BinaryBet price - How wide?

stevespray

Experienced member
1,289 154
Nutter…..

Which ever company you deal with is going to want to make money overall from the various instruments that they offer. Binaries are no different. In order to make a profit the net income from losing punters will need to exceed the next pay outs to winning punters. With this in mind they will adjust the various ‘goalposts’ until such a situation exists. On that basis you are really fighting against other customers as well as the markets. Over an extended period of time the companies can not allow net payouts to exceed 50% of the net value of bets placed. Assuming that they want to make a profit the 50% will more like be 40% - 45%. On that basis in order to break even you will need to be a customer who is, not only better than the market at detecting value, but better than around 6 out of 10 of all customers. There are many variables which they can adjust in order to achieve their objectives, some of these adjustments can be perceived as being unfair like widening the spreads and altering execution procedures. Be aware.

Steve.
 

steve34

Junior member
20 0
nutter punter

I was noticing this last week and got locked out of a spread that turned against me loosing alot have now begun working on other markets rather than binaries due to large spreads 9.9 last week (they quoted market conditions) when questioned but agree with speed spray make money whilst you can then move on and maybe return......................
 

Scripophilist

Active member
221 7
I think this is the generic problem with Bin bet. It needs a liquid betting exchange to be able to really pull those spreads in. Look at footy or horses on Betfair and the over round is tiny. Add this to financials and you could have an really interesting market.
 

stevespray

Experienced member
1,289 154
Scripophilist…..

A very good point and your example of Betfair’s football and horse markets are particularly good. The problem with financials is that the status quo can change much more rapidly than the status quo of footy and horses. With that in mind I’m not sure how suitable Betfair’s system is for volatile instruments like digital options on daily Dow and FTSE. The general ‘betting exchange’ idea has its limitations and the normal result is a very wide spread in short term events.

The basis of any company, which chooses to make a market in digital options, is to essentially make customers pay slightly more for a position than it is really worth. Likewise customers are encouraged to sell (write) a position which results in them being paid slightly less than true value. The outcome, over an extended period of time, should be a profit for the company which makes the market as it slowly soaks up the differential in ‘true value’.

The problems for the market maker start when certain conditions prevail for an extended period of time which make it easier for the punters to predict certain outcomes. The market maker requires a certain element of randomness within a market to ensure that its law of large numbers filter through. If a period of easy predictability prevails for a certain period of time then there is a much higher risk that the customer may make more in this ‘good time’ than he will be prepared to give back when the prevailing conditions change (ie he’ll spot the change in conditions and stop trading a particular strategy before the market maker has recovered what they have paid out). This type of thing is very hard to quantify from the market makers point of view and one imagines that this would cause them to react quicker rather than simply wait to see how things pan out in the longer run.

Obviously the market maker is competing in exactly the same surroundings as any other market participant. I’m sure the people who write their systems think that they are pretty clever people but because there is so much money in the markets there are other clever people who will also be attracted to the market environment. One thing is sure, if you think you’re clever there is almost a certainty that there is someone out there who is cleverer still.

The claim that a spread has been increased ‘due to market conditions’ is a very bad argument because the nature of market conditions are always changeable and that in itself is an element of ‘market conditions’ - Market conditions are a dynamic within a dynamic.

The bottom line is that the house will always want the edge. This is where a spreadbetting company is different to the market as a whole. A spreadbetting company which makes its own markets will always ultimately act in a manner which is beneficial for itself as its aim is to make a profit from customers who essentially wrong. The underlying is slightly different on the basis that it is, in a simple sense, a zero sum game. For every buyer there is a seller and for every seller there is a buyer. The market will not act in a different manner purely if you, or anyone you know, starts to make money.

Steve.
 
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donaldduke

Experienced member
1,665 257
IG should be no different to any other Options market maker (except they work on a much smaller time
frame).

It seems to be a case that IG underestimated the skills and abilities of the punters they are trading
against.

