Binary Betting - Question and Answers:


Get answers to all your binary betting questions from the experts here -:


Q.
What is a Binary Bet?
Q.
How does it work?
Q.
How do you place a Binary Bet?
Q.
Where can I trade Binaries?
Q.
What kind of events can I bet on?
Q.
Do I need to get my timing right?
Q.
Does the bet always work on 0-100 basis?
Q.
What are the costs of trading binaries? Surely, there must be some hidden charge?
Q.
I am still confused by the terminology...
Q.
What are the different types of binary bets?
Q.
But you said I can close out a bet before expiry. How does that work?
Q.
What are the advantages/disadvantages of fixed odds betting?
Q.
To whom will binaries likely to appeal most?
Q.
So, I can still profit from a falling stock using binaries/fixed odds financials right?
Q.
What types of fixed odds bets are available?
Q.
How do fixed odds bets work?
Q.
What are Expiry Bets?
Q.
What is a One-Touch Bet?
Q.
What is a No-Touch Bet?
Q.
What is a Break-Out Bet?
Q.
What is a Barrier Range Bet?
Q.
Tunnel binaries??
Q.
What are Pair Options?
Q.
How does binary betting compare to spread betting?
Q.
Isn't binary betting similar to fixed odds betting on sports?
Q.
What is the difference between binary options and regular options?
Q.
Is there a limit when you buy binary options/binary bets? Can you buy 1000$ per point?
Q.
Who takes the other side of a binary option?
Q.
Fractional odds? Decimal format odds? Binary odds? What's all that about?
Q.
Can you close a binary bet before expiry?
Q.
I thought you were supposed to try and close the bet before the buy price gets to 100 but you are saying you would just let it 'bingo' out while the bet is still running?
Q.
But how do you know whether the market will be up or down an hour later?
Q.
Financial betting and short time-frames; can you tell me what technical analysis tools to use in such markets?
Q.
If I knew that a stock was in a consolidating phase, what fixed odds bet would be appropriate?
Q.
How do I predict the market direction?
Q.
How are binaries priced? Do providers have teams devoted to studying the underlying/news/different markets...?
Q.
Can you trade property with binary betting?
Q.
What is the catch with trading binary options?
Q.
What do you need to wary of?
Q.
I saw these contracts at 97 & let's say you buy 10 contracts then your payout is $30 minus fees. After fees you only make $10!
Q.
Overall lost 32 points trading binaries and made just over 180 pips trading spot. Ended up with a nice profit, but it looks like I really suck at trading binaries...
Q.
I have only been trading the up/down daily ladders and only entering only a matter of seconds prior to closing and the profits have been good, however am I correct in saying that if you do get it wrong you can lose a whole lot more?
Q.
About IG Index's custom bets can I give you an example and would you be kind enough to tell me how I would bet on it?
Q.
I went live already with a small amount of money. I've done ok. I tend to overtrade...
Q.
Why do I keep making such stupid mistakes?!
Q.
What do so many traders lose trading binary options?
Q.
Will a binary betting broker ban me if I'm consistently profitable?
Q.
IG Index will remove trading rights once you are seen as a consistent winner: is there any truth in this?
Q.
Why is it hard to take advantage of arbitrage opportunities?
Q.
How can I use a binary option as a hedge?
Q.
Why not use Betfair instead of IG Index?
Q.
One question, does it seem like IG Markets is superior to Nadex?
Q.
Is it possible to make money trading binaries long term?
Q.
What's your opinion of Oanda box options?
Q.
So binary trading isn't available in the USA?
Q.
So for someone located in the States, with Nadex or IG, how are the products taxed? Is the tax the same as for options? Also, what about capped futures?
Q.
But are binary options legitimate? I see some of these companies are based out of Cyprus?
Q.
I use a platform called www.optionfire.com these chaps are the first regulated binary options platform and offer hourly binary trades on various instruments...
Q.
Anything else I should know? Tax implications?

 

Q. What is a Binary Bet?

A: Binary products are fairly simple products that allow unsophisticated traders and investors to bet on indices, stocks, commodities and currencies and profit if the bet was successful. Thus, we can define binary betting as a simple form of gambling where you bet on whether a single event will or will not happen, meaning you can buy or sell the bet. This form of short-term speculation is less well-known than spread betting but still offers an interesting way to make tax-free profit on market price movements.

A binary bet means that only two outcomes are possible - the event either happens or it doesn't. If you think that the market is going to be above a certain level when the bet expires, either you're right and the price finishes higher, or you're wrong and it closes lower - say, that the dollar will slid on a particular day, or the Dow Jones index will close down.

You can place a Binary Bet on any of the major currencies, stock market indices, or large individual UK or US company share prices. Just use the Market Type and then the Market drop-down boxes to make your selection. Remember that you can only place bets when the underlying market is actually open.

Binary Betting Examples

Example 1, Selling a Binary Bet: For example, suppose you wished to place a binary bet on the direction of the FTSE 100 index over a 30-minute period. It has been a volatile day on the stock markets so at this point in time it is a bit difficult to call it either way. The binary betting provider would offer you a price, say 48-52, so if you thought the price was likely to end up higher after 30 minutes from this point you would 'buy' at 52 and if you thought it likely to fall you would 'sell' at 48. You decide to stake £10 per point betting that the FTSE will fall. If your judgement is correct you would win 48 x £10 = £480 (the difference between 48 and 0), similarly, if incorrect you would lose 48 x £10 = £480 (the difference between 52 and 100).

Example 2, Buying a Binary Bet: Let's now take the case of a bet on the FTSE 100 when this market is quoted at 55-60. If the FTSE closes up on the day, the binary bet settles at 100; if it closes down, the binary bet settles at zero. A speculator buying at 60 at £5 a point would win £200 if the FTSE closes up (100 minus 60 is 40, x £5 is £200) and lose £300 if it closes down (60 minus 0 x £5). Someone selling at 55 would make £275 if it closes down and lose £225 if it closes up.

Naturally, the appeal of binary bets lies in their relative simplicity and potential to make a quick gain and they are especially popular amongst short-term traders looking have a punt on an actual result rather than the scale of the result. In fact, binary bets can be one of the simplest and most accessible ways of taking your position in the global markets.

Q. How does it work?

A: How does it work? Well, just as you might place a bet on a horse in the Grand National, or on a football team to win the Premiership, fixed-odds betting allows you to simply wager money on an event happening or not happening. Having identified the opportunity, maybe by evaluating the charts, or reading the financial papers, the next stage is to create the bet to exploit it. Maybe you feel more comfortable with openings that offer a good chance of success, because you'll probably come out on top most of the time. Or maybe you prefer long shots which, although less likely to win, have high payouts so you don't need to get it right every time to make a good overall profit.

A really crucial decision is how much you want to risk on each bet. You're safer to pay more and go for a bigger win when the odds are in your favour, but the most important point is that you feel comfortable with what you're doing.

On most binary betting trading platforms you can always see the actual real-time cost of the bet. This tells you the odds or the predicted rate of success that you're offered. You can use information to help you to decide whether to place the bet or to adjust the parameters to better reflect what you think is going to happen.

