Nadex Forex Bull Spreads

Anyone been trading these yet?

Learn about Bull Spreads
Bull Spreads have a variable payout that lets you take a short-term position on the direction of a market. Their simple structure allows you to trade on where the price will go, while limiting your exposure to extreme price changes.

Underlying market
Bull Spreads are settled on the basis of an underlying market. This is generally a Futures market; for example, our Crude Oil Bull Spreads are settled based on NYMEX* Crude Oil Futures prices. For more details, see Contract Specifications.

So, when you buy a Bull Spread contract you are taking a position that the underlying market will be higher when the contract expires. And conversely, when you sell a Bull Spread contract you are speculating that the underlying market will be lower at the time of settlement.

Limited risk: Floor and Ceiling
Every Bull Spread contract has both a Floor and a Ceiling associated with it. These represent the minimum and maximum levels at which the Nadex contract can be settled, no matter how far past either level the underlying market may have moved. The Floor and Ceiling values for each individual contract remain constant throughout the life of that contract.

Because the settlement range of a Bull Spread is rigidly defined, the maximum possible loss (or profit) is always known in advance.

Contract Ranges
Nadex offers various bull spread contract ranges, with longer duration bull spreads having a wider range and shorter duration contracts having a smaller range. For example, our 21-hour EUR/USD Bull Spread might have a range of 600 pips, with a Floor at 1.3400 and a Ceiling at 1.4000.

The 8-hour and 2-hour EUR/USD Bull Spreads each have a smaller distance between the Floor and Ceiling and are staggered in overlapping ranges. While 8-hour Bull Spread for EUR/USD has a range of 250 pips, the 2-hour EUR/USD Bull Spreads each have a range of 100 pips, such as follows:

(a) Floor: 1.3600, Ceiling: 1.3700
(b) Floor: 1.3650, Ceiling: 1.3750
(c) Floor: 1.3700, Ceiling: 1.3800

Contract size: $1 per point
All Bull Spread contracts are defined such that a 1-point (or 1-tick) movement means a $1 profit or loss per contract. For example, if you bought 5 contracts and later sold them for a 35-point gain your profit would be 5 x 35 x $1 = $175. Likewise, if you bought 10 contracts that were settled at a 19-point loss, you would lose 10 x 19 x $1 = $190.

So whenever you trade a bull spread, you know that a 1-point movement is worth $1 per contract to you.

The definition of a 'point' varies between different underlying markets. For example, Crude Oil is priced in dollars and cents, i.e. $71.58, whereas the Wall Street 30 is quoted as a whole number, i.e. 10625. In each case, one point is a movement in the last digit, i.e. $0.01 for Crude Oil and 1 index point for the Wall Street 30.

To view the value of a 'point' for a given underlying market, please refer to the Tick Size value in the Stock Indices, Forex, and Commodities contract specifications.

Trading Bull Spreads
When you open a position in a Nadex contract, you do not have to hold it until expiry. You can log into the platform and enter an order to close, or partially close, your position at any time until expiry.

Funding
Nadex requires you to fund the maximum risk of any trade before the position can be opened. This maximum risk is defined as the difference between your order level and the Floor level (for buyers) or Ceiling level (for sellers) - so these levels determine the funds needed to open a trade.

Comparison with underlying market
Assuming the underlying is trading between the Floor and Ceiling of a contract, the larger the Floor/Ceiling range and the shorter the time to expiry, the closer the price of the Bull Spread will be to the price of the underlying.

For Bull Spreads with narrower Floor/Ceiling ranges or longer expiry times, or in cases where the underlying is outside the Floor/Ceiling range, Bull Spread prices will tend to reflect the optionality within the contract and be further from the price of the underlying. The narrower the Bull Spread range, the greater the protection against adverse moves, the lower the funding requirement, and the higher the effective leverage.

