Binary Betting is a simple and transparent way of betting on the financial markets. A binary bet is a bet based on the outcome of an event that has one of only two possibilities, and you can profit from correctly predicting whether an event occurs or does not.
An example of a binary event is the UK 100 Up Binary. The two possible outcomes are:
- UK 100 cash closes higher (or the same) than yesterday’s closing level
- UK 100 cash closes lower than yesterday’s closing level
If the first outcome occurs then the UK 100 Up Binary will expire at 100. If the second outcome occurs then the Binary will expire at 0.
Therefore if you believe that the event (described in the name of the Binary market) will occur then you ‘buy’ the Binary. If you believe the event will not occur then you sell the Binary.
It is possible to close your bet in full or in part at any time up until the last time of dealing which is typically 1-5 minutes before the expiry time. After this time the Binary will be expired automatically at either 0 or 100.
Binary Bet Example
Say it is 11am and the UK 100 cash is up 35 points from yesterday's closing level. Our UK 100 Up Binary bet price is 70.2 / 73.4.
Going Long on the Binary
You expect the UK 100 cash to close up on the day (that is higher than yesterdays closing price) and therefore open a buy position (go long) of £10 per point at 73.4. Binaries are limited risk and so you know that you worst case is that you lose £734 (0 - 73.4 x £10).
Over the next few hours the UK 100 barely moves and remains up 35 points. The UK 100 Up Binary bet price is now 90.0 / 93.8. Having reached a comfortable level of profit, you decide to cash in your gains by selling £10 per point at 90.0 (our sell price).
Result: You bought at 73.4 and sold at 90.0, which represents a 16.6-point movement in your favour which, at your stake size of £10 per point, nets you a tax-free profit* of £166 (90.0 – 73.4 x £10).
Alternative scenario: If however, at 4pm the UK 100 has fallen to only up 1 point on the day and so our Binary bet price is now 50.0 / 54.5. You decide to cut your losses by selling £10 at 50.0 (our sell price). You bought at 73.4 and sold at 50.0, which represents a 23.4-point movement against you which, at your stake size of £10 per point, nets you a loss of £234 (50.0 – 73.4 x £10).
Going Short on the Binary
You expect the UK 100 cash to drop and close down on the day (that is lower than yesterdays closing price) and therefore open a sell position (go short) of £10 per point at 70.2. Binaries are limited risk and so you know that you worst case is that you lose £298 (70.2 - 100 x £10).
Over the next few hours the UK 100 falls to only up 1 point on the day. The UK 100 Up Binary bet price is now 50.0 / 54.5. Having reached a comfortable level of profit, you decide to cash in your gains by buying £10 per point at 54.5 (our buy price).
Result: You sold at 70.2 and bought at 54.5, which represents a 15.7-point movement in your favour which, at your stake size of £10 per point, nets you a tax-free profit* of £157 (70.2 – 54.5 x £10).
Alternative scenario: If however, at 4:36pm the UK 100 has barely moved and closes up 35 points on the day then your Binary bet will be expired automatically at 100. You sold at 70.2 and bought at 100.0, which represents a 29.8-point movement in against you which, at your stake size of £10 per point, nets you a loss of £298 (70.2 – 100 x £10). In this scenario the £298 loss represents your worst case.
Please note that Binary Betting activity is not regulated by the Financial Services Authority. The normal protections afforded by the regulatory framework do not therefore apply. In respect of Fixed Odds Bets and Binary Bets, City Index Limited is licensed and regulated by the Gambling Commission. Find out more about Responsible Gambling.
City Index Limited supports responsible gambling, for more information and advice visit www.gambleaware.co.uk