The Bet Price also continually changes to take into account what is happening in the markets. For this reason bets are placed online rather than by telephone. Also, each time you alter the nature of the bet by changing your target market level for your bet, the price goes either up or down because the live price always reflects the likelihood of the bet succeeding. So if you change your target binary bet level so as to increase the chance of winning, or the market itself changes to make winning more probable, the price to pay for placing the bet increases. For instance, for a one touch forex contract, as the price of the currency pair becomes closer to the strike price, the contract becomes more expensive to buy.

Example:

Say you wish to bet on whether the FTSE 100 index will end trading higher than when it began. Binary betting prices are quoted on an index between 0 and 100. You buy if you think the event will occur, so if the Footsie does rise, the bet is awarded 100 points; if it does not, it scores 0. For instance, buying £2 per point at a level of 25 would mean you were risking £50. If the event occurs the bet will score 100 points and you will make a profit of (100-25) x £2 = £150.

Q. How do you place a Binary Bet?

A: Binary bets are simple 'yes/no' propositions that allow punters to take a position on an asset over a fixed and a relatively short period of time. The provider will quote you a two-way price and ask whether you believe that 'yes' the price will end up higher (you buy) or 'no' it will be lower (you sell) at the specified time from this point. If you think that the market is going to be above a certain level when the bet expires, either you're right and the price finishes higher, or you're wrong and it closes lower.

Binary bets have only two outcomes, they will either settle at 100 or 0, and by how many points to which you are correct dictates how much you will earn. You can place a Binary Bet on any of the major currencies, stock market indices, or large individual UK or US company share prices. Just use the Market Type and then the Market drop-down boxes to make your selection. Remember that you can only place bets when the underlying market is actually open.

Q. Where can I trade Binaries?

A: IG Index is one binary betting provider; the main other is Binary.com (this one used to be called Betonmarkets). With these forms of betting you are able to sell a market. With spread betting the settlement of the market will vary depending on the market, for binary betting the settlement outcome can only ever be either 100 if the outcome is true or 0 if the outcome is false. The beauty of this form of trading is that you know exactly how much you are risking and how much you stand to win before you even place the bet. If you're right, you get the return promised to you by the binary betting provider. Conversely, if you are wrong, you simply lose your stake, or part of it if you decide to end the trade early.

Q. What kind of events can I bet on?

A: You can usually place binary bets on the daily differences (as well as other speculative scenarios) for the FTSE 100 index, Dow Jones index, DAX 30 index, Nasdaq 100 index and the S&P 500 index. Binaries on oil, gold, silver, currencies and some individual shares are also possible at IG Index

Q. Do I need to get my timing right?

A: Yes, timing is important. As the event being quoted nears its expiry, the quote between 0 and 100 will move to either extreme. Also, the quote will move up or down depending on how many are buying and how many are selling. Either fact can give binary traders the opportunity to 'close out' their bet. For example, you might buy the Footsie quote at 52 early in the day when the index was up just a few points and sell at 72 later in the day when the positive outcome is more likely, but by no means not certain, to be confirmed.

Q. Does the bet always work on 0-100 basis?

A: No, there is another form of pricing that displays the bet in decimal mode (also referred to as fixed odds trading or fixed odds financials). A fixed-odds bet is pretty much like a traditional bet at the racetrack in that you can only lose as much as you wager - the opening stake. You bet a fixed stake, and the decimal point represents your full returns to a unit stake in the event of a win. For instance, backing an event at a decimal price of 4.0 means you would get back £4 for every £1 you bet. So if you bet £100 at 4.0, you could get back £400 (a profit of £300). Binaries can be seen as something in-between financial spread betting and fixed-odds betting.

Q. What are the costs of trading binaries? Surely, there must be some hidden charge?

A: There is no commission as such as the binary betting providers make their money from the size of the bid-offer spread.

Q. I am still confused by the terminology...

A: Just remember that in binary mode if you think the event being quoted will happen, you buy it. And if you think it will not happen, you sell it. In decimal mode, if you think an event will happen, you back it. And if you think it will not happen, you lay it.

Q. What are the different types of binary bets?

A: Ok, here goes -:

Touches: Sometimes referred to as One Touch. This is a type of binary bet that is dependent on the market touching or breaching a pre-determined barrier level. Touch bets settle at either 100 or 0 depending on whether the barrier level is breached or not.

Ladders: This is a binary bet on whether the market finishes above or below a designated level. In other words, will the market be above a certain price at a certain time of the day? For example, a 'FTSE to be Above 5500 Ladder' bet would settle at 100 if the index finishes above 5500 on that day, and 0 if the FTSE finishes the day below 5500. In fixed odds terms ladders are sometimes referred to as bull or bear bets.

Targets: This is a bet on whether a market will close the day within a certain range. For example a 'FTSE to Finish Up 50-60' bet will close at 100 if the FTSE finishes up between 50 and 60 points from the previous day's closing level.

Up or Down: Sometimes referred to as Hi-Lo. These consist of binary bets on what the high or low of the day will be from yesterday's closing point. i.e. on say whether the FTSE will finish up or down at the close of the day's market compared with the previous closing price.

Tunnels: These are bets on whether a market will stay within a certain range for a pre-determined time period. In other words with a tunnel the market has to stay within a certain high-low range. You would place a 'FTSE 100' tunnel binary bet if you thought the FTSE likely to stay within a 100 range, plus or minus.

Extreme Short Bets: five and 20-minute bets on the Footsie and Wall Street are incredibly volatile.

Q. But you said I can close out a bet before expiry. How does that work?

A: Most binary bets are designed for short-term traders, typically expiring at the end of a trading session. You can also close a binary before expiry to realise profits or limit losses.

Example 1: Suppose you have bought the FTSE at 55 and it has risen a couple of hours later, the price may have moved from 50-55 to 70-72. Closing the bet would lock in profits of £100 - 70 minus 55 multiplied by your stake, say £20. (£500). A short-term speculator who sold at 50 could limit losses in a rising market in very much a similar way.

Example 2: Say it is 4.17pm and the FTSE is trading 11.6 points higher than the previous afternoon's official closing level. You are not confident the index will be able to hold on to the day's gains, and spot a binary bet on it finishing down 0 - 10 points with a spread of 6.6 - 9.2. You therefore 'buy' the 'Footsie 0/-10 binary' for £20 at 9.2.

At this time you know precisely you maximum potential loss; if you are wrong and the binary makes up at 0 you will lose 9.2 x £20 = £184. You also know that if you are right your return on the bet will be (100 - 9.2) x £20 = £1816. This represent a near 1,000 per cent return on your risk, decided in the next 15 minutes!

