Nadex Forex Bull Spreads

I am getting the hang of binaries a little bit. Can't think of any legit brokers other than Nadex? I can't really find any others. Binaries seem like they make it a little easier to limit risk, I can grab one that only costs $3, and as long as it goes in the money at some point during the contract, I can sell it back for a pretty good profit. The sell back profits are pretty small though, and vary between contracts. The profit potential is much higher if the contract actually expires in the money.

I have used several binary brokers and have pretty much switched over to binaries exclusively for a while now. My preferrred brokers in order are optionbit, anyoption, and eztrader. I almost exclusively use optionbit and am in the process of closing my eztrader account because I really don't like them. They are the only one offering 24 hour trades but half the time that does not work and the other half they widen the spreads to make it useless. I like anyoption's charts better but I sometimes close my trades early and anyoption does not offer that. They sort of do with their option+ thing but the payout is low. I have only made a withdrawl from anyoption and it was painless. Making one from optionbit now so hopefully it goes well also. I don't anticipate any problems though. Watch the spreads, I seldom see more than 1 or 2 pips, usually zero on optionbit and anyoption but just keep an eye on it.

You will see the way Nadex binaries work is unique and as far as I know they are the only ones that work like that. All the others are simple up-down at any price but you can't get out before expiry.

The websites for these places all look so similar; flashy and simple, like they are hiding something.... I will check out optionbit. The only other one I found that looked sort of legit was choicetrade.

Let me know how the withdrawal goes.

Yes I agree, I don't like that they are in Cyprus also but I'm trying it out. Taking out my initial money now from Optionbit, I have talked to other binary traders and they have said no problems but I have to try for myself. After I get my initial back, I'll test a profit withdrawl and let you know. I am not familiar with Choicetrade, I looked at their site, do they offer binaries? I did not see them or even if they had currency options, did you see that they did somewhere?

Maybe they don't, I thought that was why I bookmarked them... Will look it over again.

Look at this nonsense going on with binaries. This EUR/USD binary was in the money a few minutes ago, and then Nadex price plummeted 40 points into out of the money, right before the contract expired. Looking at metatrader price charts for the same candle, Nadex dropping 20 points would have been bordering on absurd, but it went beyond absurd.

Looking over Yoda_Glenn's posts about Nadex binaries,
http://www.forexfactory.com/showthre...inaries&page=3
I am seeing him imply that the broker is not on the other side of my trades, and that the demo has different liquidity and therefore different price movements than the real contracts. I want to believe that stuff because I'd still like to trade this way, but seeing this type of manipulation even in the demo makes it hard to take Nadex seriously.

Edit: looks like I can create a real account and check prices there without funding, so I will take another week to check for price manipulation/liquidity in the real market.

Hey agent6488, it's not nonsense, it is just how a binary option works. When you say that it dropped 40 points out of the money, you are looking at the price of the binary, not the underlying market so nothing dropped 40 points "out of the money". If price is at the money near expiration, big swings in the price of the binary happen all the time. keep in mind a 1 pip/tick difference in the underlying at expiration means the difference between 0 and 100.

If you let me know what time and strike you were trading, I can compare the underlying and probably show you exactly how this was priced, but just as a rough example:

Strike 1.3200 - Underlying market (by Reuters which is what Nadex website says they use) for eur/usd at 1.3201, 1 minute to expiration, the binary may be priced at a midpoint of 90. 50 seconds to expiration, the underlying market now at 1.3200, binary midpoint at the money is 50 (40 point change in 10 seconds), 40 seconds to expiration eur/usd 1.3199, the midpoint on the binary may be 10 (a change in the price of the binary of 80 points even though the underlying only moved 2 pips). This by the way gives opportunity, but is also where a lot of people who think they will buy at 95 just to collect 5 points withouth understanding the correlation get killed.

By they way, I have traded these on the CBOE and they work the same way. nadex is a CFTC regulated exchange just like the CBOE and they offer the same transparency by publishing the settlement based on the underlying.

You definitely make a great point though and that is that the exchange needs to do a better job of education to avoid confusion. I was lucky enough to live and trade in Europe for two years where these are very heavily traded.

Best regards and I wish everyone a very happy and prosperous 2011!

That's very helpful, thanks. That particular trade happened right at the time I made the post. The reason it was frustrating was because the underlying didn't do a move just below the strike as you described. It was well above it, and only the Nadex point chart did the plummet. Real price was still plenty of pips above the strike.

I finished a binary trade just now that seems to have worked out fine. I'm not seeing any charting differences between demo and real account.
Now that I look at my Nadex demo account statement, I'm not sure I got screwed the way I thought I did on yesterday's trade. Between the jumbled statement,
Nadex's barely functional charts, my finicky metatrader server connection, and the new information you've given me about how the price point can jump around near the strike/expiration, I will have to run a few more of these tests with my eye on my account balance next week, in 2011!

I will look at the CBOE. What do you trade now? You gave up binaries?

That does seem odd from a pricing perspective then. Technically, anytime the underlying market is at or above the strike price, the midprice should be greater than 50 on the binary, although the sell price may be slightly below depending on the spread. On the Nadex website, or if you contact the exchange, they should be able to give you price and time for each instrument (all exchanges have to provide this although sometimes it can take up to 24 hours). As far as the settlement price, if Reuters had the eur/usd underlying over the strike price it has to settle at 100. If not, call the CFTC.

In any event, it wouldn't be any type of manipulation on the part of the exchange as they are an unbiased party in the trade and only serve to facilitate it. If you do have questions, they should have a customer service line or chat or something to give you the answers.

By the way, their charts do suck. Actually, not just theirs, but all binary charts just because of the way they are and do not move linearly with the underlying market. I am lucky enough to have a Reuters terminal that I pull pricing and do all of my analysis on the underlying market (S&R levels, just simple stuff). But I would think like tradestation or realtick or esignal should be good as well.

I still trade binaries frequently and I still find from a risk reward perspective, they are one of the best instruments (once they are understood as I got crushed in the beginning). I have been trading on nadex (and have been working a bit with the bull spreads which have some promise). I tried out CBOE for a while, but binaries are built to be short term instruments and their 3-month durations are like watching paint dry until the last week before expiration. Also, the market makers on teh CBOE don't really offer a spread under about 12 points so the cost is just not worth it.

By the way, I almost never let my full binary go to expiration, particularly if it is close. One of the strategies i use is direction neutral in which I am just looking for movement. for example starting the week I might sell a EUR/USD 1.2900 @ 85 and buy a 1.3300 @ 15. In that case I am not looking for the 0 or 100, all I want is movement. So if at the start of the week, the EUr/USD is at 1.3100 and it climbs 215 in the first two days, my 1.3300 @15 might be worth a sell at 52 or so in which case I would pull all or a partial part of the position off. You just have to look at S&R levels though and make sure the risk is controlled. Definitely not a guaranteed strategy, but one that particularly in a week like next week, heavy in fundementals, if managed properly can turn out well.

One last thing, I am not sure if it is still available and I got my copy in London, but there is a book called Binary Betting from a guy named John Piper which does a great job of explaining some theories and practicalities. Well worth the 13 pounds I paid for it!

I hope you have a very happy and very prosperous 2011!!!

Thanks for the additional info. Looks like you are a new member here? I hope you don't have to spend all of your forum time just answering newbie questions on holidays. I'm going to hit you with a few more that you can feel free to get back to leisurely.

Nadex customer support has been helpful. I asked them about charts, but have not grilled them on strike prices yet.
I've read in a few places this week that Nadex is unbiased, as you mentioned. I'm still a little concerned that they are, as per some of my ranting in post #36. I don't know enough about liquidity and/or how Nadex profits, to really prove it though.

I've heard forex bloggers use Reuters wires to stay up to date faster than the rest of us, but it's not open to the general public? Is it the same with a Reuters terminal?
I've just gone back to my Oanda charts. Are any of the other chart resources you mentioned going to be more reliable than standard broker charts?

I've been brainstorming similar direction neutral strategies myself since JohnnyGURU mentioned the concept using Bull Spreads. I think in Yoda_Glenn's old binaries thread someone mentioned doing it similarly to the way you have.

I found Piper's second, more advanced book, Binary Trading on Google Books. He mentions BetOnMarkets. Anyone tried that one?

Happy New Year Agent6488! Sorry I would have responded sooner, but I spent way too many hours in a bar watching college football this weekend!! BTW, please keep the questions coming! You are correct, while I have been looking at this site for years, I just registered so that I could maybe help with binaries. I have enjoyed the forms for a long time, but I use such a simple strategy, that I didn't really feel I had too much to contribute before now (hopefully, I can add at least a little to the conversation)

I'll do my best to answer your questions. With regard to nadex they make their money just like any exchange, through commissions. Just like all exchanges there are market makers, but on Nadex everyone is technically a market maker. Because tehy are CFTC regulated, I am sure they get audited on some type of regular basis so I have to believe they remain unbiased. Also, because all of the data for the underlying markets is readily available, there is transparency there as well (although one note, when trading commodities or indices, always make sure you are in teh rigth contract month, I took a big hit on that once, but it was my own fault).

