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Nadex – Multiply Your TradingOpportunities, Limit Your RiskDiscover a product set that: Allows you to trade in very small size (risking no more than a few dollars) Gives you the security of trading on a CFTC-regulated US derivatives exchange Caps your risk under all circumstances Provides you with multiple trading opportunities every day, no matter how quiet the markets areFutures trading and options trading involve risk, which may result in financial loss, and are not suitable for everyone. Any tradingdecisions that you may make are solely your responsibility. The trading activity and other information presented herein are forinformational purposes only. The contents hereof are not an offer, or a solicitation of an offer, to buy or sell any particular financialinstrument offered on Nadex.
About us Nadex, the North American Derivatives Exchange, is a retail-focused futures exchange subject to regulatoryoversight by the CFTC We offer easy to understand contracts which expire on very short time horizons (hourly, daily and weekly) andhave a very small notional value (as little as 100) Our contracts are based on the world’s major stock market indices, FX rates, commodities and economic events No other regulated exchange offers a product set like ours. Nadex’s unique contracts are designed to combinesmall size and limited risk with a high degree of price action Nadex traders get the best of both worlds: multiple real-world trading opportunities combined with an absolutecap on risk
About our product set We offer two classes of product: Binaries and Bull Spreads Both these classes of products have been designed to comply with the following core principles: Intuitive pricing. Our Binary prices can be thought of as percentageprobabilities of market events occurring. Our Bull Spread prices arereferenced to the underlying market, not to net premiums Very small contract size. The notional sizes of our contracts can beas small as 100, allowing you to scale in and scale out of positionswith high precision Strictly limited risk. You can trade most of our contracts withcollateral of less than 100, and you can never lose more than thecollateral you have put down
How do our Binary contracts work? Simple, easy-to-understand “yes”/“no” propositions, e.g. “EUR/USD to be greater than 13000 at 3pm ET” Intuitive pricing. At any point the price of a Binary is simply the market’s perception of the percentage likelihoodof the contract settling as a “yes” Very small contract size. At expiration each lot settles at 100 for a “yes”, 0 for a “no”. The maximum collateralrequired is always less than 100 per lot, often much less. And you can never lose more than your collateral Strictly limited risk. At no point can the contracts be priced outside the range 0-100, regardless of volatility inthe underlying market. You always know your absolute worst case risk for any position you take, regardless ofwhether you are going long or short the contract Markets are open right up until the moment of expiration, allowing you to place orders to enter and exit a givenBinary position multiple times as the market moves. Even though the contracts have an “all or nothing” payout,you are not restricted to an “all or nothing” trading strategy
What factors make Binaries so compelling?Binaries are intuitive – the Binary price is simply the market’s view on the percentage probability of a given outcomehappeningBecause of this, Binaries can multiply the size of price action in a quiet marketIf a Binary is at-the-money as expiration nears, small moves in the underlying can create large percentage swings inthe price of the BinaryDespite these large swings, the design of our contracts means your risk is always known and strictly capped. Youare always in control of your exposureThe following example illustrates this effect
A hypothetical example: “EUR/USD to be above 13000 at 3pm ET”The charts on the right show a hypothetical example of priceaction for spot / , and a Binary based on spot / , duringthe 20 minute run-in to the Binary’s expirationB13010D13005As spot / moves through the strike price of the Binary(13000, shown as the thick red line in the top chart), theprice of the Binary changes dramatically From point A to point B, / rallies by 0.18%1300013000Spot / Rate1299512985 The Binary rallies from a price of 4 to a price of 82, a 2000%increase in price1298012975 From point B to point C, / falls by 0.09%, back throughthe strike price100 In response, the Binary price declines by 83%9080 From point C to point D, / edges back up by 0.06% The Binary price rallies by 500%, from 14 to 84, in responseYou could trade in and out of this price action continuouslyas the situation unfolds. But at no point do you faceunbounded risk and at no point do you face any demands foradditional marginA trader buying one lot of a Binary at, say, 40 can never losemore than 40*. A trader going short of one lot at 40 cannever lose more than 60* (100 minus 40)* Excluding commissions and fees70BinaryPriceC129906050403020100A
