The Right Option

The Right Option

Wednesday, 21 January 2015

How poker players are buying into binary trading.

By Paul Seaton.

The skill-sets required for poker and those needed for success in the stock market are becoming almost identical, so it is no surprise that high achievers in financial backgrounds, such as hedge fund manager and two-time EPT High Roller champion Talal Shakerchi, attain success at the highest level of poker too. Former WSOP Main Event champion Joe Cada began life with a keen interest in finance, and become the youngest ever winner of the greatest prize in poker - the World Series Main Event bracelet in 2009. This shows that someone with a keen interest in finance can make it big in poker. But are the skills learned at the poker table transferable the other way? Bluff Europe investigates.

Hand In Hand

Trading is all about taking advantage of an opportunity. Let’s consider a poker scenario for a second. You’re a winning $5/$10 player. Your normal game is six-max and you’ve been doing well. Suddenly, a known high stakes whale sits down at a $10/$20 heads up table. You weigh up the options and the risk. This is higher stakes than you normally play at. Also, your heads up game isn’t particularly sharp. But you consider the following:

1. The villain is a huge whale, so your skill edge allows you a huge positive expectation.
2. The villain is famed for putting in long sessions. If you drop one or two buy-ins, he won’t hit and run on you, you’ll have the opportunity to win it back, improving your expected value.
3. He has deep pockets and will re-buy if you continue to win buy-ins from him.
4. You’ve been lucky to find him as he has just sat down; in a matter of seconds, the vacant seat will likely be filled.

You weigh up all of the positives against the potential risk of losing a higher amount than you’re used to. You decide it’s an opportunity you simply can not miss out on. You set yourself a stop loss and go for it.

In trading, you have to treat every decision like this. Use your knowledge of the markets to act as your skill edge, assess the risk and then make a decision to trade or not. At first, just like learning poker, this might seem complicated. But you’ll end up making decisions just as quickly as you would playing a hand.

Financial investment has never been easier or more convenient. This has led to a growth in the number of poker players who are seeking new revenue streams to look towards trading.

Bring On Binary?

If you’ve been spending your expendable income by spewing on sports betting or punting on purchases, then maybe trading binary options represents a steadier, more reliable way of turning those tournament winnings into a even bigger bankroll, not just for poker - but for life. Plenty of shrewd professionals have already caught on to the benefit of trading binary options, and are putting the skills they’ve honed at the poker table - as well as their hard-earned dollars - to work on the financial markets.

The binary trading system consists purely of two markets - up or down, win or lose. There are only two options - you are betting on the value of a stock going up or down. The ‘bet’ you’re making can only go one way or the other, and you win or lose as a result. In that sense, binary trading is very simple to grasp. Binary options are assets that are traded in the financial markets by forecasting the direction of the price movement, rather than buying or selling. Buy on the stock market and you’re buying a share of the product itself. With binary options, however, you’re gambling on the value of that stock increasing without personal ownership.

If that sounds like gambling on red or black on a roulette table, that’s not the case - there are a number of edges you can gain. In a casino, the house always wins, but in trading there are skill edges that mean you are never at a disadvantage purely due to probability. When to trade is the first crucial play, but betting patterns, strategy and the length of a particular betting window are all transferable skills from the cardroom to the financial floor. Another benefit is that, because you do not acquire the security when trading binary options, the tax-man considers the transaction to be a bet – and this means you will not need to pay a capital gains tax on your winnings.

Put simply, binary options can be a great way to test the water and get an idea of whether financial betting or investment is for you. It isn’t important to have a huge amount of information before you start trading, and once you have a strategy and stick to it, you can make money by knowing exactly what you stand to win or lose. The very nature of binary options allows for early strategic adjustment, and you can trade anywhere at any time. You can start small, too: brokers start trading from as little as £20 as an original ‘deposit’. Binary options allow you to trade within a timeframe you establish, (i.e. across a day, or just a few hours) so you are more in control than with regular stocks.

Working the Floor

We spoke to financial trader and poker professional Chris Gordon, who for a long time mixed playing high-level poker with his day job on the stock market floor.

“I’ve traded for some time, before my work moved into an advisory role, getting people exposure for whatever they wanted to trade at the best prices.” Gordon explains. “Just like poker, financial trading has a sense of longevity to it – it’s better to be an average trader with good bankroll discipline than getting eight out of ten trades right and blowing yourself up!”

“As long as you’re getting six trades out of ten correct, while practicing good bankroll management, you’ll be successful.” adds Gordon, who won the London Calling poker tournament in November 2011.

Thrill Seekers

Gordon has also discovered that the thrill of playing poker for a living is mirrored on the FTSE floor.

"I like the feeling of beating the market, of making money through thought processes. In that way, finance is very, very similar to poker.”

Gordon has spent a lot of his time within the financial marketplace with Ben Miller, another poker player who has split his attentions between the trading floor and the felt.

“I really enjoy the risk/reward element to financial trading, and Ben and I bounce ideas off each other,” Gordon explains. “It’s great to exchange thoughts on general strategies, just like it is at the poker table with a friend.”

