Betting on volatility
If you believe a market is going to be volatile you can back your view with a binary bet or an option.
In this way you are betting on volatility itself – even if you are not convinced what direction the market will move you can make money once there is an up move or a down move (you are 'buying volatility' in a market, rather than 'buying' or 'selling' the underlying market).
Our 'volatility bets' can be placed using binaries and/or options. Find out more about betting on options.
Volatility betting with binaries
Betting on volatility is an advanced binary betting strategy which can allow you to take advantage of future volatility levels. For example:
You believe the FTSE® 100 will have a big move after the US payroll number is announced, so you decide to 'buy' £10 per point of both the 'FTSE® to finish up more than 50 points' binary – our current price 8-11, and the 'FTSE® to finish down more than 50' binary – our current price 6-9.
So, you have paid a total of 20 points (11+9) backing a 50-point FTSE® move in either direction. If the US payroll number moves the FTSE® as much as you expect and it finishes the day up more than 50 points or down more than 50 points you make 80 points:
100 (all binaries will finish at 100 if the statement becomes true)
- 20 (this is what you paid for a 50-point move in either direction)
Because you 'bought' £10 per point, your total profit is £800 (80 x 10).
If you were proved wrong about the US payroll number and the FTSE® did not finish up 50 points or down 50 points, you would have lost £200 (20 x 10) as all binaries will finish at 0 if the statement does not happen.
Either way you cannot lose more than £200 whatever happens to the FTSE®. All binaries are strictly limited risk. In this above example you are 'buying volatility' on the FTSE®, rather than simply 'buying' or 'selling' the FTSE®, which you would do with a more traditional daily FTSE® bet.
You can use binaries to benefit from markets when you expect there will be no movement at all.
The FTSE® is currently trading at 5360 and the market is quiet. You don't believe the FTSE® will move any higher than its current level, so you 'sell' £10 per point of the daily FTSE® 5400 OneTouch at 40. By doing this, you have 'sold volatility' on the FTSE®.
If the FTSE® fails to reach more than 5400 by the end of the day, you will make £400 (10 x 40).
If the FTSE® breaches the 5400 mark before it closes at 16.30, you will lose £600 (100 - 40 x 10).
Spread bets are leveraged products. Spread betting may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.