What factors make Binaries so compelling (continued)?Nadex offers a range of hundreds of different Binary contracts each day, with dozens of strike prices for each underlying marketThis variety of strike prices multiplies the trading strategies open to youThe diagrams below show a typical subset of Nadex’s “US 500” contracts, which settle basis an Expiration Value calculated by referenceto the CME E-mini S&P 500 Futures, together with representative prices before and after a major positive shock to the underlyingmarketBeforeContractDaily US 500 (Mar) 1255Daily US 500 (Mar) 1252Daily US 500 (Mar) 1249Daily US 500 (Mar) 1246Daily US 500 (Mar) 1243Daily US 500 (Mar) 1240Daily US 500 (Mar) 1237Daily US 500 (Mar) 1234Daily US 500 (Mar) 1231Daily US 500 (Mar) 1228Daily US 500 (Mar) 12441242124012381236ContractDaily US 500 (Mar) 1255Daily US 500 (Mar) 1252Daily US 500 (Mar) 1249Daily US 500 (Mar) 1246Daily US 500 (Mar) 1243Daily US 500 (Mar) 1240Daily US 500 (Mar) 1237Daily US 500 (Mar) 1234Daily US 500 (Mar) 1231Daily US 500 (Mar) 1228Daily US 500 (Mar) 34A trader interested in taking a long-shot on a rally could buy the “ 1255” at 2, risking 2 to potentially make 98*A trader interested in selling volatility and backing a rally could buy the “ 1237” at 75.5, risking 75.5 to potentially make 24.5*A trader interested in taking a bearish view, but with no strong view on volatility, might sell the “ 1240” at 56.5, risking 43.5 to potentiallymake 56.5*These are just simple examples. There are many other possibilities and many other trading strategies that can be built with these contracts.*Excluding commission and feesS&P 500 is a registered mark of the McGraw-Hill Companies, Inc. CME and E-mini are registered marks of the Chicago Mercantile Exchange Inc. Nadex is not affiliated with these organizations and neither theynor their affiliates sponsor or endorse Nadex or its products in any way.
How do our Bull Spread contracts work? A simple option strategy, packaged as a single contract A Nadex Bull Spread is equivalent to a vertical call spread constructed out of very short term (intraday) calls.Each contract is a combination of a long position in a call with a low strike (the Floor) and a short position in acall with a higher strike (the Ceiling) Intuitive pricing. Contracts are not priced as net premiums but instead are referenced to the underlying Very small contract size. Our contracts have a per-point value of as little as 1, and the gap between Floor andCeiling can be as little as 100 points. The maximum collateral required is always less than the Floor-Ceiling range,often much less. And you can never lose more than your collateral Strictly limited risk. At no point can the contracts price outside the Floor-Ceiling range, regardless of volatility inthe underlying market. You know your absolute worst case risk for any position you take, regardless of whetheryou are going long or short of the contract The Floor and Ceiling cap risk without exposing you to the risk of being stopped out by a temporary adversemove in the underlying market The next few pages give an example of a typical network of Bull Spread contracts on spot /
100pt / FX Bull Spreads Example12850At 7am ET, / stands at 12750 and the following overlapping 2hrFX Bull Spreads are created:1283012800 / 12750-12850 (9am) / 12700-12800 (9am) / 12650-12750 (9am)12780Economic figures are expected at 8:30am ET.12770This network gives an FX trader several possible strategies fortaking advantage of a market move caused by the 8:30am figures.12750Spot / level at 7am12730Some strategies are very close to OTC spot FX trading, some aremore sophisticated and “option-like”. All offer a high level ofeffective gearing*, all are strictly limited risk and none can result ina trader being “stopped out” by an intermediate adverse move.1272012700In the examples that follow, commissions, fees and bid-ask spreads are omittedfor the sake of simplicity. In practice Nadex traders typically see bid-ask spreadsof 2 pips for / FX Bull Spreads.1267012650* within each contract’s Floor/Ceiling rangeKey2 hours to expiryTotal range covered by network 200 pipsPage 10Spread ContractZone of linearity (price of FX BullSpread is same as, or within 1-2 pips, ofunderlying spot market in this range)
