NADEX offers what I think is a great way to trade currencies: spreads. A spread in this context is a trading instrument which specifies a price range for an underlying asset, for example, GBP/USD. A specification might look like this: GBP/USD 1.5030-1.5830 (3PM). The range begins at the floor value (1.5030) and ends at the ceiling value (1.5830). On NADEX, you would buy this contract if you believe that GBP/USD is going to rise above whatever its level is when you buy before expiry time which as indicated in the contract specification is 3PM Eastern time. If you were to enter such a trade now, it would not expire until 3PM tomorrow.
At expiry time, if you still have the contract then you get a payout based on the movement of the underlying asset (GBP/USD) from the time you bought the contract until expiry. If it went up, and you were the buyer of this contract you would make $1 per pip GBP/USD moved higher above the level at which you got in. Conversely, if GBP/USD went down from the level at which you got in, you would lose $1 per pip.
Note that you don't have to stay in the contract until expiry. Let's say you buy the contract when GBP/USD is at 1.5346. The contract doesn't expire for another 20 hours at 3PM Eastern time tomorrow. However, as time passes, GBP/USD steadily rises. Now, it is trading at 1.5386, up 40 pips from when you got in. If you don't want to wait until expiry time to book your profit, you can sell the contract, thus closing the position. You will have made $40 in profit.
Now, you don't have to be a buyer all the time. If you think GBP/USD is going to fall, you can sell the contract instead. Let's say you sell the contract when GBP/USD is at 1.5346. It doesn't expire until 3PM tomorrow, however, as time passes, GBP/USD is steadily falling and now it trades at 1.5306. If you want, you can buy the contract back, thus closing the position and walk away with $40.
If you hold on until expiry, your payout will either be more than what you spent to get into the position (a profit) or less than what you spent to get into the position (a net loss). So, let's say you bought at 1.5350 and at expiry time at 3PM Eastern tomorrow, GBP/USD has fallen to 1.5320. Your payout will be $30 less than what you paid to establish the position. Thus, you would have a net loss of $30.
There is no getting stopped out when you trade these contracts on NADEX. Why? Because when you enter the position, you put up the full amount that you can lose. Thus, your maximum risk is already defined when you get into the position. What is your max risk? On a buy, it is the dollar value represented by the difference between the level at which you buy the underlying asset and the floor value of the contract. Going back to the example contract above, GBP/USD 1.5030-1.5830 (3PM), if you buy it when GBP/USD is at 1.5330, then the difference between 1.5330 and the floor of 1.5030 is 300 pips = $300. So, to get into the position you would put up $300. That is your max risk because even in GBP/USD falls to 1.5000, your payout will simply be $0 at expiry meaning that the $300 you put up is forfeit (the exchange will hand it over to the trader or market maker who sold you the contract).
What about max reward? In our example, it would be the difference between the ceiling(1.5830) and the level of GBP/USD at which you got in (1.5330) = 500 pips = $500. That is the most you can make. Even if GBP/USD should rocket higher to 1.6000, you will only be paid $500 at expiration. The payout structure is similar in the case where you sell the contract.
So, now you know what a spread is. As you can see, it is a unique trading instrument that has some advantages over the standard retail broker platform. It has some potential disadvantages as well. The contracts are time-boxed. So, in our example, the longest we can hold the position is until 3PM tomorrow. When 3PM comes, if we are still in the position, the exchange will gives us our payout and the trade is over. Introducing the element of time into our trading potentially could complicate our trade plans because not only do we have to be right on the direction, we have to be right within the allotted time.
On the flip side of the potential disadvantage of the time element, note that we don't have the potential disadvantage of that other trading instrument called the binary option. In other words, trading a spread is not an all-or-nothing proposition. If we buy a contract on GBP/USD at 1.5300 and at expiry time it has fallen to 1.5299, then all we lose is 1 pip = $1, not our whole investment. So, the time factor is not as big a disadvantage after all when viewed from that perspective.
OK. All that being said, how about we use this thread to generate some NADEX spread trading ideas. Let's lay out some ground rules.
Post screenshots of your NADEX positions in your live, real money NADEX account as you enter the position.
Don't put up screenshots of positions after the fact or well after you enter the position. At that point, they are not really tradeable ideas. And really nobody cares.
If you post a screenshot of a recently entered position, that might be a position someone else would like to trade as well. It is up to them to do the research on the position.
No screenshots of trades in demo accounts. Again, nobody cares what you do with play money.
