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Binary Betting - explained

Binary betting, or binary options, is a form of fixed-odds betting on movements in markets, most often financial markets but the principle of this bet type can be applied to anything and some firms offer binary bets on things like election results. Essentiially you fix a target value for your bet and if that is reached in the specified time frame then you win, if it doesn't then you lose. This is where the term binary comes from as the result is either win or lose, 1 or zero. Most binary bets have a final outcome of 100, whether in pounds or in dollars.
Table A
FTSE 100
Close 3pm
Price 7222.12
Buy 89.5
Sell 86.2
Standard Binary Options Bet
As an example we will use the commonly traded FTSE 100. The bet is will the FTSE 100 be above 7222.12 at 3pm today?

Looking at table A you can see the prices. If you think that the price will be above 7222.12 at preceisely 3pm then you buy at 89.5. If indeed the you are right then the payout is 100. Result is 100 - 89.5 in your favour so you win £10.50.

If you thought it would NOT be above and sold at 86.2 but it did finish above then the result is 100 - 86.2 against you, so you lose £13.80.

If however you sold at 86.2 and it dipped below at 3pm then the result is 0 so you make 86.2 - 0 which is £86.20 and if the same happened when you bought at 89.5 then you lose 89.5 - 0, so £89.50.

Binary Option Bet Price Movements
The prices are dictated by the underlying market price and the time to expiry and will indicate how likely an event will happen. So, the closer you get to expiry, in the case above its 3pm, the closer the price will move to either 0 or 100. Obviously sharp price movements in the FTSE 100 just before the close will result in sharp movements in the Buy/Sell prices. If the FTSE 100 went above 7222.12 before the 3pm close time then you may see a Buy price of 100, indicating the broker does not want to take a bet on it.

Early trade out of a Binary Option Bet
Once you've place a binary option bet you can't liquidate the bet or cancel it but you can place a bet in the opposite direction. So effectively the market behaves just like a spread bet. If you bought at 89.5 and with a minute to go the Sell price is 97 you can make a sell here, but you lose 3 points if the price finishes above 7222.12 and win 10.5 for the first bet.

If you do this, which is not recommended in most cases unless you really fear a price crash, you will be paying the full brokers spread in the market.

Cost of trading Binary Option Bets
There are no fees when placing a binary option bet. The broker is making money on the spread between the Buy and Sell prices, and if they are doing their job properly then punters will be buying and selling in roughly equal numbers and so they, the broker, pick up the spread as profit.

Long Term and Short Term Binary Option Bets
There are a range of option times for different trades, with time periods ranging anywhere from one minute to one day. Some brokers offer 5 minute binary option bets on the major indices like currecies and stock markerts 24 hours a day.

Touch Binary Option Bets
Other types of binaries exist. In a touch binary the proposition is whether the market will touch or go through the barrier level at any time before the stated expiry. The market will settle at 100 if the level is breached before expiry and settles at 0 if it isn't. So here the FTSE 100 could go above 7222.12 but actually finish below and yet you still win the bet if you have bought at the brokers binary option buy price.

Up or Down Binary Option Bets
These bets let you take a bet on market direction. A down binary option bet settles at 100 if the underlying market’s closing price is down on its opening price. Conversely, it settles at 0 if the market ends higher.

Range Binary Option Bets
Want to take a position on the market finishing within a particular range? Say you think the FTSE 100 will finish up between 50 and 60 points. Then you can take a 'FTSE 100 up 50-60 at close' bet. It settles at 100 if it finishes in this range and 0 for all other prices.

Hi-Lo Binary Option Bets
This is very similar to the Range bet but here you are beting on the day's highest or lowest point. So a FTSE 100 50-60 low bet only settles at 100 when the day's low is in that 50-60 points below open price range.

Regulation and safety of Binary Option Betting
Because trading in binary options is not currently regulated by the Financial Conduct Authority (FCA), firms involved in binary options may not necessarily require authorisation by the FCA to operate legitimately. They should, however, have a license with the Gambling Commission if their operation is located in Great Britain (does not incude Northern Ireland).

We strongly recommend that if you wish to deal in any binary options market, then do so with a firm that is either:
  • A firm based in Great Britain with a current licence to offer bets on binary options from the Gambling Commission. Such firms may or may not be authorised by the FCA for other financial services business but please note that, even if you deal in binary options through an FCA authorised firm, you will not be protected by the UK’s financial services complaints and compensation scheme
  • An EEA firm based in a Member State outside the UK which is authorised to deal in binary options and supervised by its home Member State’s financial services regulator, and which is passporting its services into the UK.
  • A non-EEA firm that is appropriately authorised or licensed and supervised in its home country.
Unfortunately there are many reports from consumers who have dealt with fraudulent binary options firms that have no regulatory status either with the FCA, Gambling Commission or other EEA or non-EEA regulators. Most consumers describe having lost substantial sums of money.

Find licensees.
Glossary of Binary Option Betting Terms

This is the underlying stock, commodity, currency pair or index, on which the binary option is based.

Call Option
This is the most used type of binary option. It speculates that the asset’s price will rise.

Put Option
This is the opposite of a Call option. It is purchased when the trader thinks that the asset’s price will decrease.

The term is used in order to describe the situation when you have predicted the movement of the asset price correctly and the binary option is profitable.

This term describes the situation when you have wrongfully predicted the asset’s price movement, rendering the binary option a loser.

This is simply the active bet which you have running.

Index Binary
Index Binary refers to an option whose underlying asset is that of an index. These can include such assets as: FTSE-100, Dow Jones, Nasdaq-100 and many more.

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