Collective strategic growth is recognised way of improving faster, of growing a bank of knowledge quicker than your opponents. Every winning poker player will attribute their success partly to the collaborative learning process that helped them improve as professionals. Miller and Gordon regularly exchange theories and this process benefits them both when it comes to their financial trading.

“Binary options offer a very simple way of trading stock markets, as well as providing an easy way to manage risk,” Gordon continues. “A trader in binary options will know exactly how much money they are risking before placing the trade. Binary options provide a trader with only two financial outcomes; traders will either lose their stake or return a profit dependant on the price they took when placing the option.”

Managing risk in poker means playing at stakes you are comfortable at, both in terms of buy-in and skill level. It also means knowing when to take shots at higher stakes and making sure you’ll be able to cope financially with downswings. A standard binary option trade sets out the numbers you can win or lose clearly, helping any trader to manage their risk.

Opportunity Knocks

A high roller would sit at a table with a player they perceive themselves to have an edge over for as long as possible, and tactics are similarly important in financial trading. It’s purely a case of opportunity and cost. Just like the high roller doesn’t know how often such a good situation as a seat next to an inexperienced player will come along, the successful trader must push their profits when they have the opportunity.

Game selection is something that many players ignore until they stumble into a variant they have an aptitude for. For binary options, the one day market is very popular, where investors pick an option and stake an amount of money on the eventual result at the end of that day. Giving a trader the timeframe for success or failure is the equivalent of an online player going into a session with his or her profit and loss column ready to be filled in. A daily analysis of any session, whether it is on the FTSE index or the virtual felt can only improve performance.

“Binary options as a trade is highly accessible and low risk, but you must manage low returns. As Gordon says, there are advantages to trading in binary options as opposed to standard financial trading in stocks and shares.

“With an option, you own stocks or take premiums so your return depends on how much the market moves and not just if its up or down on the day. With binary options, you know exactly how much you will win or lose.”

Making the Switch

So how does a poker player make the leap into binary trading? Just like starting to play a new game such as Pot Limit Omaha or turning your skills from online cash games to live tournaments, you need to take time to study your new arena. Moving into the financial marketplace is not for the underprepared, and Gordon advises looking at a number of options.

“If you can make money trading binary options, then you should also be good enough to make the grade trading regular options. In regular trading, long-term options may take longer to yield a strong profit, but they pay out with a lot less commission. However, if you work on your strategy, manage your trades well and get six out of ten investments correct in binary options, then you should be able to make a small profit. Replicating that ability to make profit is the key.”

So, volume is of huge importance. Every player knows the value to building long-term success in a particular area, and pressing home that edge as often as possible allows for the bankroll to grow and the ladder to be climbed. A lower risk but slightly lower yield profit in trading binary options rather than regular stocks is balanced by not having to wait for that stock to reach long-term fruition to see a return. Repeat that return and the profits you make will be in direct comparison to the volume that you put in. Many poker players will be drawn to such obvious benefits. So what is the most important part of trading in binary options?

The crucial part of trading binary options is to focus on the skill elements.

The Tactics of Trading

Just as we know that poker is a skill game, the edge in trading binary options is clear and attainable. The more a player in his or her chosen field works to improve, the more likely they are to see that hard graft reflected in huge profits. Both are clearly very skilful businesses, and just as an experienced poker player has a huge advantage over the newcomer who is sitting down to play cards for the first time, any accomplished trader has an edge.

In trading, an inexperienced person has the chance to win big quickly. But in the long-term, gaining knowledge about binary option strategies, observing patterns within the trading markets and growing your overall understanding of the industry will have a massive effect on your gains.

There are many examples of poker players who have pitched up at a tournament with relatively little experience and triumphed. But the players who keep winning are those who constantly adjust to the changes within the game, who are always looking for ways to improve ahead of the curve and who focus on self-improvement at the expense of almost everything else.

On The Rise

Hedge funds and financial brokerages are now recognising the transferrable skills that poker players have when it comes to trading binary options. And while variance can turn any good player from a winning one to losing one, financial institutions offer more stability and respectability as a profession. Poker players might not wish that to be the case, but it will remain so for the foreseeable future.

You need to speculate to accumulate in trading, and protecting your profits is crucial if you want to stay ahead. You should choose your optimal game in poker, whether it is a No Limit Hold’em tournament or Pot Limit Omaha cash game. That rings true on the FTSE floor - you need your investment to be in the right area. Binary options provide one of the easiest, most accessible routes into financial trading, but just as much hard work is required to succeed.

If you’re keen to grow your poker winnings away from the felt, then the strongest option for you may very well be investing in financial trading. And, after crunching the numbers, binary options could be the best bet you ever made.

Do You Have The Skills?

If you’re looking to put your poker prowess to use in the binary trading arena, what skills must you have in your armoury?

Make decisions under pressure - Poker requires an ability to divorce yourself from the drama or tension of a situation and apply logic. So too does the trading world.

Well trained memory - Learning how to respond to movements in the market, patterns in the flow of trading commodities and recalling precise information are all skills that can be found at any poker table, and they are vital in binary option trading.

Identify type - Establishing certain players’ styles can be the difference between winning and losing, and on the trading floor, that translates as knowing which options fluctuate and which patterns mean profit.

Tags: Binary trading