Binary Option hedging

[bobmarley]

Im trying to figure out from the BInary option company perspective how they hedge positions they get in.... i know in the spread betting world a little risk is run then a hedge is made in the futures market for example....in binaries i believe this is also possible but i have heard that in general they are not hedged due to algorithms which the companies use...can anyone help me understand how this works ....how do binary companies hedge risk ?

 

[donaldduke]

I dont think they hedge at all.

IG Index even said so in one their conference calls. Dont know about the other companies.

They rely on the punters being net losers and also impose a limit on the max bet size accepted, much like casinos do.

They rely on a huge spread as their main edge over the punter, in some markets its 8% between bid and ask..