which I hope will clarify these for you. So let’s start by looking at the various types of binary bet, and in essence there are two types, one is called the floating binary bet, and the other is called a fixed binary bet, of which the floating binary bet is the more common at the moment. These are two very different types of binary bets and is vital that you understand the principle differences. At present the floating binary bet is the most common amongst the binary betting and binary spread betting companies, but this may change in the future. So, let’s start with the floating binary bet.

Floating Binary Bet

A floating binary bet is exactly as it sounds, in that the binary option being quoted ‘floats’ or changes throughout the life of the bet, but the strike price ( or the price at which you either bought or sold the bet remains fixed). So to take a simple example from the equity markets for an index ( FTSE 100) , suppose we opened a binary bet ” the FTSE 100 to close lower by the end of the trading session”, then the binary odds being quoted could vary throughout the day as the FTSE 100 moves above or below the opening level , but the price we bought the binary bet ( or the strike price ) remain fixed. This is an important concept as it leads us to the next important point about a floating binary bet, and this is that the bet can be closed out at any time, either to take a profit early, or to cut short a loss. In addition, a floating binary bet can be closed out partially, so you don’t necessarily need to close out 100% of the trade, an interesting concept which we will look at in more detail shortly. However, for the time being, just remember that a floating binary bet moves as the probabilities of the underlying event occurring, or not occurring ebb and flow during the course of the bet, and that it can be closed out, either in total or partially at any stage before the bet settles and expires, either with win ( 100 ) or a loss (0).

Fixed Binary Bet

A fixed binary bet is the opposite of a floating binary bet and a very different concept. In this case the buy and sell prices remain fixed and the strike price moves.  For example, if the binary bet is that “the GBP/USD will end up 25 pips by the end of the hour” the buy and sell prices would remain the same for the entire lifetime of the bet but the event might change to “the GBP/USD ending up 21 pips”, or “up 19 pips”, or “up 13 pips”, or “up 7 pips for example, during the course of the event. Unlike the floating binary bet, the fixed binary bet can never be closed out during the lifetime of the bet.

As I mentioned above, the most common trade for binary betting is the floating binary bet, so from now on all examples are based on this type of bet which is the one you will use for most, if not all of your financial binary betting trading, as it allows the bet to be closed at any time during the contract. So having looked at the two main types of binary bets, let’s look at some simple examples to see how binary bets are priced and quoted by the binary betting companies.