No need to post charts with detailed explanations of why you entered the trade. If you want to, go for it. But all we are trying to do is generate ideas. Anyone who sees your trade would have to go research it to understand if it makes sense to them.
All that being said, here is a trade I entered before I started writing this post. It is a short on GBP/USD.
At expiry time, if you still have the contract then you get a payout based on the movement of the underlying asset (GBP/USD) from the time you bought the contract until expiry. If it went up, and you were the buyer of this contract you would make $1 per pip GBP/USD moved higher above the level at which you got in. Conversely, if GBP/USD went down from the level at which you got in, you would lose $1 per pip.
Note that you don't have to stay in the contract until expiry. Let's say you buy the contract when GBP/USD is at 1.5346. The contract doesn't expire for another 20 hours at 3PM Eastern time tomorrow. However, as time passes, GBP/USD steadily rises. Now, it is trading at 1.5386, up 40 pips from when you got in. If you don't want to wait until expiry time to book your profit, you can sell the contract, thus closing the position. You will have made $40 in profit.
Now, you don't have to be a buyer all the time. If you think GBP/USD is going to fall, you can sell the contract instead. Let's say you sell the contract when GBP/USD is at 1.5346. It doesn't expire until 3PM tomorrow, however, as time passes, GBP/USD is steadily falling and now it trades at 1.5306. If you want, you can buy the contract back, thus closing the position and walk away with $40.
If you hold on until expiry, your payout will either be more than what you spent to get into the position (a profit) or less than what you spent to get into the position (a net loss). So, let's say you bought at 1.5350 and at expiry time at 3PM Eastern tomorrow, GBP/USD has fallen to 1.5320. Your payout will be $30 less than what you paid to establish the position. Thus, you would have a net loss of $30.
There is no getting stopped out when you trade these contracts on NADEX. Why? Because when you enter the position, you put up the full amount that you can lose. Thus, your maximum risk is already defined when you get into the position. What is your max risk? On a buy, it is the dollar value represented by the difference between the level at which you buy the underlying asset and the floor value of the contract. Going back to the example contract above, GBP/USD 1.5030-1.5830 (3PM), if you buy it when GBP/USD is at 1.5330, then the difference between 1.5330 and the floor of 1.5030 is 300 pips = $300. So, to get into the position you would put up $300. That is your max risk because even in GBP/USD falls to 1.5000, your payout will simply be $0 at expiry meaning that the $300 you put up is forfeit (the exchange will hand it over to the trader or market maker who sold you the contract).
What about max reward? In our example, it would be the difference between the ceiling(1.5830) and the level of GBP/USD at which you got in (1.5330) = 500 pips = $500. That is the most you can make. Even if GBP/USD should rocket higher to 1.6000, you will only be paid $500 at expiration. The payout structure is similar in the case where you sell the contract.
So, now you know what a spread is. As you can see, it is a unique trading instrument that has some advantages over the standard retail broker platform. It has some potential disadvantages as well. The contracts are time-boxed. So, in our example, the longest we can hold the position is until 3PM tomorrow. When 3PM comes, if we are still in the position, the exchange will gives us our payout and the trade is over. Introducing the element of time into our trading potentially could complicate our trade plans because not only do we have to be right on the direction, we have to be right within the allotted time.
On the flip side of the potential disadvantage of the time element, note that we don't have the potential disadvantage of that other trading instrument called the binary option. In other words, trading a spread is not an all-or-nothing proposition. If we buy a contract on GBP/USD at 1.5300 and at expiry time it has fallen to 1.5299, then all we lose is 1 pip = $1, not our whole investment. So, the time factor is not as big a disadvantage after all when viewed from that perspective.
OK. All that being said, how about we use this thread to generate some NADEX spread trading ideas. Let's lay out some ground rules.
Post screenshots of your NADEX positions in your live, real money NADEX account as you enter the position.
Don't put up screenshots of positions after the fact or well after you enter the position. At that point, they are not really tradeable ideas. And really nobody cares.
If you post a screenshot of a recently entered position, that might be a position someone else would like to trade as well. It is up to them to do the research on the position.
No screenshots of trades in demo accounts. Again, nobody cares what you do with play money.
No need to post charts with detailed explanations of why you entered the trade. If you want to, go for it. But all we are trying to do is generate ideas. Anyone who sees your trade would have to go research it to understand if it makes sense to them.
All that being said, here is a trade I entered before I started writing this post. It is a short on GBP/USD.
Attached Image (click to enlarge)
