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Binary Options - Probabilities, Odds, And Payoffs
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Binary Options  -  Probabilities, Odds, And Payoffs

Odds and payoffs are inextricably linked together. They are versions of the same concept seen from a different point of view and, along with probabilities, they are the mathematical backbone of games of chance and gambling. They are also a wonderfully simple lead-in to the much more complex world of markets and finance where the preferred term for payoffs is returns.

The first important concept in any gambling establishment is the ‘‘house take.’’ Without it the show would not go on. In the casino or at the races, the overhead and infrastructure costs are huge, and the providers are far from being philanthropists. So, there is some amount that is automatically deducted from all wagers in the form of a ‘‘takeout’’ or ‘‘house edge.’’ In mathematics these are known as unfair games. That is to say that their payouts are not in line with the true chances of winning.

A payoff generally refers to the amount you will get for winning a single event. In coin tosses, where we typically suggest $1 bets, the usual payoff is $1 per winning event. If it varies from this, we say so. But the world is not always simple and the phrase ‘‘winning event’’ might mean different things at different times. Again we try to describe this as it happens. Game players seems gifted with an endless ingenuity for creating new bets. The possibilities are endless.

Odds are merely payoffs dressed up in different clothes. The phrase ‘‘even money’’ means odds of 1 to 1. A single coin toss that has payoffs of $1 and $1. You can win or lose an even (equal) amount. If the odds are ‘‘2 to 1,’’ it means you can win $2, but can only lose $1 (for each dollar bet). It is also called 2 to 1 against, which means 2 against, 1 for. If you imagine a street fight with three people involved, you will note that there are always uneven odds, that is, 2 against 1.

You will find in our coin toss analyses that we constantly measure paths against and paths. The comparison of these in the form of a ratio (against divided by for) is what creates the proper odds. The odds dictate the payoff. If we find the odds are 3 to 1, a $1 bet has a payoff of $3. Binary options will definitely help you. In order to understand binary options better, read this article once more.


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