Nadex is a regulated US exchange, as designated by the CFTC (Commodity Futures Trading Commission), and is legally permitted to accept US residents as members. Based in the US, but part of the IG Group, Nadex offers a genuine exchange with both sides of any position fully open to traders. (Read in the second half of the article how the Nadex spread works).
With a premier trading environment and advanced features, Nadex delivers a high-quality trading experience. The revealed exchange rate illustrates the transparent nature that Nadex takes to providing their service, which they describe as;
“To serve the function of the corresponding buyers and sellers of a contract in an unbiased manner (Nadex does not earn profits or losses on a trade, but simply receives a full public exchange fee)”
Trading platform
Nadex offers a true exchange. This means that traders have the ability to buy or sell on either side of the market, but most importantly they can also set their own price. If another party is willing to take the other side of the option, it will be at that price.
The first choice for traders to choose is to select an asset to trade. This is done via the ‘Finder’ window on the left side of the trading platform. Selecting the relevant market opens the timeframes available for the option to expire (times are listed in ET).
Once an asset and expiration is selected, the ‘Markets’ window will be updated. This will show the potential price levels that can be traded. For any given expiration period, there will be approximately ten price levels – for example, trading the S&P index offers ten levels. Each level is traded based on whether the closing price (or the price at expiration) will be higher or lower than the stated level. The markup of Nadex binary options is 0 or 100, so exchange rates vary between the two. 100 represents an outcome that did occur (for example, the asset ended above 1878) and the compound is zero where the settled option did not end in the money.
Clicking on the asset in the market list, or having the ‘Bid’ or ‘Offer’ figures, will open a trade ticket. Clicking on the bid or offer means that the ticket is pre-opened with the ‘sell’ or ‘buy’ option.
The trading ticket confirms the expiration time, price level, bid size and the current bid and offer prices. Traders must select the sell or buy buttons (if not already selected) and then enter the size (or investment level). There are numbers at the foot of the ticket that will confirm the maximum loss and maximum payout, based on the size of the trade entered. Traders can also modify the price – this is the exchange element of trading. Traders can set a price that is higher or lower than the current levels to see if their position ‘matches’.
Since each option is freely tradable, traders can close their open trades at any time – so profits can be taken, or losses reduced. The maximum and minimum numbers on the ticket represent the two outcomes if the option is left to expire without further trading.
Once the trade is configured as desired, the trader clicks the ‘Order’ button. If the trade matches, it will appear in the Open Positions window. If some or all of the trade is ‘unmatched’ it will move to the job order screen. Both windows will update once the order is matched. In addition to these windows, the platform will also send an email with the details of the trade. An email is also sent to confirm when an order is placed.
Dealer choice
Nadex offers binary options on forex, commodities and indices, plus certain ‘events’ – for example, an increased fund rate increase. They also offer spread markets on a similar range of assets. There is a full range of price levels for each asset, so whether a trader is looking for a quick price move in a particular index, or a long-term trade in a currency pair, this firm will deliver.
The list of available trade types and assets is the largest of any of the binary options companies that can trade in the US. More than 500 contracts are available to trade.
Bitcoin spreads
Bitcoin Spreads allow you to trade the price of Bitcoin (based on the trusted TeraBit IndexSM) within a range between a floor and ceiling price. As the price of bitcoins fluctuates up and down, the value of Bitcoin Spread also moves, but with limits. If the underlying price of Bitcoin moves above the ceiling or below the floor, the value of the spread will stop moving and remain at the upper or lower limit (depending on whether you are a buyer or seller). This way your risk reward is always limited and stays within a range you define. One limit is your profit target. The other is your guaranteed protection against unlimited losses. The contract lasts one week.
Mobile app
Nadex offers the most comprehensive mobile trading app on the market. The app is free and is optimized for a number of different platforms. Android and iOS versions are available, as well as specific versions for tablets (again, Android and iPad) and also for Windows phones.
The app is smooth and most importantly, includes every feature available on the full site. From account maintenance to charting, everything is available in the trading app.
The layout is clear and concise, which makes trading very simple. The trading floor map area appears almost exactly as it does on the website because it is already optimized for ease of use.
The mobile trading app is one of the best in the sector, produces no complaints and cannot be faulted.
