Getting Started with Nadex Binary Options

Important Note: Please make sure to read the Disclaimer at the bottom of this blog

You've Got to Start Somewhere
By Cam White

As a newbie trader, I know I have a lot to learn. I also know I'm going to make a ton of rookie mistakes. Fortunately, I record what I do, analyze my trades, and have a knack for not repeating the same mistakes over and over again. There is so much to learn, but I refuse to get caught up in analysis paralysis. My personality is geared toward strapping on a crash helmet, keeping my eyes wide open and learning as I go. I learn by absorbing information and applying it as I go. This mindset will help me develop a trading plan and set the rules that will govern my future trades.

Fortunately, I have a lot of resources at my fingertips, and so do you if you know where to look. The folks at TradingPub are constantly publishing webinars, ebooks, articles and papers from top industry experts. Most of the information they share is absolutely free, or available at minimal cost. When I got involved with TradingPub, I got exposed to Nadex, a relatively new exchange. I sat in on a one-hour webinar on Nadex, and it made perfect sense to me as a newbie investor.

Why Nadex Binary Options?

Image courtesy of TradingPub.com

There are several reasons why I like Nadex. First, it fits my budget. A Nadex account can be opened for as little as $100, although it is probably prudent to fund the account with $500-$1,000.  I don't have the risk capital to fund accounts in the futures markets ($5,000) or the stock market ($25,000). I am not opposed to risk, but I am careful about where and how I invest, and don't like to gamble. Here are the top reasons why I like Nadex:

• Free 2 Week Trial: You can take a test-drive with Nadex with $25,000 of play money. You can trade in a demo environment without spending a dime of your own money. See if it's right for you. That's where I am right now. One week in the books, one week to go.
• Defined Risk & Reward: When you place a trade with Nadex, you know exactly what your maximum profit or loss will be. Nadex tells you that before you place a trade. Each trade contract is in in $100 increments. There are absolutely no worries of a trade running away from you.

• Nadex Binary Options are a simple "Yes" or "No" Proposition: You're either right or you're wrong. No fuzzy gray areas. Let me give an example. Last week, the lowest price for Crude Oil was $105.45 per barrel. Most of the week it traded around $106. I looked at the price movement of oil in the morning, and as it started climbing north of $106, I placed the following trade:
  
  1 contract: Crude Oil (Aug) >105.50 (2:30PM)
  
  What am I doing here? I placed a trade that the cost of Crude Oil would settle above $105.50 by 2:30 when the crude oil markets close that day. Since prices hadn't fallen below $105.45 all week, and the market was moving higher than $106, I felt pretty comfortable with the trade. The trade put $83.50 at risk to make $16.50. Remember,the value of all Nadex binary contracts is $100.  Generally speaking, the more certain the trade is, the higher the cost and lower the potential profit, per contract. The market closed above $106 that day, and my trade settled with a gross profit of $16.50, less $1.80 in fees. Once again, Nadex is a "yes" or "no" proposition. If the price of crude oil had fallen below $105.50 at contract expiration on my trade above, I would have lost $83.50, and a $.90 trade fee.
• Low Fees and no Middlemen: Nadex charges $.90 to place a trade and settle it at close. Fees are capped at $1.80 per round trip, per contract traded. Fees are also capped at a maximum of $9.00 each way if you trade more than 10 contracts on a trade. When you trade with Nadex you're dealing directly with an exchange, and not through a broker.
• You Can Get Out of your Trade Early: Once you have placed your trade,  Nadex will let you know exactly how it's performing. If the market is moving comfortably in your favor, you can choose to do nothing and let it ride. That's what I did with the trade above. If the market starts turning against you, then you also have the option to at least get out with a little profit, or you can minimize your losses before the contract expires.
• Nadex is a Federally Regulated Exchange: Nadex is federally regulated by the CFTC. It is based in the United States (Chicago), and is only available to legal residents of the United States.

So, How did I Do in my First Week Trading Nadex Binary Options in Demo-Mode?

I'm not going to lie. My first trade was just plain bone-headed. I had just gotten access to my Nadex demo account last Friday, and I was like a kid with a new toy and $25,000 in play money burning a hole in my pocket. It was in the middle of the trading day. I picked a trade too high and lost $59 when my contract expired. The trade was almost successful, but I still lost. Remember, with Nadex binary options, you’re either in-the-money and you profit, or out-of-the-money and you lose. I made the wrong trade for all of the wrong reasons. My brother broke down my trade, and pointed out the [multiple] flaws in my trading decision.

But experience is a great teacher. I was much better prepared on Monday, placed 8 trades throughout the week, and ended in-the-money on them all. I held most of my contracts through expiration last week, but closed a few trades early when I sensed the market was working against me. My conservative strategy is bearing fruit and I am definitely in positive territory. I will test my trading strategy with Nadex one more week. If I get the same results, then I will be comfortable going live with my own money.

Where can I get more information on Nadex?

• TradingPub offers free monthly webinars on trading Nadex Binary Options and Nadex Bull Spreads (still learning about Bull Spreads). Visit TradingPub and make sure to sign up for notifications of free webinars. The TradingPub website is www.tradingpub.com.
• Nadex.com will give you a wealth of information on trading Nadex Binary Options and Bull Spreads. They do a great job of explaining their services, and you will know if Nadex is right for you. Their website is www.nadex.com

The Purpose of this Blog

The Inquisitive Trader will be used  to share my experiences as an investor getting back into the markets. I will use it to journal my trading plan, share successes and failures, and I will use it as a vehicle to communicate upcoming webinars that will be available free of charge. Every trader should have a plan, and this blog will be used to communicate a wealth of trading plans and strategies. To avoid spam, I am not leaving this blog open to comments. I hope you find this blog useful, and wish you the very best on your journey trading the markets.

Disclaimer

The opinions expressed in this blog are solely those of the author, and should not be construed as trading advice. I am not a registered or certified financial planner. There is a very high degree of risk involved in trading. Past results are not indicative of future returns. All individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein.