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.
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.
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