Eight minutes later, the FTSE has dropped slightly to 2.4 down on the day, and the quote for the FTSE 0/-10 binary has risen by more than 40 points. You think there may be some more market shifts to come and decide to take your profit now. You close out your bet at the bid price of 48.8. Your profit on the trade is:

Closing level: 48.8

Opening level: 9.2

Difference: 39.6

Profit: 39.6 x £20 = £792

Warning: Be wary that providers, being market makers are not required to stick around until the very last of a bet (i.e. they have no obligation to make an offer to buy your bet before actual expiry). Be careful not to get caught this way by making sure you're willing to stick to your prediction to the very end if necessary. A trader with multiple and simultaneous positions of 30-40-50,000 (or more) dollars could face liquidity problems when attempting to close all these positions at the same time. If your counterparty is the firm, then you depend on the liquidity of the firm to get your money the moment you need to close.

Q. What are the advantages/disadvantages of fixed odds betting?

A: I like the concept behind trading binary options/binary bets/fixed odds. I especially like the fact that you know exactly what your risk is on each binary you trade. The obvious advantage of this is that with fixed odds betting (binary betting) you can only lose as much as you wager - the opening stake. Your potential profit with a binary bet (fixed odds betting is a kind of binary bet) is however also fixed based on the odds that are offered to you when you place your bet. In addition to the potential to make leveraged returns while taking limit risk, fixed-odds betting doesn't require a lot of capital. In fact, you can stake as little as $1 if you wanted to making it a good way for beginner to learn the financial markets.

This is different to spread betting where losses/profits are potentially uncapped although with spread betting you can place a stop loss orders on your trade to cap potential losses. Another advantage is the flexibility that fixed odds betting provides. With a fixed odds trade you can usually specify the exact outcome for your chosen instrument. For instance, you might buy a contract where the FTSE 100 has to remain between 5000 and 5100 over the next two weeks and never touch either boundary during this time. The fixed odds provider will then quote you based on a fixed-odds return that you'll stand to 'win' if you decide to place the trade, say 100%.

The disadvantages include a much more limited selection of markets when compared to spread betting/CFDs and lack of transparency in pricing of the bets which are based on complicated formulas which makes it difficult for the average Joe to calculate the exact premium built into the bets. In addition the lack of competition means that pricing is sometimes not as good as it could be.

Note also that fixed odds bets allow traders to speculate on many different price outcomes, not just up or down movements. For instance, you can buy a binary so as to profit if a price touches two particular levels, one above the current price and one below it. Or even simpler, you can buy a contract that will pay off if the price never reaches a particular level during a certain period. Most bets tend to be short-term – usually lasting a day or even less but if you wanted to you could bet for periods of up to one year with these instruments.

Derivatives in general are so esoteric, even to experienced traders, that they are widely misunderstood and often shunned by many as 'too risky to trade', even by scalpers that jump on every other pip. Like everything else, it is what it is, for what it's worth and some make it work, while others do what they know best and if that works for them, great - but it doesn't mean that binaries don't have a place in a investor's armoury.

Q. To whom will binaries likely to appeal most?

A: Binary bets are more likely appeal to traders as a alternative form of trading or as a way of making money even if markets are quiet or range trading. Quite a few traders are also attracted to the limited risk nature of binary bets because of the increased volatility in the markets. This is because with a binary bet, the risk is limited to the original stake.

Binaries also permit more experienced traders to take a view on future volatility levels in the market as opposed to just directional movements. For instance, using a binary trade, a speculator can take a position on the FTSE to move 60 points up or down and still make money whichever way the index moves - but with a spread bet, the trader would have to get the direction right to make money.

Q. So, I can still profit from a falling stock using binaries/fixed odds financials right?

A: Yes, of course - you can gain from a falling stock taking on a fixed-odds financial bet. These bets can last for up to 6 months but the range of shares on offer tends to be limited. It also requires you to forecast an exact level where you believe the price will go. Thus, you can open a bet on say, Microsoft that pays out a pre-determined sum of money if Microsoft's share price falls to a certain level within your chosen timeframe.

To conclude binaries may not be the cheapest way of trading but offer fixed downside and plenty of opportunities to benefit from hourly market reversals.

Q. What types of fixed odds bets are available?

A: In a nutshell -:

Bull and bear bets: a bull bet is a contract where you believe the price will be above a certain target at expiry; a bear bet is opposite - that it will be below. Thus, taking the EUR/USD currency cross rate as an example, you would buy a bull contract if you think the price of a currency pair is going to be just one pip (or more) higher than the strike price at that contract's stated closing. On the other hand you would buy a bear contract if you believe that the price of the EUR/USD currency pair is going to be just one pip lower (or more) than the strike price at that contract's stated closing. Tip: Buy only contracts that are not too pricey on the ASK side.

One touch bet: a bet that a price will hit a certain level at least once within a certain time period. A 'no touch bet' is the opposite - a bet that it won't hit a certain level.

Double touch: rather than betting on a price hitting one level, you bet on it hitting two: one above the current level and one below. The bigger the gap between the two, the more money you'll win.

Barrier range: you win if between now and a chosen date, a market trades within (or outside of) a specified range.

Expiry range: you win if the market closes inside a specific range on a specific date.

Q. How do fixed odds bets work?

A: First, let's get this straight - when we talk about fixed odds betting we are basically referring to binary betting; in fact binaries and fixed odds bets are identical, a binary bet is just a different way to present a fixed odds financial bet. When buying a fixed odds bet, a punter is usually able to set his own paramaters within which he believes a certain market (forex, share or commodity like gold or oil) will perform over a pre-determined timeframe.

You can choose how much you wish to make if your prediction proves correct, say for instance you can choose to win £10.00 if you feel the pound will rise against the dollar in the next 3 minutes. Your binary betting provider will then quote you a price for the trade, usually a little over half of the total win amount e.g. £5.50 (this price will fluctuate in real time according to price movements). So, if you win you get your £5.50 stake back plus £4.50 profit. If you're wrong and the price moves against you in the chosen time frame you lose nothing more than your initial £5.50 stake, doesn't matter if you're out by one pip or a one hundred pips you can never lose more than your initial stake.

Not only that but you can usually sell your bet back to your provider anytime before the bet expires. For example if you buy a bull bet that the pound will rally over the next two weeks (so you buy a bull bet that the pound will rally in two weeks time) but over the next few days the pound moves away from your target price, the price that your betting provider will give you for that bet will drop accordingly. If, however, it looks like you might win, but it's not a certainty, you could sell it for more than your purchase price. So you would still make a gain - though not as much as if you had you waited until the full expiry date and the market ended within the range you set.

Q. What are Expiry Bets?

A: Expiry bets are a variation of a binary bet. Expiry bets provide you with the opportunity to bet on whether a market will finish inside (expiry range) or outside a particular price band (expiry miss). Making an expiry bet is ideal if you believe that the price in question will either be especially volatile or particularly quiet.

Example: The Euro/US dollar exchange rate has been particularly volatile. If you believe that this variability is going to continue you can use an 'expiry miss' bet to make money from the situation. With the market at 1.5879 you can elect to win £100 if in seven days the market is outside the range of 1.56 to 1.61. This relatively low-risk bet costs you £56.85 and if you're successful will make a profit of £43.15 (a return of 76 per cent).

