Binary Bets

lakers

Newbie
Anyone else still trading these markets?

I've been looking at both IG and Spreadex prices and there are often such reasonable differences that you can trade at a spot rate which makes it much easier to make money.

Has anyone else noticed this?
 
Binary bets are quite exciting but the prices can move so damn fast! Definitely not for the weak hearted. I've also noticed the spreads widening at times to almost 10 or 11 points. Might be a tad risky for most people. I've had some good and bad experiences with it.
 

riwf

Member
I'm still trading binaries, so far very successfully - £25k this month. IG Index and its subsidiary BinaryBets have started daily One-Touch bets on the FTSE and Dow Jones, where your bet is settled at 100 if, during the course of the day, the index touches your selected level, ie up or down 10, 20, 30 and so on, on the FTSE, and up or down 20, 40, 60 and so on, on the Dow. These might be worth trying once some volatility comes back into the indices - at the moment, with the markets moving sideways, the money is in predicting the boundary ranges, particularly the weekly Dow.

My question is this: I've been browsing around the boards and there seems some concern - and belief - that IG Index will remove trading rights once you are seen as a consistent winner: is there any truth in this? At what level of betting, and winning, do they take an interest? I know that they say they love winners, but when all is said and done they are just bookies, who have the right to refuse a bet. But is it likely that they could ban someone who seems to be doing too well, too often? At the moment, I'm only betting £10 or £20 per point and still clearing £1k a day - is this likely to give them worries? Would they be very concerned if I upped my bets to £50 or £100 per point, and still won more often than I lost? Or would they, like most bookies, take the view that in the long run even the best winner becomes a loser.

Anyone any experience, or knowledge, of this?
 

donaldduke

Experienced member
riwf,

They wont stop you trading or ban you.

But are they delaying your orders yet?

In the beggining you get instant fills but after a while
your fills might start taking over a minute to execute.
If the market moves alot during this time they are holding
your order (alot depends on the market you are trading) then
your order risks being refused.

This might be a problem if you want to get out of position fast,
u wont be able too.. And you will have to resubmit your order
and the market could have moved 20 points by time that one
gets filled! From my knowledge or binaries i believe they
can move really fast!!

I think they are within their rights to do this and after all they
have to make a profit too.

If they are already doing this and you are still making that much
money then well done!!

25K a month hey, thats 300K a year tax free!!

If you are making that much then there must be a lot of losers
doing binaries for it to be worthwhile for IG..
 
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riwf

Member
DD

Thanks for the response. Glad to hear that IG won't ban me. The Group made £9m profit in 2002 (last company accounts) so I don't suppose my winnings amount to as much as a flea-bite. And there's always the possibility that I'll lose everything I've made.

I only trade the FTSE and Dow Jones indices. I haven't noticed any undue delay yet.
 

donaldduke

Experienced member
riwf,

Why do you only say 'flea-bite'?

If you are making over 1K a day consistently then you will be making
over 250K a year. Note that because you are making small
consistent bets we can optimistically project your annual
winnings. If you had made 25K with three or four big lucky wins
we couldnt say that.

250K+ is almost 3% of IGs annual profits? This is by no
means a 'flea-bite'! Especially if Binaries are unhedged
instruments (anyone know one way or the other for sure?)

So if you increased your betsize from 10-20 to the maximum
100 pounds a point, you could in theory be making between
1 to 3 million a year!! However this will be harder to do as
im pretty sure you wont get the same quality of fills when
trading such size.
 
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anley

Senior member
riw

At least your honest enough and admit that you might lose over time. But anyway if you've got that sort of cash to throw around good luck to you.

Also if you're getting binaries right then you must be getting the underlying right, so maybe it's a good idea to hedge your bets a little bit and play spreads at another broker in conjunction with the binaries.

