None of us like to get our stops hit. Which is why a trading method that will guarantee you never get stopped again sounds like the Holy Grail.
But that’s exactly what I’ve been doing.
Don’t get me wrong – I’m not saying that you’ll win every trade.
But that annoying thing of getting knocked out of a trade, only for the markets to turn tail and prove you right – could be a thing of the past!
How have I been doing this?
I’ve been following a new trading strategy that uses IG Index binary bets.
As I mentioned in a previous post, traders (myself included) are often a bit down on binary betting – it’s a bit of a Volvo estate next to the flashy sports car of spread betting!
But when you’ve wrapped your flashy sports car around a lamppost a few times, you might just come to appreciate the allures of a steadier hand.
I’ll admit that I’ve been really slow to pick up on the joys of binary betting. I’ve done a bit of fixed-odds betting in the past, and really had bracketed the two things together.
But I’m taking a fresh look at it now. I’m still testing out this trading strategy – and will bring you a full report on it soon.
But in the meantime, it’s worth taking a closer look at what binary bets are, and how we can use them.
Why binaries can be better
There are a few reasons why binary betting appeals …
First, if you’re a risk-averse investor, you want to know what your maximum loss could be. Sure, spread-betting offers stop losses, but in volatile markets, these can be knocked so easily, and (more crucially) when prices move really hard and fast – you might not get out of your trade at the level you wanted to.
Secondly, binary betting guarantees you some “action”. Small price moves can become nail-biting stuff, and even if the markets are stuck sideways – you can use binary betting to turn that into a winning outcome.
Thirdly – and this is the one that really swings it for me – you can decide on the “outcome” in a binary bet. Outcome is all that matters, so you can dodge many of the problems that come with a volatile market. If you take a bet that the market will (for example) be above a certain price by the end of the day, then the price can have a flash crash in-between times for all you care – you’ve no annoying stop loss to risk being hit.
How binaries work
IG Index are the pioneers of binary betting, and still offer the best choice of markets. Which is why it’s their platform that I’ve been using (others will work slightly differently).
Binary bets work in much the same way as traditional sports betting, in that you stake a certain amount on an event happening or not happening. Your “odds” are presented on a scale of 0 to 100, which is the price of that bet. 100 on the scale is what you’ll get if you’re right. 0 is what you’ll get if you’re wrong. And the price inbetween is what you pay to get in.
Each binary bet has a statement associated with it, such as “FTSE to finish down”. If the outcome is looking likely, then the price for that bet will go up. If it’s looking less likely, the price will go down. The difference between the price you get in at and 100 is your potential profit. The difference between the price you get in at and 0 is your potential loss.
So, let’s say that you bought the “FTSE to finish down” bet at 47, staking £2. If you’re right, and the FTSE finishes down, you’ll win 53 x £2 = £106. If you’re wrong, you’ll lose 47 x £2 = £94.
Now let’s say that during the course of that day, some piece of news leaked out of the Euro summit to tell us that the crisis in the Eurozone had been miraculously solved, and that markets spiked up before investors realized that the story was false, and they settled back down again.
If you were spread betting, this kind of event could have had a devastating effect on your trade.
But, with a binary bet – you don’t need to worry. All you care about is the outcome.
Another advantage with binary betting, over conventional fixed odds trades, is that you can close your bet before the end of the time period. So, if the bet has moved in your favour, you can lock in those profits early, rather than wait around. Likewise, you can bail out of a losing position before the bet has run its course.
If the idea of never getting your stop loss hit again appeals to you … then I really think you should take a look at the kind of binary bets on offer at IG Index. They seem to offer the biggest and best range of markets and bet types, all in a way that’s really easy to access.
The big story from left of field
I thought that the end of this week would be dominated by events in Brussels, but, no. Who would have guessed that instead it would be dominated by an obscure credit market called Libor.
Not many people have even heard of the Libor rate before this week. And even fewer people have bothered to wonder what it is and how it functions.
The Libor rate is the London Interbank Rate, and is the rate of interest banks charge each other for short-term loans. It is the largest most liquid credit market in the world.
In the financial crisis, short-term borrowing rates skyrocketed as the risk of borrowing overnight escalated. There was massive uncertainty – so people just didn’t want to give out money on the cheap.
However, throughout this period, the Libor rate didn’t skyrocket.
Because none of the banks wanted to look like they were in trouble. So they artificially subdued their Libor rates.
Perhaps this was, in fact, doing us all a service – quelling the panic, and steadying fears.
If they hadn’t been up to these tricks, we may have seen a widespread run on our banks.
But let’s not kid ourselves that this was done with our best interests at heart.
Banks were also manipulating these figures to make money on positions they’d taken.
It’s dirty as hell. But one of the big issues to look at has to be the lack of regulation.
If you could call up your broker and ask him to nudge down a price to put your trade into positive territory – you’d be tempted, wouldn’t you? (I know I would!)