Summary
Range WidthOptionalityProtectionFunding RequirementEffective Leverage
WideLowLowerHigherLower
NarrowHighHigherLowerHigher

Expiry and settlement
Consider a EUR/USD Bull Spread with a Floor of 1.3400 and a Ceiling of 1.4000. When this contract reaches expiration and is settled against the underlying market, there are three possible scenarios:

Expiration Value is at or below 1.3400: contract is settled at the Floor value of 1.3400
Expiration Value is between 1.3400 and 1.4000: contract is settled at the corresponding value between 1.3400 and 1.4000
Expiration Value is at or above 1.4000: contract is settled at the Ceiling value of 1.4000
Note: Floor and Ceiling values only apply to settlement, they do not act as Stops or Limits and cannot trigger a position to be closed.

These Bull Spreads are looking better to me than even Forex Binary Options.

Here is an example of the benefit that they have over both Spot Forex and Forex Binary Options.

Spot Forex vs. Bull Spreads.

Lets say you want to trade with a 1:1 Risk to Reward ratio, and lets say you want to turn $100 dollars into $200 on a single trade. With Spot Forex, you would probably need a stop loss of at least 100 pips, and a take profit of 100 pips as well. As you all know, this is very difficult to do, as a 100 pip predicative move, within the confines of a 100 pip stop loss, is not an easy task.

With Bull Spreads, each pip move is worth $1 per contract, irregardless of that Bull Spread's time to expiration. Also, keep in mind that there is no stop loss involved with Bull Spreads. So if you were to buy a $10 Bull Spread contract, and that contract moves 10 pips, you have already made $100 in profit. Yes, you are reading this right, a 10 pip move can result in $100 in profit if you buy 10 contracts valued at $10 each!

"At Nadex each contract has a value of $1 per point/tick."

"All Bull Spread contracts are defined such that a 1-point (or 1-tick) movement means a $1 profit or loss per contract. For example, if you bought 5 contracts and later sold them for a 35-point gain your profit would be 5 x 35 x $1 = $175. Likewise, if you bought 10 contracts that were settled at a 19-point loss, you would lose 10 x 19 x $1 = $190."

This is even better than Binary Options, because the value of Binary Options is dictated by time to expiration, and not by pip movements alone.

Now consider the fact that you can also hedge Bull Spreads.....

Doubled my money last night with just a 45 pip move, and I didn't have to worry about a stop loss or waiting for my contract to expire, like Binary Options.

So whats the catch?

Theres no free lunches - Higher reward generlly means higher risk and vice versa?

CHALLENGE: I challenge you to answer without saying "bull spreads" once I think you said it 15 times above

Just doubled my money with a 9 pip move on the USD/CHF with no stop loss.

As for a catch, there is no catch. You can only lose what you put up. The purpose of derivatives is to take out the volatility of an underlying market. That volatility is what causes so many of you to get stopped out, even if the price ultimately goes in your direction. If you're still trading spot forex, you're blind to a great opportunity here. I am not going to argue and debate for someone else to make money, that is the one thing I HATE about posting up in these forums. You come to help and share knowledge and you get attacked. If there is a down side, it is simply that the price of the contracts increase with the movement of the underlying pair. In other words, if you wait for a big move to happen, then the price of the contracts, and the time of expiration, are not that great.

Still, we are talking about trading without a stop loss and having the possibility of doubling your money with a 9 pip move! This is simply incredible, way better than Binary Options.

Interesting... Thanks for the speedy reply BTW JJ

Is there somewhere one could have a play with them on demo?

BTW: you passed the challenge well done!

I don't think there is a demo...maybe there is...I don't know, but one could just go in with a small amount of money to try Bull Spreads. Also, keep in mind that you can use Nadex through IG Markets as well. IG Markets has Spot Forex as well...not that I would recommend Spot Forex for anyone, at this point.

The USD/CHF went up over 90 pips. This means I would have saw a 1000% gain on my Bull Spread trade, if I didn't get out at 9 pips.

Nadex did have a demo option. I believe they still do. But it's been a while so I cannot tell you the details of if it's anything different than the live account or time limits etc. IMO bull spreads are easier to figure out than the Binaries on how they work.

ah ok thanks techno

Nadex is only for US residents, do you know another broker thats offers this service.

There is also a way to trade the bull spread without Nadex.

Just using plain options
http://www.theoptionsguide.com/bull-call-spread.aspx

Have you tried IG Markets? I'm pretty sure they take international clients.