Also as Duke rightly points out if you're making that sort of money then you are making a big impact on someone's bottom line. Chances are that the Binary dept is run seperatly from the FX dept, from the US dept etc - each its own profit center. So it might be the case that the FX boys made 60% of the profit last year (just making this up) and the options boys only made 2% - Guess who's going to get the mega bonuses, and rightly so because it's all about the £ and who made it.

Let's therefore assume that the Binary dept makes a profit of £1M this year. A big winner like you (over a year) would maybe come in for some 'special treatment'.........
 

riwf

Member
I think I'd rather make £1k a day consistently than run the risk of 'special treatment', unless it was along the lines of a fee 'not' to play.

Does anyone have any opinions on the new One-Touch product from BinaryBet and IGIndex? It has to be intended to separate more of us from our money, and it must have been tested, but I can still see ways - I think - to make money from it. I'll try it out - if it's up and running next week - and post a report.

I wish I had money to throw around. If I did, I'd have a go at spread-bets or CFDs. What I like about Binaries is that it is possible - so far - to make money on a daily basis, and it's nice to watch the mortgage diminish. SBs and CFDs seem to me to be instruments more suited for the medium-term, and for those who have deeper pockets than I do at present.

IG Index seems to be going after the punters (myself included) who have been playing with betonmarkets or xodds. The new One-Touch is a straight copy (except that its done on a daily basis), and it'll be interesting to see how the Malta-based company responds. Maybe we can expect to see IG introduce 'No-Touch' and 'Either-Or' in the future. If I had shares in the company behind betonmarkets, I'd be a little concerned.
 

Bigbusiness

Experienced member
I suppose IG index can just move their quote so that they have a balance of buyers and sellers. Then they make money from the spread and don't mind if one person wins all the time, as another person will be losing all the time. That is a nice theory but I am not sure it works like that. I have read somewhere that it is possible to use options to simulate binary bets. Perhaps IG use those to hedge against their clients. Again, I think that is not likely, they probably just take the money from all the losing clients and pay out a smaller sum to those that win.


www.betfair.com also do fixed odds markets on the Dow and FTSE.
 

adrianallen99

Established member
I occasionally use binary bets, I have found that often the quote and spread and not particularly relelvant to the underlying market (in certain circumstances) for example I brought a hour FTSE bet the other day to finish up and 22 points. It then moved to +2, yet the spread widened and the price only went up to 30 points and the sell price was 20 points. I brought it when it was 10 points down. It then reversed and expired 10 points down and gave me no opportunity to sell for a profit.

I have found the IG have improved a lot on getting orders filled, I seem to always get the price I press the button at. Also there software seems to be a lot more reliable.
 

Robertral

Well-known member
Binaries can be hedged with options. As a whole book the MM usualy just does delta, gamm, vega and theta hedging. You have the hedging problems when a strike is comming off. The MM can either let the lottery take effect or hedge the strike with a tight bull spread - depends on the MM.
Binaries (digitals) can be indivudally replicated by a tight bull spread; the tighter the better. You also have the pin risk issue.

Binary = (1/k) * [Call(X+k) - Call(X)]

The smaller k is the better the replication

Does this help with the hedging Q???
 

Scripophilist

Active member
£1k a day is quite a lot if you are on £10 or £20 a point. As the max you can make is 100 points that means you are getting 100 or 50 points a day, which you be remarkable.
 

riwf

Member
Scripophilist

My best day last week: 13 bets; 6 winners, and 7 losers. The winners averaged £457, and the losers £188. A net profit of £1318 on winnings of £2745. I try to hedge my bets by buying a pair of opposites - if I'm betting the FTSE up 0-10 at close, I'll also try to get the FTSE down 0-10 at close. So long as both bets don't exceed 100, and so long as the FTSE finishes between -10 and +10 then I'll win something. This style works best in a static market, of course.

I've only started making decent money recently, hence my concern that IG might pull the plug. Four months ago I was placing 30-50 bets a day and barely treading water. Now I try to keep things as simple - and dispassionate - as possible, and bet with the odds rather than against them.

