The North American Derivatives Exchange, Inc. (NADEX), is headquartered in Chicago, Illinois. Formerly known as HedgeStreet Exchange, NADEX is a CFTC regulated futures exchange. A retail focused exchange that offers small, capped risk derivative products. Binary Option products are offered for various markets, and news events.
Gas, spot forex rates, global stock indexes, Fed Funds, Bank Rate Decisions, and more are offered by NADEX. EUR/US Binary Option products do not have open ended risk like many derivative products. Crude Oil, Natural D, AUD/USD, GBP/USD, and USD/CAD are few of the currency products available. Forex traders can capitalize tremendously with Binary Options. The daily noise of forex trading can be removed with these products.
What makes Binary Options different than any other products offered by other exchanges? Settlement value is the answer. There are only two possible results with Binary Options. Either the product settles at $0, or it settles at a value of $100. That’s it. There are no other possible outcomes. This means that the risk per instrument is capped and known at the time a trade is places. There is no chance a trader can go debit.
Here is an example of a Binary Option Trade…
1. Crude Oil is trading at $100, and a trader believes the market will be higher at the end of the day.
2. $100 is your Strike Price, and you pay $45 to buy a contract.
3. Another market maker believes the opposite. They put $55 up to buy an option in reverse.
4. If You are correct, You will collect the $100 for the Binary Option upon expiration. The profit would be the difference of the $45 you paid, and the $100 you took in. A profit of $55.
5. If You are wrong, the other market maker makes the difference of the $55 they spent, and the $100 they received on expiration. A profit of $45 for this particular trader.
Another product that NADEX offers is Bull Spreads. The point values for these contracts are $1 per point. The range of the Spread is determined, and price is a function of that spread. For example, if you purchased 1 contract, and then sold that contract for a 40 point gain, then you would profit $40. A contract does not have to be held until expiration. At any time the instrument can be traded at the current market rate.
If a Bull Spread has a wide value, Floor/Ceiling Range, then the Spot market will be close to the Option price. There will be little variance of pricing in this scenario. However, the opposite is true for a tight ranged Bull Spread value. In this case the market is most likely positioned away from the Option range. And as with regular Binary Options. Your risk is always defined, and never more than the capital allotted. NADEX requires all traders to deposit capital for trading. No positions are taken without full capital to meet each position. This is a fantastic fail safe to protect the trader, the exchange, and the industry.
Virtual Mock Trading is available at NADEX with simulated trading accounts. This is a great way to get used to the trading platform, as well as option pricing. Forex Trading is taken to a new level with Binary Option contracts. Event Trading is a reality for all traders. Truly capped risk is also available to traders who use NADEX regulated products.
In the wake of the global economic crisis of the 21st century, there is a growing need for regulated products like those of the NADEX exchange. The capped risk, and mandatory capital requirements are a welcome change. Binary Options offer tremendous online trading opportunities to veteran and new trader alike. Entry into this market environment is nominal, yet allows all capital levels a chance to participate. Trading Binary Options is also a way to diversify throughout the market without large capital requirements. These things remaining constant would indicate that Forex trading, Futures trading, Stock trading, and Option trading environments will be evolving to adapt to these new derivatives. And so should traders.