Also, vanilla options require a lot of money up front, from what I understand you need at least $3,000.00 to open an account. With Bull Spreads there is no minimum to open an account.

My understanding of options-style trading is that there has to first be a lot of movement in the direction of your trade before you break even and start being in the money. In spot, you only need generally a few pips of movement in your direction (the spread) before becoming profitable. The description of these bull spreads in the first post gave me the impression that they work the same way.
I mean... you don't just place the order, wait for the pair to move 9 pips, exit, and have a doubled account, right?

Hello all, I trade Nadex Bull spreads and just wanted to put my two cents in. They do offer a demo for thirty days when last I checked. There is a little more to it than what I saw in here. The Bull spreads are broken into hourly expiration so there is definitely risk. As an example...

They will offer a Bull spread on EUR with a floor of 1.3600 to a ceiling of 1.3700 and it will expire in one hour, they all expire in a specific time frame.

Lets say the current price is 1.3620. If you were to buy one contract the margin to open the trade would be the maximum you could lose, in this case, $20, the distance from 3620 to 3600 at $1 pips (all pips are $1 per contract). Should the price move to 1.3500 it does not matter, you cannot lose beyond the floor or ceiling, that also means you cannot gain beyond it. Thus the most you could make from this trade is the distance from your price to the ceiling, 80 pips, $80. If it moves to 1.3800, you still get $80.

So here's the risk, you buy at 3620 thinking it will move up. The bull spread will expire in one hour. It goes down to 1.3580 and stays below 3600 until the expiration. You lost $20. You can actively trade it until the expiration but if this situation happened, the price you could dump it for early would still be a $20 loss as long as it is below 3600.

On the other side it shoots up to 3750, your up $80, that's it, you maxed out when it hit 3700.

Now I do like these but the timing and pricing needs to be right. If the same contract were up but the price was 3690 and you thought it would continue up, the max you will win is $10. But if it crashes you will lose $90 if it expires below 3600. If you see it is crashing you can get out but there is nothing to stop it but you, if it spikes 30 pips by the time you get it together you will be down $30 on a trade you only could have made $10 on at the most. There are no stop orders, only limit, so any pending (they call working) orders must be limit type, no stop type.

On the converse if it was at 3602 you can buy it with a at most risk of $2 for a potential profit of $98 if you can catch it at the right time. These you can just sit back, if it goes down all your out is $2, up, you win up to $98. If it only goes up to 3610 buy the time of expire or when you want out you win $8.

Also all contracts cost $2, one to open, one to close and there is a typical 2 pip spread on the EURO. Definitely DEMO before going live so you can see what is happening or you will lose money just figuring out what is going on.

They also have binaries but I don't want to get into how there's work in here. Hope this helped some people out.

Thanks a lot for the info. I would love to hear more from anyone about the basics of these or any other trading vehicle and their advantages over spot.

Hi Johnny

In your example where floor and ceiling are 1.3600/1.3700 and you buy the spread at $20 when price is at 1.3620, if the price goes down below the floor of 1.3600 and then goes up above the ceiling of 1.3700 before the expiry and on expiry it is sitting at 1.3680; is this a loss or win and by how much?

It is a win.
80 - 20 = 60 x $1 =+ $60

MoreYummy is correct, 3680 - 3620, $60 win in that case.

Also something to keep in mind is in Yoda's example of $9 contracts, this would cost you, not margin, cost you 9*$2 = $18 just to open the trade, win or lose. These would be $9 pips, now depending on where you opened it, say 3620 again for example, the margin would be 9*$20 = $180. If it moves down you are also losing $9 a pip to a max of $180. If it goes below 3600 then creeps back up to 3610 you would lose 9 * $10 = $90. Not a free ride by any means but it does negate spikes to some degree since a spike does not knock you out and you can wait and hope it comes back without risking any more money like you would have to in spot, moving your stops or whatever to give it more time to turn.

I thought IGmarkets is just another platform that goes through the Nadex.
Everytime I look this stuff up, I get a gazillion brokers in the UK for UK people only. I can't use them, but it seems they have a lot of choices and options in this realm.