100pt / FX Bull Spreads Example (continued)1285012830The “X” against each contract shows the trading price of each BullSpread at 7am.12800The 12700-12800 contract is centered on the current market levelof 12750. The price of this contract is also 12750 – it is the same asthe underlying spot market and generally will remain so withinapproximately a 60-pip range.127801277012760 XX 127501275012740 XSpot / level at 7am127301272012700A trader buying or selling this contract has both his potentialmaximum profit and his potential worst-case loss capped at 50pips. Note that the position cannot be “stopped out” if theunderlying market moves adversely beyond the range of thecontract – the contract remains live until expiry, regardless ofunderlying market movement.1267012650Key2 hours to expiryTotal range covered by network 200 pipsPage 11Spread ContractZone of linearity (price of FX BullSpread is same as, or within 1-2 pips, ofunderlying spot market in this range)
100pt / FX Bull Spreads Example (continued)12850The 12750-12850 contract has a floor at the current market levelof 12750. The price of this contract is 12760 – it is 10 pips higherthan the spot rate, reflecting the optionality inherent in its design.12830For a trader buying this contract, potential profits are capped at 90pips but losses are capped at just 10 pips.12800127801277012760 XX 127501275012740 XSpot / level at 7am12730The 12650-12750 contract has a ceiling at the current market levelof 12750. The price of this contract is 12740 – it is 10 pips lowerthan the spot rate, reflecting the optionality inherent in its design.Again, a trader selling this contract has potential profits capped at90 pips but losses capped at 10 pips.1272012700Note again that, in either case, the trader cannot be stopped out ifthe market moves adversely against them beyond the range of thecontract – the contract remains live until expiry, regardless ofunderlying market movement.1267012650Key2 hours to expiryTotal range covered by network 200 pipsPage 12Spread ContractZone of linearity (price of FX BullSpread is same as, or within 1-2 pips, ofunderlying spot market in this range)
100pt / FX Bull Spreads Example (continued)1285012847Spot / level at8:35am12825X1280012797127531275012747Five minutes after the release of the economic figures, and afterconsiderable whipsawing in the market, spot / is trading higherat 12825.X 1279812749 XThe 12750-12850 Bull Spread is trading at 12825, exactly the levelof the underlying market. A trader who had bought this at 12760would be sitting on a 65 pip profit as a result of the 75 pipfavorable move in the underlying. But at no point in that movewould he have risked more than 10 pips, and at no point would hehave been in danger of being stopped out.The 12700-12800 Bull Spread is trading close to its maximumvalue, at 12798. A trader who had bought this at 12750 would besitting on a 48pip profit; a trader who had sold this at 12750 wouldbe sitting on a 48pip loss.1270312700The 12650-12750 Bull Spread is also trading close to its maximumvalue, at 12749. A trader who has sold this at 12740 would besitting on a loss of just 9pips, even though the underlying spotmoved against him by 75pips.1265212650Key25 minutes to expiryTotal range covered by network 200 pipsPage 13Spread ContractZone of linearity (price of FX BullSpread is same as, or within 1-2 pips, ofunderlying spot market in this range)
FX Bull Spreads – Why so many contracts?Nadex offers networks of FX Bull Spreadsof varying widths and with varying expirytimes. Each network, when created, iscentered on where the spot market is attime of creation.Spot / Single Daily FX Bull Spread,range 600 pipsPath of spot / over dayIn total, Nadex offers 70 Bull Spreadcontracts per currency pair per day.T (end of Timeday expiry)Network of 3 2-hour FXBull Spreads, range 100pips eachNetwork of 3 8-hour FXBull Spreads, range 250pips eachPage 14The fact that there are so many contracts,and that they have floor/ceilings governedby the level of the underlying spot ratewhen they were established, means thattraders can almost always find a contractfloor/ceiling in the vicinity of the currentspot rate. This means that sophisticatedtraders are assured of the opportunity togenerate high leverage on a directionalview.It also means that traders familiar with theOTC spot FX mar
Nadex, the North American Derivatives Exchange, is a retail-focused futures exchange subject to regulatory oversight by the CFTC We offer easy to understand contracts which expire on very short time horizons (hourly, daily and weekly) and have a very small notional value (as little as 100)File Size: 678KBPage Count: 16