Ideally IG should have a better grasp of what the odds are at any time, but unlike other
market makers they dont specialize in a few markets. So they have to increase the spread because
the profitable punters who will be specializing in a single market will be better informed than they
are.
 

stevespray

Experienced member
1,289 154
DD…..

I think the fact that they use ‘odds’ is part of their problem. This is one of a number of problems of being a ‘parallel market maker’. In a traditional market (ie the main underlying market) the price is arrived at by a process of balancing supply and demand. None of the prices are based on odds or probability, they are based on what people are prepared to pay for stock vs. what people are prepared to accept for their stock. As a result the price is perfect based on all relevant factors for a particular time frame. The same is true in the options markets. As you point out, different companies specialize in just a few markets, however, several companies often cover the same markets, this doesn't automatically mean that they’ll all offer the same price. Options markets have depth just the same equity markets. Activity in the options markets will often have a direct effect in the underlying markets as dealers alter their positions to limit risk or exposure. The effect will then reflect back into the options markets and so on and so forth as the cycle repeats.
The same is not true for the market maker of digital options. Even though they bias prices to a certain extent (based on customers activity) the basis of their prices is probability. Because of this there is always likely to be an unbalanced order book and where ever there is an unbalanced order book there is a possibility of loss (where as a balanced book will result in profit based on addition of all the spreads charged).
The problem for the market maker is that activity in their digital options markets has no direct effect on the underlying market on which the options are based. Technically there is no ‘feedback loop’. It would be interesting to see what happened if their markets were purely based on customer activity and no probability. Imagine if at 4.40pm, once today’s FTSE close had been posted, a market opened at 49/51 on ‘FTSE up / down at close’ for the following trading day. People could then buy / sell as they please and all movements would be purely based on supply and demand. Movements would have to be based on historical activity (price x volume essentially) within their markets and re-calculated as volumes increased and fell. At this point liquidity would probably increase and as such the established price would statistically have a higher chance of being ‘fair value’. Maybe I’m being naïve !

Steve.
 

stevespray

Experienced member
1,289 154
NP - One imagines that you were making money if you were doing 30+ trades per day. If you are now doing none then it appears that which ever company is now saving themselves money.

The house always wants the edge.

Steve
 

yekraps

Newbie
3 0
Binary betting through an exchange

Hi Steve,

as a new member of trade2win I have taken a particular interest in the discussion threads regarding binary betting. My interest in binary betting stems from the fact that through quiet markets, binary betting allows a day trader some exceptionally high gearing. I have been using I.G.'s website but I recently received an email from binexx.com promoting binary betting on an exchange. Whilst there are market makers providing liquidity, they do allow you to leave orders and they do not shut their markets early. If you are frustrated by bet rejection, I recommend you give them a try,
Regards,

Yekrap
 

deltrotter

Newbie
3 0
Any further comments on Binexx?

Minimum bet etc?

Been using IGIndex for a while on their binaries and it is a licence to lose money with that spread.

Cheers

Del
 

Scripophilist

Active member
221 7
Binexx is looking much nicer than its first incarnation but the prices seem pretty close to IG . Am dabbling with Binexx at the moment. IG has been pretty unreliable in the last few weeks and this makes it impossible to use for sort term positions. I will only use them to hedge now and again but that's it.
 

Robertral

Well-known member
446 3
Scripophilist said:
Binexx is looking much nicer than its first incarnation but the prices seem pretty close to IG. Am dabbling with Binexx at the moment. IG has been pretty unreliable in the last few weeks and this makes it impossible to use for sort term positions. I will only use them to hedge now and again but that's it.

What binary spread would you trade on? 3? 4?
and be honest!!!!!!! IG are about 5 points yeah????
 

yekraps

Newbie
3 0
The minimum bet with binexx is £1 and they charge a commission of half a tick. In fast moving markets, the ability to leave orders I think gives you a much bigger advantage on jobbing 10 ticks than with IG ,

Yekraps
 
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