Q. What is a One-Touch Bet?

A: A one-touch bet is like a binary bet but with one key difference. You win the bet as soon as the market hits the level you set. One touch is all it takes for you to get paid. This means that you don't have to wait until a specific date for your bet to mature. For instance, if you believe that Next PLC stock will hit 1,950p by 20 November, and it did it on, say, 12 November, you'd win your bet. This flexibility makes one-touch bets very popular with clients.

Say that you noticed that the sterling/US dollar exchange rate was trading at $1.98 to the pound, but earlier in the year it had been much higher. If you thought that the pound was going to recover above the $2 level you could use a one-touch bet as a low-risk way to make money from it.

Another thing with fixed odds betting is that if you want to pull out of a trade early, you can. So, instead of trying for the full payout by hanging on to a winning bet until the end, you might make just a percentage by closing it out early. Thus, if you bet £50 and one week before the expiry of the bet it looks like you might lose it all, you can pull out early. You might only get, say, £10 back, but that's better than nothing.

Q. What is a No-Touch Bet?

A: At times a market can go through a quiet period and simply drift sideways. If you anticipate this sort of scenario you can use a No-Touch Bet to take advantage of it. All you have to do is to specify a level that the price will neither touch nor trade past at any point during the lifetime of the bet.

If the Wall Street index of leading US shares was trading at 11240, and you thought that at worst it would fall by less than 150 points during the next four days, you could create a No-Touch Bet specifying that the index wouldn't hit 11090.

Creating a No-Touch Bet is easy. Log into your account and click on Boundary Bets in the menu. Doing so brings up the betting page ready for you to specify the details of the trade that you want to make.

Select the market that you want to bet on - say, the Wall Street index of leading US shares. Simply click in the Market Type box and specify Stock Index from the drop-down list of available options, and set the Market to Wall Street.

You can place a No-Touch Bet on any of the major currencies, stock market indices, or large individual UK or US company share prices. Remember that you can only place bets when the underlying market is actually open. Make sure that the Currency box matches the currency that you used to deposit the funds in your account.

Maybe you're optimistic about the performance of the US stock market and believe that over the next few days it'll remain firm, never trading at 150 points below its current level. You opt to use a No-Touch Bet as a low-risk way to make money from this.

The first step in the process is to decide how much money you'd like to win. Clearly, the bigger the figure, the more expensive the bet will be, so start out fairly modestly by say limiting this to £100. The next step is to set the strike price (the level that you believe the market will never trade at during the lifetime of the bet). You're optimistic on the index and you believe it won't fall 150 points below its current level of 11240. So you drag the sliding bar to the left to set the boundary at 11090.

Now you need to specify how long you want the bet to last. With a No-Touch Bet any timeframe from 1 to 360 days. As markets always move around, the longer the period you choose, the lower the odds that the index will never hit your boundary. This means that longer term No-Touches are cheaper and have a higher potential return.

You have a positive outlook on the US stock market. The Wall Street Index is currently trading at 11240 and you decide to bet £47.24 to win £100 on the basis that it won't touch 11090 at any point before your bet expires - you choose a timeframe of eight days. The cost of £47.24 is immediately deducted from your account. If, at the end of the eight days, you win the bet, then £100 is automatically credited back. This is equivalent to a profit of £52.76 (representing a return of 112 per cent on the stake).

All open bets are priced continuously to reflect what's happening in the active markets and show how much time is left until the bet expires. With a No-Touch Bet you can take advantage of this by closing the bet early to enable you to take a profit or to limit your loss to less than your stake. To close a No-Touch Bet early, simply go to the My Positions page, which shows the live prices of all the open bets. Select the Sell option on the No-Touch Bet to bring the bet to an end with the proceeds credited back to your account.

Q. What is a Break-Out Bet?

A: The Break Out bet is a type of boundary bet - ideal if you have a hunch that a particular market will be subject to a large move, but don't know whether the market will move up or down.

Shares in the large US investment group, Goldman Sachs, have been extremely volatile. For instance at one point they've traded in a wide range from below $154 to over $201. If you believe this uncertainty is going to continue you can use a 'Break Out' boundary bet to make money from it.

To create a break out bet on the share price of Goldman Sachs, you can use the historic limits of $154 and $201 as your upper and lower boundaries. If you're correct in predicting that the shares would touch either of these levels during the next 10 days, you'd win £100, with the cost of the bet being £35.95.

Q. What is a Barrier Range Bet?

A: The no-touch barrier range bet is ideal if you believe that a particular market will go through a quiet period and remain within an upper and lower boundary for the next few days.

Say you notice that GlaxoSmithKline have traded within the range of 1050 pence to 1210 pence throughout the last two months. If you thought that this pattern was likely to continue you could use a No-Touch Barrier Range bet to make money from it.

To create a No-Touch Barrier Range bet on GlaxoSmithKline you could use the historic levels of 1210p and 1050p as your upper and lower boundaries. If you were correct in predicting that the shares would remain within this range for the next, say, 30 days, you'd win £100, with the cost of the bet being £47.90.

Q. Tunnel binaries??

A: Yes, tunnel binaries. They are binary bets where the bet settles at 100 if the price of the underlying market doesn't reach prescribed levels above and below the previous day's close. For example, one bet is called 'FTSE 100 to keep in range -55 to +55' meaning if the FTSE's price doesn't reach 55 points above or below the previous day's close, the bet will settle at 100. If the price does reach 55 points above or below the previous day's close the bet will settle at zero. The idea is that you profit from a sideways market, the 'tunnel' being the channel through which the price is moving, but [hopefully] never touching the sides.

To find the tunnel binaries, do the following...

First get the dealing screen of IG Index up -:
Then select 'Binary Exotics' from the left drop-down menu (under 'Live Prices').
Then select 'Tunnels' from the middle drop-down menu.
Then select FTSE (Daily) from the right drop-down menu.

There's a range of tunnel widths available, from 'FTSE to keep in range -10 to +10' to 'FTSE to keep in range -55 to +55'.

Q. What are Pair Options?

A: Pair options are a new type of binary bet. You choose which stock within a given stock pair you expect to be the better performer at the expiry date.

With pair options the odds on each stock pair range from something like 7% to 650% return. The good thing about pair options is that you can choose your level of risk, which is one of the principal reasons for the different return percentages for different stock pairs. So when it is more likely that the stock you choose will be the better performer, the return percentage is lower. For example, I traded a Fixed Pair Option of Apple/Google on Monday with end of day expiry. My return percent profit was 82%. Considering I invested $2000 my profit was $1640.

Q. How does binary betting compare to spread betting?

A: Binary betting is a relatively simple way to trade the markets; for instance when you place a binary bet you don't have to worry about margin requirements, stop loss orders, financing or dividends unlike spread betting. With a binary bet there are only two outcomes - either you win or you lose. For instance you would only buy a 'FTSE to Rise' binary bet if you expected the FTSE 100 to rise or sell if you thought it would fall, and you would either win or lose. Moreover, with financial spread betting, your profits can be limited if there is a lack of movement in the underlying asset on which you are trading. By using alternative trading strategies and utilising bianry bets during these quiet periods, it may still be possible to make a substantial gain.

If the FTSE rises:

If the FTSE falls:

Opening price

52

Opening price

52

Closing price

100

Closing price

0

No. points profit

48

No. points loss

52

Stake per point

£5

Stake per point

£5

Profit (48 x £5)

£240

Loss (52 x £5)

£260

As with a spread bet, the amount you win or lose on a binary bet will depend on the number of points between the opening and closing price levels, multiplied by the amount you stake per point. The difference here is that a binary bet will always expire either at 100 ('true' or 'win') or 0 ('false' or 'lose'), thus your maximum potential profit and loss is always known in advance.

Knowing your maximum potential loss has its advantages as you don't have to worry about setting up a stop loss order. Also it doesn't matter what the price does when the binary bet is running, as long as the market is at a higher level when the binary bet expires than when you opened the bet, the trade will be a winner.

Q. Isn't binary betting similar to fixed odds betting on sports?

A: Yes, binary betting is very much like sports betting. I suspect that it was designed to attract people who normally do other forms of betting and couldn't handle proper trading due to the lack of a start, end and specific win size being defined.

Q. What is the difference between binary options and regular options?

A: In real terms binaries are very similar to options. I recommend a book called 'Binary Trading' by John Piper if you want to find out more.

The main difference between binary options (another word for binary bets) and regular call/put options is binary options have a pre-determined fixed payout (a fixed amount you win if the trade goes your way). Also, with binaries a one penny difference in the settlement value can make a $100 difference in the value of the option. (think about that in delta terms.) That's very different than regular options where the expiration value is either $0 or moves dollar for dollar with the underlying stock price.

For example -:

A stock is selling for $10 per share. If you buy a regular $12.00 call option, and the stock rises to $15, the option will be worth at least $3 per share (because the option gives you the right to buy the stock at $12, which you can then sell for $15). If the stock rises to $20 a share, the option will be worth at least $8 per share.

A binary option is a fixed payout. If you bought a $12 binary call option in the above scenario, and the stock rises above $12, the payout is the same whether the stock goes to $12.01, $15, $20, or $1000. A binary option is a 'you get nothing if the stock is below the strike price on settlement day' or 'you get this fixed amount if the stock is above the strike price on settlement day.'

Q. Is there a limit when you buy binary options/binary bets? Can you buy 1000$ per point?

A: There is no limit to the amount of contracts you can trade. Your account just needs to be large enough for the margin requirements. So you could trade a $1000/point trade. Note that this applies to IG Index

Q. Who takes the other side of a binary option?

A: The answer to your question is that it is the broker or market maker who takes the opposite site. IG Index is a market maker, so they take the opposite side of all trades. What does this mean in practice? The market maker will try to extract a profit on the spread. They will buy at a certain price from the client and sell at a profit when the client loses. Market makers will give the market more liquidity. That's good for us as a whole because they make it easier for us to place trades i.e. we can find good prices to trade and trading is always available - of course during normal trading hours. Without a market maker there would be no trading or we would have very few trades to chose from.

Q. Fractional odds? Decimal format odds? Binary odds? What's all that about?

A: Odds in binary betting are usually presented in fractional, decimal, or binary odds. These all tell you exactly the same thing, but some people find it easier to understand one format rather than another -:

Fractional odds like 3/1 mean that for every pound staked, three pounds in addition to the one laid are returned if the bet wins. Take the example of a bet of £38.50 that would win £100 if successful. The fractional odds in this case would be 8/5 because multiplying the stake by the odds gives the net of cost winnings as £61.50 (£38.50(8÷5) = £61.50).

Decimal format odds would show, in this example, as 2.60. You work this out by converting the fraction to decimals (8/5 = 1.6) and adding one to the result. Multiplying the decimal odds and the stake thus produces the total payout of £100 (2.6?£38.5 = £100).

Binary odds show the stake as a percentage of the amount to be paid out if you win the bet. For a payout of £100, the cost of £38.50 would be represented as 38.5 per cent (£38.5÷£100 = 38.5 per cent).

Q. Can you close a binary bet before expiry?

A: All open bets are priced continuously to reflect what's happening in the markets and how much time is left until the bet expires. With a Binary Bet you can take advantage of these continual updates by closing the bet early. Doing so could enable you to take a profit or to limit your loss to less than your stake.

To close a Binary Bet early, simply go to the My Positions page which shows the live prices of all the open bets. Selecting the Sell option on the Binary Bet brings the bet to an end with the proceeds credited back to your account.

Q. I thought you were supposed to try and close the bet before the buy price gets to 100 but you are saying you would just let it 'bingo' out while the bet is still running?

A: If it's a 'normal' bet then you might want to close out when nerve runs out or you think that the fortunes of whatever you've bet on might reverse but with a binary bet, the whole point is that it will close at either 100 or 0.

So if you think that you're right in your bet, let the bet expire (it will automatically close about 16:30 for Gold binaries) and you then get the maximum payout. Of course, if the market suddenly reverses and gold doesn't finish up (assuming that's what you were betting on) then it closes at 0 and you lose a fair chunk.

So closing a bet before expiry would be ok if you felt that there might be a last minute reversal of fortunes, otherwise leave it to expire to get the full benefit of the BINARY close.

Q. But how do you know whether the market will be up or down an hour later?


I have been looking at RSI, Moving Averages and Stochastic graphs so could tell whether it would be up or down in the next few seconds but not 60 minutes later!

A: I presume it isn't something you can do based on the graphs alone. And you never really know; the best you can hope is to make educated guesses. For example today at 13:30 the Retail Sales report was released in the USA and MarketWatch had earlier reported on this saying it wasn't going to be so good. 13:30 came and this was confirmed and the market dropped. Business Inventories (USA) at 15:00 and University of Michigan Confidence (US) at 15:00.

It's just those sort of things to look at and read about what's happening. I have serious doubts you can really tell whether it's going up or down in the next few seconds - it's all just educated guessing based on directions of the movement and maybe if you're looking at support/resistance levels then this helps but at the end of the day - if you're working in seconds it's really a coin flip.

P.S. It is hard to consistently make money on the hourly financial binaries. You see each one as a chance to make money and you get a feeling that you have to play each one, you have a right to and make money from each one. This is human nature. In order to play this game and win you have to spend every minute fighting against your nature. I hardly touch Wall Street now, I can't trust it enough and I used to be quite a bit on Wall Street. The discipline is staying out of the market and picking and choosing your moments to go in with a useful stake.

Q. Financial betting and short time-frames; can you tell me what technical analysis tools to use in such markets?


Can you tell which TA I should use to be successful on this markets: e.g. where will the FTSE 100 or DJI be in one hour or 20 minutes?

A: I would think that you would use the same types of technical analysis that short term traders use meaning multi timeframe analysis, analysis of price volume, support and resistance levels...etc

Note that it is possible to play this bet at a betting exchange and the odds are changing live with the trend of the FTSE. So you don't have to predict what will be in one hour you can also go on this market 5 minutes before close of this bet and bet on the outcome although the odds are lower a few minutes before the close.

