One of the latest methods of “investing” in the various financial markets available to us is via the use of binary betting.

Binary betting is a fusion of fixed odds betting and spread betting and is becoming increasingly popular among traders thanks to its highly volatile prices even in flat market conditions.

Binary betting is based on the idea a given event only has two outcomes; it either happens or it does not. In binary betting, each market will settle at either 0, to signify that the event did not happen, or 100 if it does occur  The fixed odds characteristics apply to binary betting in such that you, as the gambler, will always know the exact extent of your liability.

For example if you bought at 65 you would be aware that your maximum liability is 65 multiplied by your stake.

The advantages of binary betting over traditional fixed odds betting is that you can bet on something NOT to happen and you can take profit at any point before the final outcome occurs. This is a similar scenario to that of spread betting and allows profits to be taken and losses limited.

Let us work through a complete example. The market we will use is for the FTSE 100 index to finish the day higher than the official opening price. We will work with a spread of 80-84 since the FTSE is currently 30 points up with just 90 minutes until the close.

A trader who thinks that the FTSE will indeed finish up would initiate a buy trade at say £10 per point.

• There are two scenarios assuming he lets the trade run through to the close:The FTSE finishes up and he makes a profit of (100-84)*£10 = £160.

• The FTSE slumps towards the end of the day and actually finishes down leaving our trader with a loss of 84*£10 = £840.
  

As is mentioned above, it is possible to lock in profits if a trade is holding a winning position. The following example explains how.

The FTSE is flat and is trading just 2 points above its opening position. The buy/sell spread is 52-56. A trader believes the FTSE is going to fall and so opens a short position (i.e. he sells at 52) for £10 a point.

Ninety minutes later the FTSE is 15 points down and the spread is at 30-34.

The trader can lock in a profit by opening a long position (i.e. he buys) at 34 for £10 per point once again.

His profit is (52-34)*£10 = £180.  

The features of binary betting include: 

• Extremely fast moving markets

• Stop losses not normally available

• Markets include major indices, shares and currency pairs

• Time frames can range from hourly to daily and even yearly on some indices