Payout
Using a true exchange model, where traders are matched, means traders can buy or sell options at any point between 0 and 100. True trading costs come from the spread:
Distribute
The payouts at Nadex are hard to compare with other brokers (with the exception of IG) – no other binary options broker offers true exchange trading. The payout of binary options depending on the level at which the trader was able to open the trade. For example, if a trader was at 50 and the return was 100, the payout is effectively 100% (for example, they would have risked $50, and received $100 when the trade closed), but if they were at 70 and the markup was 100 was, then the payout dropped to about 50% (the amount risked was larger and the profit was smaller). There is a charge of $0.09 per lot (up to a maximum fee of $9). These costs are clear and well documented, and therefore offer more value than a more traditional option.
Withdrawal and Deposit Options
Nadex allows US residents to fund their accounts via debit cards, ACH transfer, wire transfer. Non-US residents can use a debit card or wire only.
Where a bank transfer is over $5000, the payment department will refund the $20 bank fee into the trading account.
Withdrawals are only available via ACH or wire transfer. Non-US residents can only use wire transfer. The withdrawal options can be found in the ‘Account Funding’ menu in ‘My Accounts’. Withdrawals for ACH transfer are free and take about 3 to 5 days, while a wire transfer requires paying a fee of $25, but it is usually processed the next day.
If deposits were made via debit card, Nadex requires certain security information before withdrawals can be processed (note that you cannot refund on debit cards). The firm also requires 7 days after receiving the security information before accepting any withdrawal, so it is worth sorting out this information before a withdrawal is required.
Details about withdrawals are not straightforward with this operator, so it’s worth clarifying well before trying to withdraw money. Many of these steps are necessary due to CFTC regulations – but delays are a frequent point of contention between traders and their brokers – it’s always an area to research thoroughly before funding an account. This ensures that there are no surprises and that traders know exactly what to expect when requesting a withdrawal.
Complaints
As one of only two brokers that can trade binaries to US residents (via the CFTC), the firm operates an honest business with a high level of transparency and customer service. As such, they file very few complaints.
In volatile markets, traders can sometimes be “stopped out” (where their stop loss is hit, only to recover the price). Some people assume that this is some form of sharp practice by the broker, but in reality the cause is simply volatility and the institution being too close. While these accusations are made every now and then, it should not be a genuine matter.
Other Properties
Nadex offers its customers the following features and benefits:
- Transparent trading costs – the brand is clear about how they are funded.
- Legal for US residents – CFTC regulated, which ensures that trader funds are segregated and traders can have confidence in the broker.
- Advanced Charting – The charts and technical analysis tools are some of the best in the binary options industry.
- Education – This broker takes trader education to the next level. There are frequent free webinars not only on how to use the platform, but also on how to make a constant profit. The platform is unique, so the education must be of a high standard, and it is.
Further details
What does Nadex stand for?
Nadex stands for: N orth A merican D erivatives Ex Change
Demo account
This broker offers a no deposit demo account that allows traders to use the same platform as the live account. However, the demo account is limited to access for 15 days. However, dealers can discuss an extension directly with the firm.
The demo account is a risk-free way to try out the trading platform and discover whether it suits the particular style of a trader.
Regulation
Nadex is regulated by the US Commodity Futures Trading Commission (CFTC). It is one of only two regulated brokers in the US, where regulation is active and strong.
Company details
Nadex is owned by IG Group. They are a London based firm and are listed on the London Stock Exchange. IG Index is the UK brand, formerly IG Markets.
Trade hours
Nadex trading hours will be the same as the asset being traded. Although the site is available 24 hours a day, assets will only be open when the specific markets are. So European assets will only be available during European trading hours. US assets can be traded in the US during the relevant trading hours, and so on.
How do they earn money?
Nadex operates an exchange model. They pay a small amount per trade, and this cost is made clear to the trader. Nadex does not take counterparty risk for the trades that their clients place. For more details, read our article on how brokers make money.
Robots
At the moment, the firm does not support any form of robot or auto trading facilities. With an exchange, traders can set open positions at a price they prefer, meaning that this open order can be left to fill if the price is reached – or not, if the price is not reached.
It allows a certain element of automated trading, but leaves the trader in absolute control.
Signals
There is no specific signaling service as part of the platform. Exchange rates themselves are entirely driven by the market, and therefore the sentiment of traders is ‘built’.
The charting tools are the best in the market, enabling advanced technical analysis. With a combination of preset patterns to use across the price chart (for example RSI or Stochastics), traders can get their own ‘signals’ more reliably than elsewhere.