Q. How do I predict the market direction?

A: The tools to use to predict market direction on binaries are the same as other products; you can use a blend of fundamental and technical analysis to identify opportunities for instance. Check out companies reporting and newsflow to find out which assets may experience the most volume as the market opens. Economic announcements such as the US non-farm payrolls can have a marked effect on the markets in the short-term. Technical analysis tools such as moving averages, Relative Strength Index, Bollinger Bands and support and resistance levels can also help you understand the price action. If you see price pass a support or resistance then it's probably headed for the next level. If it bounces then you know it's having a hard time getting through. So try to use this to your advantage. Study charts, get into the flow of the market, keep and eye on news releases, all the stuff your average trader does. When your indicators and market conditions give you the signal, just place a trade.

Q. If I knew that a stock was in a consolidating phase, what fixed odds bet would be appropriate?

A: You would buy a fixed odds boundary or range bet. By working out the support and the resistance levels over the shorter term, you can find the possible boundaries. To find the boundaries simply look at the highest peak of the stock chart from where the share had started to consolidate and then check for the lowest drop to the current quote price, over a given period of consolidation. This will give the boundary and trading range. You would then use this information to make a range or boundary bet within fixed odds. If you use this method on a consolidating stock you will be safer from breaking out of the boundary.

Q. How are binaries priced? Do providers have teams devoted to studying the underlying/news/different markets...?

A: No. With all these providers the data arrives from Reuters or Bloomberg at the same time for everyone, no time is spent analysing anything as that costs money and isn't needed. Market data comes in, is converted to binary format and is pushed out to the client. Client orders come back in, risk/exposure is monitored by the computer and quotes adjusted accordingly.

You just don't need humans for this, they cost money. If you wanted to stick humans in the middle to manipulate the prices and the fills then you would need hundreds of staff to cover for thousands of clients and you'd lose money. You can't have a £100K+ a year analyst monitoring a series of 5p bets. It's as automated as it possibly can be and the pricing is based on complicated mathematical algorithms..

Q. Can you trade property with binary betting?

A: Most binary betting companies do not make a market on house prices and in fact there are only a few spread betting providers that make a market on property (IG Index comes to mind), however a new binary betting provider; CityOdds has started offering binary bets on the Halifax House Price Index.

Q. What is the catch with trading binary options?

A: Well, the catch (if you can call it the catch!) with binaries (binary betting/binary options/digital options...whatever they're called) is that like normal options you have to to beat the market AND beat the clock. And that's not easy to do. As with options, with binaries there is the issue of time decay. Time decay isn't proportional to time to expiry - it actually accelerates as expiry approaches. So basically you have very little chance historically and statistically speaking if you're an option buyer and to add to that you're buying options with a very limited time to expiry which reduces your chance of getting it right. Now, it is statistically proven 70% of all options expire worthless. To some extent, this is true most of the time for starters in this market, as frustration and time create a feeling of 'what the heck, I've only paid 100 dollars for the contracts, let them burn'. Firms know this and make tons of money out of this mentality. This tells you the option writers are mostly the ones who win (in this case you the market makers).

In fact most of the binaries are even more aggressive than leveraged forex trading because most of the contracts are very short-term (hourly) as opposed to forex trading which allows you to trade the markets over longer period of time and using several strategies can at least make some profits. In this way, IG Index (geared towards UK investors) and IG Markets have positioned themselves with a more sophisticated offering that allows for long term binaries (weekly, monthly...etc) as opposed to some of the new platforms that have sprung up lately and all they do is let you click Up or Down and watch your money disappear.

Despite this I still trade binary options, but I have found that you need to be careful. If you enter a position and the contract closes against you by one pip, you lose the full amount of the binary. (If you bought, you lose whatever you paid, and if you sold you lose the difference between sell price and 100).

Q. What do you need to wary of?

A: First and foremost the cost. With binaries and fixed odds bets it is often much easier to hide the true cost of an option from an option buyer than it is other instruments because the pricing formulas are a bit complex. Some of the binaries are overpriced if you calculate the math behind them which makes it hard to make money trading them. The providers naturally are happy to stack the odds in their favour so in some cases you would be better off hitting the slots at your local casino.

The reason I'm saying all this is because binary bets are a simple way to place bets on certain events without having to know anything about options, and therefore an area that would be ripe for the broker to 'rape the trader', most of whom would never know the difference. This applies especially for the hourly binaries which are a pure profit machine for the companies offering them, whereas spread betting on shares on a medium term basis does have the potential for long term profits. Reading into announcements and trading at 8 am on the dot can still be profitable, especially in smaller shares; but keep an eye on how much on a run-up the shares have had before the announcement to see if there's going to be traders selling regardless of what the news states.

Lastly, the fact that fixed odds bets and binaries have a fixed payout gives an advantage to the issuer. Let's take the case of an option writer writing a regular naked call option (sells a call option on a stock that he does not own, and also he does not own another option to protect him from large losses). That option has unlimited risk, because technically the stock price has no upper limit. Now we know that in option pricing, volatility is everything. There is historic volatility (how much the stock has gone up and down in price in the past), and implied volatility (a calculated guess on how much the stock may go up and down in the future). Thus by making the payout on these binary bets a fixed amount and limiting exercising to the expiration day, they are taking out much of the uncertainty. This gives the binary option seller a statistical advantage. A simplified way of saying it is that statistically a binary option seller has a better than 50-50 chance of coming out ahead over time selling them, and statistically a binary option buyer has a less than 50-50 chance coming out ahead over time buying them.

However, the buyer gets some benefits. By fixing the payout and limiting the exercise date, the cost to buy these is lower than a regular option. Let's say you own a casino that has slot machines. Everyone once in a while (not very often) these machines would randomly malfunction and payout a large amount of money. Because of this you are forced to make the machines only pay back out 80% of what it brings in to make up for the random malfunction. The gambler accepts this poor risk to reward ratio because of the small chance of a big payout. If the casino can remove the random large payout, they can increase the payout percent quite a lot. In doing do though, it removes the point of playing.

Q. I saw these contracts at 97 & let's say you buy 10 contracts then your payout is $30 minus fees. After fees you only make $10!


Those fees eat you up because your fees are more than your profit!

A: Yes, the fees definitely need to be factored into your strategy. Even if a provider doesn't charge commission per se', they will still obviously make money off the bid-offer spread (which can be MUCH MORE than any commission). Also, if the broker is the only market-maker, they can easily widen the spread or step away from the market during 'dislocations'. Do you want to know whether the binary options are being priced fairly? Try feeding your paramaters through a simple binary option calculator so see what implied volatility they are charging you (if its a forex contract make sure you change your Model Input to currency).

(BTW, there are definitely Greeks on binary options - there are Greeks on everything - it's just that derivatives Greeks are more interesting than Greeks on delta-one products...)

Q. Overall lost 32 points trading binaries and made just over 180 pips trading spot. Ended up with a nice profit, but it looks like I really suck at trading binaries...

