In a previous article we introduced Fixed Odds Binary Betting as an alternative to spread betting and conventional share dealing for financial speculation. Knowing that this form of speculation exists is one thing, but just as with safer spread betting you will want to know how to minimise your risks and (hopefully) maximise your profits by better binary betting.
Early Settlement and “Laying Off”
It may be important to you to have the possibility of cashing in a bet early, so as to take a profit — but not too soon – before it slips away. The binary betting company may allow you to settle bets early on Gold but not on Silver (for example), in which case you would need to lock-in your Silver profit early by ‘laying off’ you original bet with a bet in the opposite direction and the same end time.
Targets and Timescales
There is a form of speculation involving financial ‘options’, which could be adapted to fixed odds binary betting and which involves buying deep out-of-the-money options (those whose market price is a long way off the target price) at close to their expiry times – on the basis that in the very unlikely event of a sudden stock crash, the massive gains from the one or two ‘short’ winners will more than offset the very many losers.
It may be a valid strategy for those with deep pockets and plenty of time to wait for the unlikely big payoff, but we need to be more conservative.
We can be more conservative by placing bets with near target prices, most likely at the current market price, so that we don’t have to wait long before a potentially profitable bet is actually ‘in the money’. We can also be more conservative by choosing a far-off end date so that there is plenty of time for the bet to pay off.
In this latter respect the choice of platform provider is most important, since some providers like Bet On Markets allow bets to stand for up to a year while others like Ladbrokes are geared more towards binary day trading.
The Ladder of Possible Payoffs
As with any form of financial speculation, it is a good idea to scale into a position rather than ‘betting the farm’ all in one go. In the following chart, look at how a number of ‘short’ bets could have been placed on Silver over time at ever increasing current prices to create a ladder of possible payoffs.
The worst case is that the more recent bets have a better chance of moving into profit, so you’re not making an all-or-nothing gamble on your first bet. The best case is that if the tide turns decisively in your favour, the falling price may take out many of the rungs of your payoff ladder in a short time. So you’re well in the money as long as you can settle those bets early.
So there you have it. In the dangerous world of financial speculation it is possible to practice better (and safer) binary betting. But remember that nothing is guaranteed!
About the Author
Tony Loton is a prolific trader and financial writer, and author of the book “Position Trading” published by LOTONtech.