Financial Betting Features
Financial betting can be defined as the wagering on the price movement of certain financial instruments, taking into consideration the current price and what its price would be at a later date in the future against certain odds provided by the bookmaker. A powerful instrument in investing in the financial markets, there are many features to the financial betting option. Financial betting offers two mostly used variants. These are fixed odds and financial odds.
Fixed odds: as the name specifies, in fixed odds betting the odds or the prices are fixed, and the strike price is moving. This implies that for the given odds, the price that is needed to win the bet is moving. For e.g. there is a 5/1 on the UK 100 that it will end below 5635. Some time later, say a few seconds, for the same bet of 5/1 the bet would be that the UK 100 would end further up at 5645.
Floating odds: opposite to the fixed odds, the financial odds bets allow for the movement of the odds or the prices but the strike price is fixed. This means that the odds are floating or moving but the price of the market which is required to be reached for the bet to be considered “won”, is fixed. For e.g. there is a 3/1 that the DOW would end above 12550. After a few seconds, for the same level of the DOW that is, 12550, the bets could change to 6/4.
This shows that fixed and floating bets are opposite in nature to each other, but there are certain inherent features in both of these. These features are as follows:
1. Fixed risk nature: financial betting as we know, presents fixed risk. This means that the traders are aware of their potential loss prior to the settlement of the bet. As the payouts are predetermined, the traders can limit their risk and can invest only upto the amount that they can bear to lose. This applies to whether a trader opens a long or a short bet, as he is aware of his risk before hand. Moreover, this risk can be further minimized by exiting the bet anytime before the settlement. Strategically this applies to the scenario where a trader is making money or winning bets as he can collect the wins before the time of settlement.
2. Liquidity: liquidity is also another of the inherent features provided by financial betting as the book maker is always there to accept or sell bets before their settlement time. This implies that he acts as a market maker and is willing to sell bets or buy bets back from participants, thus at all times providing liquidity in the market.
3. Leverage: leverage in the form of added advantage is another of the feature of financial betting. Capital invested in the financial market through financial betting experiences a far better percentage return than if the investment was directly in the market for the underlying asset. Therefore financial betting is less capital intensive when compared to trading that is carried over on securities exchanges.