More about Nadex Spreads
Nadex is a simple platform to trade many types of binaries. From energy, agriculture and index futures – to viewing exchange rates and forex, there is a lot to do on the Nadex platform. What makes binary trading attractive to many investors is the low risk. You can risk to lose $20 and earn $80, and it is always at 100 dollars.
Distributions work differently than binaries .
Binaries are based on a yes/no statement: Will the Nasdaq or Wall St 30 (DJIA) be greater than this number at expiration. If you buy the binary at $40 and when the contract expires the statement is correct on the contract, then you earn $60. If not, you lose $40. It’s simple and direct.
However, spreads are on a high/low range, also known as a floor or a ceiling. With the DJIA it could be 18200-18600, with 18200 being the floor and 18600 being the ceiling. The 400 series is known as the spread. If you trade soon after and sell the contract at 18506, at expiration it will be lower than what you sold it at. It doesn’t have to break a price barrier or the floor. You earn money depending on where it lands.
Example Nadex Spread Trade
With Nadex spreads, 1 tick equals $1. The trade size is 1 by default, so larger trades can be made by increasing the figure – so a size of 2 would mean $2 per tick, and so on. If you traded at 18506 and ended at 18311 by the end of the close, you would have made 195 dollars. These are the basics of Nadex spreads.
What frustrates many investors about Nadex spreads is treating them like binaries. They assume that the spread must exceed the ceiling, or if they short the trade…the floor. The money earned or lost depends on three things (as illustrated on our screenshot):
- Where they entered into trade – in the example 18506
- Whether it’s going to buy a long or short – short, or ‘sell’ in our image
- Where the price ends at the expiration – in this case it was 18311
This is the bare bones of a Nadex spread. There are a lot more complicated things involved when it comes to trading strategies. But let’s keep things simple.
Another scary thought that keeps many Nadex investors from spreading is the Max loss they see. Another example would be if the floor is 17400, and the contract was bought at 17600, so the investor would risk $200. This scares investors, especially if they come from binaries where the risk is much more tolerant.
But that money is on margin and you can control the risk. If you watch the market and it drops below 17600, it says to hold 17550. You don’t like the direction you are going, you can get out of the trade and only lose $50.
Many investors who are used to trading binaries treat spreads like binaries. It is similar to the limited risk that is limited, binary at $100 and spreads wherever you bought the contract in relation to the floor or ceiling. You can always exit the trade before expiration.
Investors from all walks of life will benefit from spreads. But they must first know how they are constructed. They know that there is a floor and a ceiling; they know that they can trade many different contracts, from indices to commodities and currencies.
But what they need to know first are the three components that make up a spread:
- The underlying asset. This is the market, like a commodity or index.
- The distribution scope – this is the floor or ceiling of the distribution contract. It is selected from a variety of spreads, depending on the trading scenario. On the Nadex platform you see different ranges for one market. There can be five ranges for Nasdaq or US 100 and only 3 for GBP / USD.
- The third component is the expiration date and time. Spreads of Nadex spreads range from 1 hour to 1 day, while Binaries last from 5 minutes to 1 week.
Nadex bull spreads
Something else that confuses investors new to Nadex spreads is how the floor and ceiling work. It’s simple, where you entered the bull spread contract to where the ceiling is is the best you can make on that contract. If the market on the contract ends higher at expiration, you earn as much as the cap; same with the floor and carry spread contracts. So, to maximize profit potential, buy a contract at the price closest to the floor. Or sell a contract at a price that is closest to the ceiling, hoping that it will be lower as the expiration time approaches. Your risk is limited and so is your reward. This is the beauty of Nadex spreads. The opposite is another potential strategy – to trade a buy near the ceiling (or sell near the floor). This effectively carries a large disadvantage for small profit – but has a much higher chance of success. It all comes down to risk and reward.
For the beginner trader – those who have just opened an account and have never once traded binaries or spreads. They need to start spreading. The learning curve is easy, and once they get the hang of it, they’ll enjoy it much more than binaries alone.
Since spreads are on the Nadex platform, investors will be protected, and it is completely legal in the US. What makes the spread for many investors is the profit potential in one trade if they play their cards right. With limited risks and rewards, spreads are a great way to start investing; even for the novice investor. Once you know the basic features of how Nadex spread, it will be one of your favorite trading tools.