Binary Trading. John Piper

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      The concept of value

      But it is important to note that although the price will reflect the probability; it will not be the probability. Other factors will influence price, for example how much money is on each team.

      My statement:

       the price will reflect the probability; it will not be the probability

      may confuse you but it is an essential point. There is a concept known as value which is often applied to bets generally. Professional gamblers are very familiar with the concept as it is how and why they win. A bet has value if it offers better odds than the event itself would lead you to expect. So if the horse, Mr. Splodge, with a binary priced at 8/11, has a 25% chance of winning the binary price should really be 23/27 or thereabouts.

      If you can buy a bet which should be priced at 23/27 at 8/11 then you are clearly getting good value. Similarly if the bet is priced at 8/11 and there really is a 25% chance of Mr. Splodge winning the race then the price of 8/11 may be an attempt to reflect the probability of the event but it will clearly not be that probability – which is 25%.

      It was this concept I was referring to when I was talking earlier about the art of binary betting and said that you should

       give yourself a further edge by choosing bets with a higher probability of success.

      Don’t be concerned if you have trouble with this at this stage. This is something you will develop a feel for as you become more experienced.

      The pricing of a financial bet

      If you are betting on a financial market, perhaps the FTSE 100 Index, then throughout the session the binary prices will be moving to reflect three factors:

      1 The time left on the bet until expiry.

      2 The price of the underlying market as distinct from the price of the bet itself. In particular how far up or down the market is on the day.

      3 Volatility – the speed of market action.

      How far up or down a market moves is a measure of its distance from parity and I define parity as when the market (or index) is unchanged over the relevant period. This period may be a day or a week or an hour, among other time frames. Many binary bets are based on the prior close and in that case it is how far the market is up or down since that prior close that is important. But if we are looking at an hourly bet which may run from 3pm to 4pm then it is the “close” at 3pm that is important.

      However, weight of money is also an important factor and prices will move as money flows in one particular direction. One of the betting companies told me they work on the assumption that if a lot of money goes onto a bet they have mis-priced it.

      Some would see this as manipulation or as unfair. But a successful trader will see it as an opportunity!

      A final word on pricing

      I have said that binary bets can only move between 0 and 100. In fact, although almost every bet I have ever seen has been priced between 0 – 100 there is no reason why other prices may not be chosen, say 32 – 212 (a Fahrenheit scale), or -50 – +50 (where parity is zero). But 0 – 100 is far easier to understand.

      I have seen some bets priced differently, as I said in Binary Betting. For example, on TV’s X-Factor where the pricing was that the winner’s binary rose to 50, the 2nd place to 30, 3rd to 20 and 4th to 10. Together these add up to 100. This can also be the case with horse racing and is why the brief example I gave above on Mr. Splodge may be quoted differently in the real world.

      I am told that the very early binaries were priced between 1 and 10 but this is no longer the case.

      Summary

      In this chapter we looked at four strategies:

       Buying near certainties – high probability bets

       Buying very cheap bets

       Buying low and the trading the bet

       More complex strategies

      We then looked at the key factors that affect binary prices and discussed the probability of success.

      3. The Key Bets

      In this chapter we are going to look in detail at the principal bets, offer suggestions for how you might like to use them and back this up with examples.

      We are now going to look at five of the more interesting binaries for an in-depth analysis of what you can do with them. The five bets are:

      1 Up/Down (reversals)

      2 Tunnels/Barrier Bets

      3 OneTouches

      4 Hi/Los

      5 Football Match – play for the goal

      Up/Down (reversals)

      In fact there is no bet for a market to reverse but this is how I classify the Up/Down bets. For example, if I bet on FTSE to close up or FTSE to close down I generally buy them when they are less than 50. So I will buy the FTSE to close down when FTSE is up and the FTSE to close up when FTSE is down. If I am to win, FTSE must reverse.

      I must stress that this is just the way I trade and it does not mean you should do the same thing. You will have more successful trades if you buy FTSE to close up when FTSE is up. But you will pay more for the bet and your profits will be less – it is your decision as to which is the best way to trade these instruments.

      To repeat a basic point: the bet will go to 100 if the event occurs, i.e. if FTSE does close up/down, and go to zero if the event does not occur.

      Here are three ways in which to profit from this form of bet:

      1. Small moves

      A small move by the underlying market can have a substantial effect on the binary price – especially if that small move takes the underlying from up to down, or vice versa. Another way of saying this is that the small move takes the underlying market through parity.

      For example, if FTSE is 5 points up and it is 2pm then the FTSE to end up bet may be priced at around 55/60 reflecting the fact that the market has two and a half hours before it closes.

      At the same time the FTSE to end down bet would be priced at 40/45 – remember that the bets are a mirror image of each other, both sides adding up to 100.

      If FTSE now moves 12 points down and takes an hour doing it then the price of FTSE to end down may now be 66/70 reflecting the fact that FTSE is now down 7 points and there is only an hour and a half until it closes.

      Here is how you might trade СКАЧАТЬ