A: Not really - it depends on how you view your trading. If you use binaries + spot to build a potential profit and loss curve, it would be natural that some of the time, the binary would be the loser and some of the time, the spot. In other words, your binaries can act as a hedge... What is nice about binaries is, it allows you to build non-linear strategies and profit and loss curves (look at a plain profit and loss vs spot curve and it looks like a straight line - with derivatives you can build levels where you've limited your losses or your gains by receiving a premium). Of course, you could just view them as separate bets...

Q. I have only been trading the up/down daily ladders and only entering only a matter of seconds prior to closing and the profits have been good, however am I correct in saying that if you do get it wrong you can lose a whole lot more?

A: It is incorrect to say that if you lose on Binary Options that you would lose whole lot more. You can only lose what you paid for in contracts. In fact, Spot forex is more risky than Binaries because a sudden price gap that extends beyond your stop loss will actually cost you more than what you wanted to risk. A lot of traders don't realize that a Spot Forex stop loss is not a guanrentee. IBFX sometimes talks about their infamous 200 pip price gap during an non-farm payroll news announcement once. Imagine if that 200 pip price gap went in the direction of your 40 pip stop loss? This can't happen on binary options, because you only lose what you pay for in contracts.

Q. About IG Index's custom bets can I give you an example and would you be kind enough to tell me how I would bet on it?


The FTSE 100 index hit resistance at 5758 pulled back to 5745 then hit 5758 again at this point I drew fibonacci's from the 5838 level on the 15th November 1600h 1 hr chart to the low on the 16th nov, I thought the FTSE would rise to the 61% fibonacci at 5765 which it has, Is it possible to place a bet on this and what bet would I use for this please..

A: The thing that you would have to determine is what timeframe do you think this series of events would have taken to unfold, with IG Index really your only option is the binary bet you would just call the market higher or lower depending on where your Fibonacci's projection is, obviously the nearer this bet comes to expiry if you're on the right side of the market the better the odds will be. Alternatively it could shoot straight in your favour and you can close out for a profit, but what you really want is the touch bets where you would need to use Binary.com as they offer longer experies. I think it's up to 7 to 180 days... so as an example if you think the market will hit 5810 in the next 7days you will earn 35%!

Q. I went live already with a small amount of money. I've done ok. I tend to overtrade...


Like last week i had made some profit & then there i go & gave some of it back. But it's hard because you 2nd guess yourself when you don't take a trade & then you see that trade turn into a winner but you were on the sidelines. And then you think wow that should be my profit.

A: That's where psychology and mindset comes into play. Trading is at least 80% psychology. Set a chimp in front of the computer with a proven 60% system and he will make you money and exchange it for bananas. If you have a system trade EVERY potential good signal in the right spot, limit risk to no more than 3% and then leave the pc to let the trade either hit stop loss (3%) or run into green man's land. It's a curse...second guessing and seeing the good trades sitting sidelines...so one comes to the other. It quickly becomes a vicious circle.

Q. Why do I keep making such stupid mistakes?!

A: This is usually because of the following emotions -:

  • eagerness
  • feel you must play
  • impatience
  • greed
  • boredom
  • failure to follow stop loss (greed)
  • failure to follow a system that works for you (impatience)
  • (my favourite) meaning to "click" cancel but accidentally clicking "buy"

Keep a written record of at least every trade you do and maybe also the ones you don't do. Write down -:

  • why you did it
  • why did you think the risk/reward was favourable
  • what you were thinking at the time
  • your stop loss
  • if you subsequently moved your stop loss and why
  • where you took profit and why
  • how much you made/lost

Then go back over your written records and you'll hopefully see a couple of things to avoid repeating. Writing it all down tends to avoid 'wooly' thinking. Patience + discipline is the key to avoiding some mistakes. Moving stop losses down is usually a real killer, the problem is we all want to be proved right and our ego struggles with us being proved wrong and just taking the SMALL loss. It might not sound right, but making a mistake is not the same as losing money on a trade.

Q. Why do so many traders lose trading binary options?

A: Most people lose on the binaries because they don't understand the risk/reward of a given situation.

Risking 90 to make 10 is almost certainly destined to be a losing strategy over the long term. All you do is make 10 to 20 quid when you get it right but lose over a ton when it's wrong.

If the binary is trading at 99, you have about 98% chance of making £1, and about 2% chance of losing £99. You will probably manage to string together a nice row of winning trades, and convince yourself that you have a money making proposition, on the way to losing everything you have won, and more. in the long run. This is no different to going onto a roulette table and placing bets on 35 of the 36 numbers. You will win 35 times out of 37, but this does not mean that it is a profitable endeavour.

Liking buying in at 90, looking for a few points to close is wrong. You don't risk 90 x stake to gain 4 x stake. You do that, you will always lose. No argument. You'll snipe a few returns and then the one you get wrong will wipe you. Take a look at the concept of out of money options. Don't forget that binaries are a hybrid option. This is all about controlling your risk. The two best ways to make money when sitting at home is either cost price averaging or out of the money trades. An example of the former is currently with the DAX. It has been in a non-stop upward trend for months. You buy a bit, once that position is in the money you buy another bit. When that is in the money you buy another and place a stop across all three that will give you a no loss exit if it turns.

Once you have that in place you simply keep buying and buying and staging your stops upwards. The joy of this method is that you don't need to monitor 24 hrs and within a short period you are in a win win period.

The second system is good for binaries. Instead of buying at the end of the day in the 90s, you buy at the lead, a contract quoting only a few points. It only then takes a minor swing in your direction to double your money and close out.

The key to these two methods is that they recognise risk as the only relevant factor in the trade. Have fun.

Q. Will a binary betting broker ban me if I'm consistently profitable?

A: This is unlikely although barring is not unheard of with some of the smaller (and not so small) binary betting providers which offer these highly volatile 'over the counter' options / binaries. It is however much more likely that you will encounter delayed fills if a binary betting provider considers you a professional.

The primary aim of most binary betting sites appears to be to draw in a stream of clients who will play their 'games' whilst paying around 6% to 7% in 'round trip' costs. This way the house edge is sufficient enough to ensure that most clients will slowly lose money. Maybe as much as 9 out of 10 clients fall into this category. However, it's the '1 in 10' that can do the most damage. The clients who know what they're doing are a real danger to these betting sites...

Experienced traders will see things which the average Joe doesn't. This leads onto things like indirect arbitrage and hedging. The binary betting and fixed odds sites don't tend to look favourably into this kind of business. Effectively each time you trade you pinch a bit of value from them which ultimately costs them serious money over a long period.

A dealer at one of the larger firms once told me that they more or less suspect any consistently winning client of arbitrage betting - they believe that their 'house edge' is high enough that they suspect anyone who is consistently profitably to be suspected of 'cheating' in some way.

