TradeFair Binaries User Guide - What is Trading?

Chris F. Masse November 30th, 2007

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What is best execution?
What does the changing background indicate on the trading platform?
What is my net position for a market?
How is my average price calculated?
What is Trading?
What is Close Out?
What is Realised P&L?

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What is best execution?
Best execution is the process by which Tradefair Binaries will match a user’s bet at the same price or better price than asked for, when available. This normally occurs in two ways

the best price may be only offered at a small stake while the second best price at a much larger stake. A user may enter the required price as the second best, which has the effect of matching the small bet at the better price and the large bet at the second best price. This process has the added advantage of somewhat protecting users from entering totally erroneous prices;

where a user has entered a bet but, before it is confirmed, better odds become available. A user will always get the best price available at the time of matching.

What does the changing background indicate on the trading platform?
The Tradefair Binaries betting interface has been designed to show how the prices are moving on the exchange.

Every time the best buy or sell price for a market changes, the background to the price flashes according the direction of the price change - blue for an up price move, red for a down price move.

What is my net position for a market?
Your net position is:
(Sum of the stakes of your matched buy bets) - (Sum of the stakes of your matched sell bets)

If this is a positive number you have a net long position and you are betting that the event will happen or the binary market will go up in the meantime in order that you can take a profit by closing out your position (see What is Close Out?).

If this is a negative number you have a net short position and you are betting that the event will not happen or the binary market will go down in the meantime in order that you can take a profit by closing out your position (see What is Close Out?).

Example of a net long position:
If your matched bets are:
Buy bet of £2 per point @ 30
Buy bet of £1 per point @ 40 Sum of stakes of matched buy bets = £3
Sell bet of £1 per point @ 50 Sum of stakes of matched sell bets = £1

Sum: £3 - £1 = £2

Therefore you have a net long position of £2 per point at 33.3 as shown below.

Example of a net short position:
If your matched bets are:
Buy bet of £1 per point @ 50
Sell bet of £2 per point @ 30 Sum of stakes of matched buy bets = £1
Sell bet of £1 per point @ 40 Sum of stakes of matched sell bets = £3

Sum: £1 - £3 = -£2

Therefore you have a net short position of -£2 per point at 33.3 as shown below.

How is my average price calculated?
The average price is calculated for your matched bets and unmatched buy or sell bets (if applicable).

There are two methods of calculating your average price depending for your matched bets depending on whether you have a Realised P&L.

Method 1 - Applies to unmatched bets and to matched bets if you do not have Realised P&L:

Your average price is calculated as:
( sum of your [bet price x bet stake] ) / (sum of your [bet stake]).

(i.e it is the average price of your bets, weighted by bet stake)

Example of Average Price (1)

In the example above the calculation is as follows:

Bet Price

Stake

Bet Price x Stake

50

2

100

60

1

60

Sum

3

160

Average Price = 160 /3 = 53.33

Important: your average price is shown to 1 decimal place on the interface.

Method 2 - Applies to matched bets ONLY if you have Realised P&L:

Your average price is now adjusted to take account of the change in your net position due to a close out(s).

Your average price is calculated as:
(sum of your [bet price x bet stake] + Realised P&L) / (your net holding).

Example of Average Price (2)

Bet Price

Stake

Bet Price x Stake

50

2

100

60

1

60

70

-1

-70

60

2

120

Sum

4

210

Realised P&L

16.67

What is Trading?
When you trade you are trying to make a profit as prices move up and down. This may involve placing a series of bets which will result in a profit (or a loss) whatever the final outcome.

Often financial traders do not keep a position open until a market expires, but are looking to profit from very short term price movements by closing out open positions with an equal and opposite trade.

The Tradefair Binaries interface has a number of features to make trading easier:

your profit and loss based on different outcomes (see Where do I see my Profit & Loss (P&L)?)

the total stake and average price (see How is my average price calculated?) of your matched bets (see Where can I see my matched bets?)

the total stake and average price of your unmatched buy bets and sell bets (see Where can I see my unmatched bets?)

your realised P&L amount for the market (see What is Realised P&L?)

the functionality to Close Out your position (see What is Close Out?)

In the example above you place a series of buy and sell bets at different levels causing your Net Holding to change and each time there is a closing trade the Realised P&L changes accordingly. The final outcome is a flat position with a Realised P&L of £100.

What is Close Out?
If you have a net long or short position in a market you can decide whether to “close out” or offset the position by placing a bet of equal size in the opposite direction - this is what we refer to as Close Out. If the bet matches your position will be zero and the profit or loss reflected in your Realised P&L.

The Close Out function will only be available if there is sufficient liquidity in the market. This is indicated by the or the Close Out amount being clickable. If there is insufficient liquidity the will not be clickable and there will be no Close Out amount shown.

If you select Close Out the deal ticket is automatically populated with an equal and opposite bet to your existing net position.

The price shown in the deal ticket is the price, based on the best three exchange prices, where there is sufficient cumulative liquidity to match an offsetting bet to your position.

If you submit this bet to the exchange and your bet is matched, this will “close” your position in that market, locking in a profit or loss. The bet may be partially matched resulting in a partial close out.

In the example above you have two matched buy bets, of £1 per point @ 20 and £0.60 per point at 25, and therefore you have a long position of £1.60 per point at an average price of 21.9.

The Close Out amount is shown as £17.80 which would be the profit if you closed your position at a binary price of 33.

You decide to Close Out you position and a sell ticket is generated with a stake of £1.60 and a binary price of 33.

The price of 33 is derived from the fact that there is £0.8 per point available to sell at 34 and £0.8 per point available to sell at 33 and a position of £1.60 per point is covered by the cumulative liquidity down to a price of 33.

If there had been insufficient liquidity as shown in the example below then the Close Out function would not have been available.

Please be aware if you submit the Close Out trade, it might not get matched since prices are dynamically changing on the exchange.

The price shown on the Close Out deal ticket may be conservative as part of your order may get filled at a higher price, however if you wish to increase the likelihood of your trade being matched you can amend the price on the deal ticket before submitting this to the exchange i.e decreasing the price if you are selling or increasing the price if you are buying.

(It is possible the Close Out level shown in the example above would be 33.5 - since £0.8 per point is available to sell at 34 and £0.8 per point is available to sell at 33 - resulting in an improved Close Out value.)

Of course if the Tradefair binary price improves whilst you are in the process of placing your bet, you will be matched at the best price available (see What is best execution?)

What is Realised P&L?
Realised P&L for a market is the guaranteed⁽¹⁾ “profit” or “loss” from bets which have been closed out (see What is Close Out?).

The Realised P&L is based on the following calculation:

[(Average price of your net holding before Close Out) - (Price of Close Out bet)] x (Close Out bet stake)

This will be a positive number if your buy price is less than your sell price and vice-versa.

In the example above you have bought £2 @ 30 and £1 @ 40 to give a net position of £3 @33.3.

You then place a down bet of £1 @ 50 which results in a Realised P&L of (50 - 33.3) x 1 = £16.67

(Note: Your average price is only shown to 1 decimal place on the interface but all calculations are done to 2 decimal places or more.)

The Realised P&L will change as you make further Close Out bets as can be seen in the example below.

⁽¹⁾ other than when the market is voided