RIWF
 

Scripophilist

Active member
I've been "doing it" succesfully on Betfair for quite a while and prefer that format because the spreads are narrow and there can be no dispute on the win. That said it tends to be farily illquid in comparison to IG who must hedge (at least a little).

That said I used to be an IG shareholder and the view was that on average punters where no better than random and therefore they tended not to hedge at all. In which case it's you vs IG.
 

Scripophilist

Active member
Of course this strategy would rely on there being a liquid market of punters or else IG would be horribly exposed.

I noticed they widened there spread a fair bit from where they started. I used to get 3 points on the DOW but most of the time its 6 now.
 

donaldduke

Experienced member
Robertral,

You been quoting these formulas for some time now.. Its
a bit hard for us mere mortals (although i did get an A in maths
at Olevel) to grasp..

What would be more usefull would be a real worked example:

Lets say the the Dow is trading up 20 points from the open and
IG offer a binary bet for Dow to close up more than 50 points.
They quote a market 25(bid)-30(offer). Its two hours before the
close.

I buy at 30 offer expecting the Dow to close above 50 points from the open, i will make 70 if it does lose 30 if doesnt.

How would IG hedge this specific bet using options...

Or if its easier to explain a range bet like 50-60 points
that would be fine too.
 

Robertral

Well-known member
donaldduke said:
Robertral,

You been quoting these formulas for some time now.. Its
a bit hard for us mere mortals (although i did get an A in maths
at Olevel) to grasp..

What would be more usefull would be a real worked example:

Lets say the the Dow is trading up 20 points from the open and
IG offer a binary bet for Dow to close up more than 50 points.
They quote a market 25(bid)-30(offer). Its two hours before the
close.

I buy at 30 offer expecting the Dow to close above 50 points from the open, i will make 70 if it does lose 30 if doesnt.

How would IG hedge this specific bet using options...

Or if its easier to explain a range bet like 50-60 points
that would be fine too.

To start with the formula I quoted before replicates a tight bull spread.

Think about a bull spread. If the strikes are close together then this will give you a binary?!?!?!?

My equation Binary = (1/k) * [Call(X+k) - Call(X)] is exactly the same. k is just the min difference between strikes for a given market.

[As an aside you can take the limit of k to 0 and incorporate the vol smile in there.....]

Lets say that the binary is for a market F an we want to price the binary with a strike of 105 using the following formula

Binary = (1/k) * [Call(X+k) - Call(X)]

where X = 100 (the binary strike, depending on how you derive the binary)
k is the difference in strike prices....
the 1/k multiplier is to normalise the payoff to 1 if S>X...just draw a payoff diagram for Call(X+k) - Call(X) and you will see you have to divide by the strike difference to get you 1 payoff.

I.e the options market has strikes of 95 100 105...I can replicate a binary by buying a 100 call and selling a 105 call....

Thing is with the above if the market is between 100 and 105 I have pin risk as I'm not gonna get my 0 or 1 pay off....I'm gonna get something in between…...this is where the lottery comes into play for the MM.....i.e sell something for 100 when it costs you 95....
It all depends on how volatile your market is

I can't give you exact numers for the sheaaaat you have quotes as I dont know the other parameters but I hope the following helps...
With the range binaries you have to use a truncated lognormal integral to price, using the lower and upper bounds (i,.e your range binary limits)...if you know stoch calc this will ring a bell...it's quite hard to write this stuff in this format...

exp(-rT)*E[a>S_T>b | S_t<T ] = ????

If it's pure pricing you want I can write you up a word document how price binaries and sheaaaat

For MM hedging on this sheaaaatt it all depends on the flow….you might get roughly equal amounts of punters buying options on each range within the package, thus it’s easy to hedge the books with a simply tight bull spread. It depends on the flow. Otherwise the MM would take a global view of the book.

Please give me a PM or whatever if this doesn’t make any sense, as I’m very happy to write a word doc to explain this stuff
 
 
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