Thus if you appear be consistently beating their 'house edge' (I'm especially referring to those that have made over 100k trading binaries off these sites) then they need to introduce 'other methods' to ensure that their edge is further increased. The 'delayed execution' method is an effective way of increasing your trading costs since they can retrospectively examine orders in their own time which the client has of course had to place in 'real time'. This is why suddenly orders may get rejected - the dealers simply use price movements which have occurred since you entered the order to determine the outcome. The ability of firms to reject orders is also seen as a way to prevent hedging/arbitrage activities - a client is less likely to attempt such a bet if there is a high likelihood of one side of the trade getting rejected.

Q. IG Index will remove trading rights once you are seen as a consistent winner: is there any truth in this?

A: IG Index won't stop you trading or ban you. But I suspect that they are more likely to start delaying your orders. In the beginning you get instant fills but after a while if you start making real big bucks your fills might start taking a little bit longer to execute. If the market moves a lot during this time they are holding your order (a lot depends on the market you are trading) then your order risks being refused.

This might be a problem if you want to get out of position fast, as wont be able too. And you will have to re-submit your order and the market could have moved 20 points by time that one gets filled! From my knowledge or binaries i believe they can move really fast!!

btw I think they are within their rights to do this and after all they have to make a profit too.

Q. Why is it hard to take advantage of arbitrage opportunities?

A: Taking advantage of arbitrage opportunities in binary options is very hard because of -:

-> Bookies will likely close down your account if they suspect you are arbing them (it is not hard for them to identify you as you will generally bet only on standout prices.

-> Arbitrage opportunities typically only last a few minutes as the market is quite efficient so your chances of identifying and taking advantage of such opportunities is small.

Q. How can I use a binary option as a hedge?

A: The way it works is that I will short a binary contract when I enter a long spot position, and I will only do this when I am expecting low volatility. If the market goes up, my option is paid for, and if the market goes down, especially by a small amount, the binary kicks in a nice pay out. Here's how it works in practice:

A. Buy a Monthly One Touch.

B. Open a sell order on your Spot Forex account, in the opposite direction of your monthly one touch.

C. Set the stop loss of your Spot Forex position at the "one touch" price of your monthly one touch contract. This way if your Monthly One Touch is hit, your hedged spot forex position will close out.

D. Set the take profit level of your spot Forex position to the opposite length of your stop loss...or simply don't set a take profit on this side at all. This is in case your currency pair goes in the "wrong" direction on your Binary side.

Like the married put, combining a spot position with a binary has good potential during times when you expect low volatility.

Q. Why not use Betfair instead of IG Index?

A: It is true that IG Index may not always offer the best odds but you have to balance that against their better liquidity, i.e. they'll always take your bet, whereas on exchanges like Betfair you're limited by the amount of money you can bet against. The thing to remember about Betfair you are betting against other people - someone has to match (accept) your bet. This means there will only be a finite amount of money you can bet at certain odds before you cause the odds to lower.

Thus, even if you find better odds on say, Betfair, you might only be able to get 200 matched at these good odds and hence will still end up with a fraction of the profit.

Note: Ladbrokes offer the worst odds of all of them for 90% of the time. However, they do make some big cock ups occasionally. I have been banned by them numerous times after I have taken advantage of them. City Index is no better or worse than IG and offers very much the same spreads/prices.

Q. One question, does it seem like IG Markets is superior to Nadex?

A: IG Index (geared towards UK investors) and IG Markets (international offering) are basically the same thing. Technically, aesthetically, and in terms of hours of operation + liquidity, I find IG better than Nadex.

Q. Is it possible to make money trading binaries long term?

A: Yes, of course it is possible to make money from financial binaries over the long term. A friend of mine has been trading binaries with moderate success for more than 3 years now (but then he's very much adept at calculating odds). I suspect that the individuals who stand to make the real bucks are those with true real-time knowledge and an idea of how markets are affected by different circumstances. I've no doubt that you *could* make a living from this, but whether I am intelligent enough to, I doubt.

Q. What's your opinion of Oanda box options?

A: My impression of Oanda Box Options is that they change the payout on a continual basis. You may buy a hit box for $100 and it pays $100.21. Or you may buy a miss box a thousand pips high right in front of the price 15 minutes out, impossible to miss! And it would pay 101.25. A big too skewed for my liking - guess that's due to Oanda use of algorithms and they don't want to lose, so I've found some box prices to be unreasonably high.

Q. So binary trading isn't available in the USA?

A: If you are located in the United States you won't be able to use IG Index, Binary.com, ClickOptions or any other continental based counterparts. However, you can use Nadex.com; the binary trading subsidiary of IG Group which is licensed to conduct business in the USA (regulatory oversight by the CFTC).

Q. So for someone located in the States, with Nadex or IG, how are the products taxed? Is the tax the same as for options? Also, what about capped futures?

A: I've asked this to the powers at Nadex.com and their reply was -:

Nadex Inc.generally does not withhold income taxes on Nadex transactions. By January 31 of each year they report to their members the interest earned on their accounts, gains or losses realized during the course of the previous calendar year and unrealized gains or losses on open contracts at the end of the calendar year. This information is reported on Internal Revenue Service Form 1099-B..

Taxation for futures contracts is however complex. I've found this paper on tax and derivatives (pdf) (opens in new window) useful to understand how these types of binary contracts are treated by the IRS. For specific tax advice, please contact your legal or tax advisor.

Q. But are binary options legitimate? I see some of these companies are based out of Cyprus?

A: Binary options (bets) are definitely legitimate. The American Stock Exchange (now known as NYSE Euronext) even offered fixed return options (FROs) in May 2008 but they were discontinued after little interest was being shown from the public or market makers (but then there probably the issue was more that the spreads were too high and the fixed return options weren't advertised and marketed sufficiently). The CBOE (Chicago Board Options Exchange) also started dealing in exchange traded cash or nothing binary options in June 2008. As for companies based in Cyprus, I can only say that you should make your own research as binaries are still very much an emerging retail offering (although having been in the market for well over a decade now). For myself I endorse only legitimate providers.

Q. I use a platform called www.optionfire.com these chaps are the first regulated binary options platform and offer hourly binary trades on various instruments...


I have been using binary options for the last few months to hedge longer dated positions and to take advantage of daily news flow. I use a platform called www.optionfire.com these chaps are the first regulated binary options platform and offer hourly binary trades on various instruments. You have your return from the outset and your maximum risk from the outset show up to you before you trade. i.e. you cannot lose more than your original stake.

A: I had a quick look and, unsurprisingly, it is a tad expensive.

Typical payoff: bet 100, win 171, lose 5, so the cost is: 12 per bet (100-(171+5)/2). At that frequency (1 hour) it's as close to a random walk as you can get, so they don't even need to bother hedging it.

12% return per hour on somebody else's capital sounds quite a good business to be in. Of course if it works for you - then great!

Q. Anything else I should know? Tax implications?

A: No taxes. Binary bets are not subject to regulation by the Financial Services Authority; providers are licensed and regulated by the Gambling Commission. Why not open up a practice account and have a play around with it...

Please do not copy/paste this content without permission. If you want to use any of it on your website contact us via email at  traderATfinancial-spread-betting.com (remove the AT and substitute by @).