Binary Betting and In-Running Bets

Q. Will binary betting companies limit my account if I'm winning consistently?


A: In order to answer your question you would need to consider the type of company that you are betting against -:

In the case of 'Binary Betting' there are two distinct types of markets available. The first type is a company which simply acts as a 'market place' - it provides a place where customers can bet against each other - this type of company makes its money by skimming off a percentage of your trade size, almost like a fee for transacting.

The second type of company is a 'market maker'. They generally operate by pricing their markets through a mathematical algorithm with a number of variable inputs such as current underlying price and current customer positions. In essence they bet directly against the customer. They take the view that their pricing model takes a small amount of 'value' off the customer each time they trade. The law of large numbers therefore predicts a small but steady profit over an extended period of time.

Let's take your suggestion about a customer who develops a winning strategy. We could ask ourselves the following question.. 'Which of the two types of company stands to lose if a customer has a winning run?' I would suggest that your winning run would not effect the first type of company which we discussed. They do not take a position against a customer and are in fact 'market neutral' at all times. They make their money by facilitating trade and on that basis it would not be in their interest to hinder customers trading activities.

If you are interested in Binary Bets we have a Questions and Answers section on them here.

This is not so of the second type of company. In the second type of company they act as your counterparty. If you win then they lose. In essence you imagine that you are purely betting against their pricing algorithm. As well as acting as market maker the company is also in control of execution procedures. This presents potential conflicts of interest. My personal view is that certain market makers attempt to gain an advantage by not executing trades immediately. In some cases deals are routed for manual dealing when computers could just as easily execute the trade in an instant. There is a reason for this type of manual dealing. The companies know that during the delay, which is the nature of manual dealing, the market will carry on moving. This effectively gives the company an element of hindsight with regard to its previously quoted prices. If the price has moved in a manner which favours the company (reduced your profit/increased your loss) then it makes financial sense to reject your order even if your order was valid when you submitted it. Of course, when the boot is on the other foot, and the price moves further in your favour it makes financial sense for the company to accept your order because they know full well that rejecting your order would lead to you re-entering the order on even more favourable terms.

I spoke some time ago with a lead market maker at one of the larger spread betting co's in London and he admitted that the Binary Bet arena was now a much more challenging area of the market place than it had been a few years back. His theory was that initially punters where from a broad spectrum of experienced and inexperienced. This led to many inexperienced punters paying the price and donating large amounts to the companies. After a period of time only more experienced players were left. This was more of a challenge to firms which offered tight spreads. People's ability to spot 'value' started to challenge the house edge. The firms also suspected that arbitrage was taking place in some quite large volumes. The upshot is that most of the firms retain an edge which is greater than the price quotes. By that I mean that they manually process orders or delay quotes to clients in order to disrupt certain clients' activities or to 'pinch' extra value. All of the firms realise that purely mathematical models are beatable by experienced players in one form or another

Q. What is In-Running betting?

A: In running betting (or bet in-running as its sometimes called) means that you have the ability to place a bet whilst an event is actually taking place. It normally applies to sporting contests which are being broadcast live on TV. When, for example, a football match is being shown live, the spread firms will update their prices on a number of markets 'in running' as the event unfolds.

This gives you the opportunity to place new bets or close existing bets, either to take a profit or to stop out a losing bet.

The spread will gradually narrow as the event unfolds and the conclusion comes closer.

Q. What are Bungee Bets?

A: This is one of the latest product innovations from IG Index. The way it works is that you select a stop loss level for the day and should the market breach that level your total loss is frozen but you aren't stopped out! (unlike an ordinary stop loss order where should the market hit the stop loss level you are out) And should the market later recover you can sell at a profit or a reduced loss - and of course you have to pay a hefty premium for the privilege. The last time I check IG Index offered Bungee Bets on commodities, forex pairs and indices. Further information on Bungee Bets and their workings are available here.

 ...Continues here - Are Spread Prices ever Skewed?

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