Binary Betting Strategies for Binary Options Trading
First, before we get into betting strategies for binary options trading, let’s discuss what the odds are when you trade.
Let’s assume there is a 50/50 chance of being right or wrong on a trade. After all, no one has a crystal ball.
For example, let’s say you thought the EUR/USD was going to trade higher from it’s current price. So, you decide to buy a call option for $100, with a payout of 70%.
With that said, your best outcome is a profit of $70, and if you’re wrong you’ll lose $100.
If our expected return is 0.5 x $70 = $35 and .5 x $100 = -$50
(35) + (-50) = -$15
The expected investment value is (100) + (-15) = $85
What does this all mean? Well, we have a negative expected return. That’s right, the odds are stacked against us. In order to figure out what we need to do to overcome this, pay attention to the following formula.
We take 1 and divide it by the (expected payout percentage + 1)
For example: 1/(0.70 + 1) = 59%
Again, what this means is that we have to be right on our strategy 59% of the time, in order to overcome the negative expected outcome. Of course, you should back-test strategies with this number in mine. Ideally, your strategy should have a higher probability of success than this, to be a profitable trader.
Now, will look at a couple of betting strategies used in binary options trading.
The Martingale Strategy
Let’s assume that you bet $100 and the payout is 70%, the trader is making successive trades, check out the sequence of the size of the bets as they lose each one of them.
Bet Bet Size Total Losses Profit (if trade is right)
1) $100 $100 $0
2) $150 $250 $5
3) $380 $630 $16
4) $990 $1,620 $63
5) $2500 $1750 $130
As you can see, the size of the bet increases as the trader loses each time. However, the first bet they get correctly, they’ll recover all of their losses. Of course, you’ll need deep pockets to absorb successive losses. In addition, your trading strategy needs to be better than the break-even point we presented earlier (59% in our example). But don’t get confused. If you’re going to follow this system, you have to be emotionally fit and disciplined enough to go through it.
Remember, the martingale strategy only works if your trading strategy does. Not only that, but you must keep your emotions in check and have a large enough bankroll to absorb losses.
Flat Betting
A simple strategy, where the trader makes an equal sized bet based on a percentage of their trading account. For example, if a trader has $500 in their trading account, they might bet anywhere from 1% to 5%.
For example: $500 account, 2% of account value of on each trade, at 70% payout.
If wrong each time:
Bet Bet Size Total Losses Account Value
1) $10 $10 $490
2) $10 $20 $480
3) $10 $30 $470
4) $10 $40 $460
5) $10 $50 $450
A couple of things to point out, by using this method, the likelihood of blowing out your trading account decreases significantly. No single loss should be crippling. Of course, your trading strategy needs to be a profitable one (positive expectancy). If you’re trading strategy has an edge, you’ll be profitable using this betting strategy. In fact, this system is widely used by portfolio managers and professional gamblers.
The Parlay
Now, this is a progressive strategy based on increasing your bet size as you win. They add their profit to their initial bet size.
For example: $500 account, 70% payout:
Bet Bet Size Total Won Account Value
1) $10 $7 $507
2) $17 $11.90 $518.90
3) $21.90 $15.33 $534.23
4) $25.33 $17.73 $551.96
5) $27.73 $19.41 $571.37
As you can see, the trader increases the size of their bets based on the profits that they receive. Even though the size of the bets increase, they are only risking $10, the rest at risk are profits. If the trader loses, they’d go back to their initial $10 bet size.
Another variation of this strategy would be to simply bet half of your profits.
For example: $500 account, 70% payout:
Bet Bet Size Total Won Account Value
1) $10 $7 $507
2) $13.50 $9.45 $516.45
3) $14.73 $10.31 $526.76
4) $15.16 $10.61 $537.37
5) $15.31 $10.72 $548.09
As you can see, these betting strategies are fairly conservative, they add risk when the trader is doing well and reduce risk when they are not. Intuitively, this makes sense, trade more size when you’re confident and smaller when you’re not.
Anti-Martingale
Now, unlike the martingale, where the trader increases their bet size when they lose, the anti-martingale increases the bet size as the trader wins and decreases them when they lose.
For example: Account size $500, payout 70% , Trader will start off with $20, double their profits if they are right on the next trade… and go half of the size of their previous bet when they lose.
Bet Bet Size Win or Loss Profit/Loss Account Value
1) $20 Win $14 $514
2) $28 Loss -$28 $486
3) $14 Win $9.80 $495.80
4) $19.60 Win $13.72 $509.52
5) $27.44 Win $19.21 $528.73
6) $38.42 Lose -$38.42 $490.31
As you can see, you’re strategy needs to have a positive expectancy. Another variation would be to increase the bet size with a portion of the profits, say 50-75% of profits, that way if the trader loses, they would have not given up all their gains.
In conclusion, the key to any betting strategy is to know if the trading strategy can produce a positive outcome. At the top half of the article, we went over a formula that shows how successful a trading strategy needs to be in order for the trader to break-even. It’s important to back-test strategies and keep a trading log. In order to improve, you must know what’s working and what isn’t. For the most part, the flat betting and variations of the parlay strategy appear to be the most attractive. However, each betting strategy has its own pros and cons.
