Overview

As betting markets become more and more sophisticated (epitomised by
the advent of specialist sports hedge funds) the crossover between sports
betting and financial trading will intensify. Already futures trading by way
of spreadbetting has become established in the sports betting market,
while in turn fixed odds bets, by way of binary options, are being
increasingly used for speculating in the financial and commodity markets.
Binary options (aka financial fixed odds bets, aka binary bets) have a
number of characteristics which will enable them to become the most
heavily used and popular derivatives instrument. They provide:
1. easy access for the trader via the internet;
2. a limited risk environment for all participants;
3. at expiry greater gearing for the speculator than, for instance, futures,
CFDs, spreadbets or conventional options;
4. a far greater degree of flexibility enabling the sophisticated trader to
customise his bet to take full advantage of accurate forecasts;
5. a product range that ranges from financial and commodity instruments
to sports, political, media and weather; and finally
6. they are tax-free in many jurisdictions.
Binary options are used by people in many countries, albeit under a
different name – that of a fixed odds bet. Nowadays many nations have
their Kentucky Derby, Breeder’s Cup, Grand National and Melbourne
Cup, which attract wagers from a broad range of people; and recently
betting on ‘reality TV’ events has become popular. All these betting
participants are (unwittingly) buying binary options, and the flexible
nature of this instrument will enable it to pervade the lives of many of
whom are already avid sports punters but have always shied away from
participating in the world of sophisticated financial instruments.
Henceforth the term fixed odds bet will be interchangeable with the term
binary option throughout this book.