With regard to charts, as long as they are real-time and have the tools you need, they should work fine. I trade the nadex products through IG Markets and use their spot currency charts for both nadex and otc FX. For futures though, I use my Reuters, but it is a subscription service. they now have a new version called Eikon but I am not sure how much it costs but is always good for verifying price. Maybe someone else has a stronger opinion and could add something to this bit of the conversation.

I haven't trade with BetonMarkets and I don't really want to bad mout any sites that I don't have first had experience with. Mathmatically though, all of teh "binary sites" that have sprung up seem fishy. I say this because they all seem the same and typically tout the possibility of 70% or 80% return in an hour. What good is that? It sounds great on the surface, but in a real binary, I should be able to make maximum of 9900% in an hour (granted this rarely if ever happens, but in theory if I can by at 1 or sell at 99 and it closes at 100 or 0, the percentage blows them away.) Also, when I did a demo on another one of those sites I wasn't able to close out early so it was basically a coin flip only an unfair one. For example if you and I flip a coin and each put of $1, if you call heads and the coin turns up heads, you don't get my dollar + yours, you just get your 70% return of $1.70 rather than the full $2.00. Not really fair if you ask me. Also, if I am wrong and want to close out early to limit losses or if I am right I like to be able to take some profit before expiration, I like to have that option. There might be something I am missing here also, so maybe someone with more experience can add some depth to these companies.

Again, happy New Year!!

I can imagine how you feel. The forums have so much going on. I was happy to find this thread among the chaos. I thought about starting a new thread for binaries, but I like hiding from the masses in this off-topic niche, and the simplicity you mentioned negates a need for a whole new thread as well.

Does Nadex have any info on their site about being an exchange?
I'd also like to see where it says they use Reuters quotes.
I haven't been able to find those.

My sixth sense for internet danger goes off when viewing most of the sites for all these binary shops as well.

Happy 2011.

P.S.
- I'm trying that strategy where we sell and buy the cheap binaries at each end of the contract spectrum. Does one of them have to cross its strike price to be profitable, or might one be valuable later in the week as price approaches the strike? Right now neither is valuable even though price has moved today.
- Is there a consistent time that bids/offers might dry up in the life of a contract I own (daily/weekly)? I've noticed in my short observation time that they tend to disappear toward the end, but I wonder if in-the-money contracts remain bid/offered longer than out-of-the-money ones? Does something I own work the same as a contract viewed in the market?

I was wondering if within the context of the current discussion, there were any opinions on regular (vanilla?) options. I know the basics, but my demo experience with them so far has led me to believe the spreads are too big.

Hey Agent, looks like we got another person in here to discuss these, hello Phigold. Sorry it took so long for me to get back in here also. It looks like you figured out that the chart you were looking at is price of the contract not the underlying, that price can swing like crazy if the price is near the strike at expiry. I would suspect by looking at your chart there you were up 15 pips or so and then it moved very close to the strike in that time frame, hence the 48.50 price (almost 50/50) If you were confident still it was going to stay above strike you could wait for expiry and as long as it was above strike you get $100 but below and obviously $0. I am with phigold also on cutting out early on these, unless it is so far away in profit there is no chance of it coming back when it gets close I cut it and lose a few bucks but I am safe. ESPECIALLY with the indices binaries (Tech100 etc.) They all expire at 4:15 and you will see if you watch long enough that very frequently the market will make a wild spike at 4:00 in one direction or the other, I always exit these before 4:00 (indices)

If you look here:

http://www.nadex.com/trade/specs-stock-indices.html

You can see the underlying for their indices and there is a link on this page that shows the source is Reuters.

Here:

http://www.nadex.com/trade/specs-forex.html

It says the underlying for forex is current spot price, it does not specifically say but I would bet it is also from Reuters and I have not seen discrepancies in prices at all between Nadex and FXDD (who I use to get the feed). You could probably ask them and like Phigold says I'll bet it is Reuters.

As far as the misc binary shops out there, I was able to recieve my withdrawal from Optionbit today, I put in the request on the 28th of Dec and received today, however this was just my initial deposit, my next test will be profits, that I will try next week. I do not like these Cyprus guys either and wish I could do it all on Nadex but the problem with Nadex is their binary price is fixed at the open, which works great if you think that is a good price for something to happen on, which sometimes happens for me but not always and they only offer them over the US session, sometimes I trade London. The others price is constantly moving and when it gets to some price you think it will bounce off of for the next hour or so you can take it at that price. Also Optionbit does offer you the ability to get out early from the contracts, I won't say it is as good of a deal to get out early as Nadex but they do offer it, that is one reason why I prefer them over the others.

For your P.S. they do not have to cross the strikes to be profitable, they will become more profitable the closer they move to the strike and the closer they get to expiry. If you took some Weekly binary at say >1.3100 for $20 at 1.3000 and by Wednesday it is 1.3050 you would most likely be up a few bucks, that is an example but it moves a lot and there is no set way it moves as far as I can see.

In the money contracts will disappear also if they are so far in the money that Nadex does not want to offer them anymore, this is a good thing, if your in the money contract disappears then Nadex knows you will win and will not offer you any money to get out early (basically). It will reappear if the price starts to move against you and you think you want to get out early.

To me buying and selling at the extremes will only be profitable if you think that week/day, the price is going to move far but you don't know which way. And even if it moves to one of your strikes mid day/week it will have gone up on one end some but probably not as far as you think. If it is very close to expiry and past your strike it will go up a lot.

Also I do not use Nadex's or any other binary brokers charts, they all stink, I just watch it on my FXDD metatrader.

And for profitability, the best return on the other type of binary brokers is 81%. At that rate you must be right 56% of the time to be profitable, hypothetically with Nadex if you let them all go to expiry you would have to be right just over 50%, (with closing early on wins/losses it is difficult to gauge.) Nadex is a more fair system but like I said they have some advantages and some disadvantages. I personally am much better with the other guys, being able to pick my price that I think something will happen at but I use Nadex when I can because the payout is better. I am currently up 400% in two months using these various binaries so I really like them, it is much better than I ever did in spot.

Thanks.
I am running out of questions about binaries, and I now understand the reasons behind their price fluctuations.
I want to jump back to Bull Spreads though, because I'm still confused about their relationship to the underlying market. As far as I can tell, Bull Spreads are meant to mimic underlying spot rates, unlike binaries. Why then do I see the value of Bull Spreads fluctuate in the way I mentioned in post #36 (requotes not in correlation with price)? I feel like if Nadex is just a facilitator and not a broker, then there would be no need to do this.

On taking profits early with binaries:
Doesn't that give you a pretty bad risk to reward ratio, or do you only do this on binaries that were cheap to get into? I've observed price take off in favor a binary I bought, but still not show profit as high as what I would get if I let it expire.

Thanks again.

Yes the R/R ratio can be less than 1:1. It can also be better if is below some price for example and you think it will move to the strike and bounce. These are tough to use, better than they used to be but the strike must be right and it is not always. I usually take it at 1:1 and you don't always have to cut it early, if it so far in the money that I know I'm good I won't cut it. And if it goes out of the money and you know it's done for you can get some money back so it is hard to figure R/R exactly.

For the bulls, it will only fluctuate near the floor/ceilings. If you don't want to see that at all, you can take the 600 pip daily ones but margin will be high. You can also do the 4 hour(I think) 250 pip ones and choose the one that is furthest from the floor/ceiling and you will see no difference in the prices. The only reason I can figure they do that is because of the ability to take opposing positions and without a spread I think they expose themselves too much. I mean if it was at the floor of say 1.3000 and I bought it with no deviation from spot there would be zero risk (except the two dollar contract price) to me. Just buy at the floor and sit for an hour, if it goes my way I could make $100, if not I lose $2. That's pretty crazy R/R for Nadex to put up, they would get their a$$$es handed to them. Just set you some alerts at the ceiling/floor prices, jump in when it gets there and walk away. Lose $2 or make up to $100. That is why I feel they put the spreads there at the floor/ceilings.

Sound advice.

Assuming that Nadex has a vested interest in our trades beyond just being a facilitator is the only way I can make sense of the big price discrepancies in Bull Spreads. I do see the more accurate price on the contracts not near their own floor/ceiling as you mentioned.

At this point I'll just leave the floor open for anyone to share specific Bull Spread or Binary strategies they are having success with.

Are you sure? I'm pretty sure the prices of Nadex binaries adjust as spot price moves. Doesn't the 50/50 contract basically move with current spot price and push/pull the surrounding 60/40, 40/60, etc with it?
I'm not sure I understand the advantage another broker/exchange has over Nadex in this sense. Are you just saying that Nadex forces you to trade in the 20 pip increments they present to you?

I thought maybe what you said above might relate to this. Is there something optionbit or another broker/exchange is allowing you to do that is creating profit for you, or are you using multiple strategies?
It seems like it would be hard to have awesome returns just buying 50/50 contracts when price reaches a level you think might cause a bounce.