A Simple Way to Understand Trading Nadex Binary Options

 

Football season is finally happening, at least for some colleges. And in this example, you're at a sports bar watching Navy play Air Force. 

You're rooting for Navy, and your buddy sitting next to you went to the Air Force Academy.

After a little bit of friendly smack talk, you decide to place a wager on the game. Both teams are evenly ranked by the oddsmakers.  Each of you places $50 on the bar. If Navy wins, then you're right, and you pick up the $100 on the bar. If Air Force wins, your buddy picks up the money, and you collect nothing.

That's exactly how Nadex Binary Options works.

You have an opinion about where price will finish, relative to a price level and a fixed period of time. For example, your statement could be:

The US 500 Index will finish ABOVE the 3504 Price Level when the market closes today at 4:15pm ET.

Using the football analogy above, you decided to put up $50, which is deducted from you trading account. For this trade to be accepted, someone needs to take the other side of the trade for $50.

If the market closes a hair above 3504 at 4:15, you collect $100*
If the market closes at or below 3504 at 4:15, you collect $0*

With Nadex Binary Options, every contract must add up to $100 to be an active trade:

• If your maximum risk is $40, then the person on the other side of the trade is risking $60
• If your maximum risk is $55, then the person on the other side of the trade is risking $45
• etc., etc.

IMPORTANT NOTE: YOU ARE NOT MARRIED TO THE TRADE

In most cases, you can exit a trade if you want to lock in a sure profit, or to minimize losses if a trade starts moving against you.

How does Nadex make their money? Nadex makes money by charging an exchange fee of $1.00 per contract, per side to facilitate trades.

In this trade example, the US 500 Market had been on an extended daily uptrend, closing at 3503. The belief was that the trend would continue on it's upward grind, as it has done the past 9 out of 10 days. The closest daily strike price was 3504. The decision was to to go long from 3504, risking $50 to make $50. and the order was filled.

TRADE RESULTS

The US 500 Closed at 3496, below the 3504 strike price. Although there were plenty of opportunities to exit this trade for a partial profit, I opted to stay on the side of the uptrend and let the trade ride. 

Payout $0, for a $50/contract loss.

A Simple Way to Follow a Trend with Nadex

 

Since the Covid-19 Market Selloff in the Spring of 2020, the US Equity Indices have made a steady, rebound. Looking at the charts, the uptrend shows that roughly 7 out of 10 trading days are bullish, compared to the previous day.

Let's take a look at the emini Nasdaq (/NQ) Daily Chart.

This chart is grinding steadily upward, riding above the 3 EMA, the T-Line (8 EMA) and the 50 and 200 day Simple Moving Averages. With this kind of uptrend, you just want to stay long until the market closes below the T-Line.

Here's a simple, set-it-and-forget-it  way to trade this uptrend with Nadex. The simple proposition is that the /NQ will close tomorrow ABOVE today's close.

1. Record the previous day's close. In this example it was 11636
2. At 6pm ET, when Nadex opens, find the Daily Expiry (4:15pm) strike price nearest the previous close. In this case, the strike price was 11632
3. Place a Limit/GTC Order to BUY the US Tech 100 (Sep) Index  >11632 for $50 per contract.
4. Select the number of contracts you wish to trade. For any trade I make, I like to be as close to 2% account risk per trade. This is a demo account with a $16,000 balance. 2 percent is $300, so 6 contracts were purchased.
5. Maximum Risk is $300 on this trade. Maximum reward is also $300 (less exchange fees).
6. Place the Limit order and wait for it to fill.

Let's see how this trade is playing out:

• The Limit Order was placed at 6PM ET Monday Evening
• The Limit Order filled at 7:15am Tuesday Morning.
• After taking some heat at the Opening Bell, the trade moved up sharply.
• With 4 hours, 51 min. remaining in this trade, it is up $168 out of a maximum $300 available.

I'm going to let this trade run until expiration. All it has to do is finish 1 tick above 11632 to collect the maximum profit of $300 and to confirm the resumption of the bullish uptrend.

If the NQ settles at or below 11632, then I collect $0, and I forfeit the $300 I put up as risk money to secure the trade. It will be a small 2%  loss against a trend where the odds were on my side.

Trade Conclusion

This trade took a little bit of heat in the morning, but took off in the afternoon settling at 11726, well above the 11632 strike price. Maximum profit of $300 was collected (less exchange fees), for a 100% return on capital risked.

August 3-7 Markets Continue to Climb

Trading Out of the Money Binary Options

The markets were tumultuous last week, but managed to remain resilient.

S&P 500 futures opened positive Monday above the T-Line (8 EMA), continuing its push upward. Until there's a close below the T-Line, investor sentiment remains bullish.

Click on Chart to Enlarge

With this information in mind it was time to take a look at Nadex for a bullish binary options strike price.

Shortly after the Opening Bell the /ES (S&P Futures - Sep) was trading at 3284. The nearest strike price with a Daily Expiration (4:15PM ET) was > 3293

So Here was the Proposition I was Trading:

"The US 500 Index will settle above 3293 by 4:15 PM ET Today when the market closes"

This is called an Out-of-the Money Binary Option. When I placed this trade, the market was at 3284, the marketplace of buyers and sellers determined that there was about a 30% chance that price would rise above the 3293 price level by 4:15 PM. 

My rationale behind the trade was that the market would continue to grind North for the day, and not reverse course. With $30 maximum risk per contract, I bought 5 contracts.

Trade Details:

Number of Contracts Purchased: 5
Maximum Risk per Contract*: $30   $150 total
Maximum Reward per Contract*: $70   $350 total

* prices do not include exchange fees

Click Chart to Enlarge

With Nadex Binary Options, every contract is equalized at $100. If, I'm assuming $30 risk for my out-of-the-money trade, then the person on the other side of the trade is putting up $70 risk in the belief that I will be wrong.

When the trade filled, the maximum risk ($150) is withdrawn from my account. The person on the other side of the trade put up $350, making the pot even at $500.

At 4:15 PM when the market closes, then there are only 2 possible outcomes:

1. I am right. The market closed above 3293, and I collect $500 (less exchange fees), or
2. I am wrong. The market closed at or below 3293, and I collect $0

Important Note: I am not married to this trade.

At any time, I can choose to exit the trade if I want to lock in a sure profit. I can also exit the trade if I feel the market is moving against my trade plan to minimize losses.

Trade Results

Click Chart to Enlarge

With an hour and a half until expiry, this contract was flashing $152 in available profit vs. $150 risked. The 3293 price level was holding up as resistance and the S&P 500 was up over 30 points on the day. Stochastics were overbought.

In these volatile markets, any end-of-day profit taking or a sell-off would take the shine off of a nice profit. Trade closed for 100% profit vs. capital risked.

What Happened at the 4:15 PM Expiry?

Just after I took the $152 profit, the market started selling off. It dove down to 3282, before trying to make a brief rally back. If this trade had been held until expiry, the payout would have been $0 and I would have last the $150 I put up as risk capital to make the trade.

Try Nadex Today, Risk-Free

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

Weekly Nadex Commentary - August 27-31

Will  Gold Hit $2,000 this Week?

Weekly Bias:

• Gold: Bullish
• EUR/USD: Bullish
• GBP/USD: Bullish
• USD/JPY: Bearish
• USD/CHF: Bearish

The markets closed below the T-Line last week, signalling a potential downturn in the market after an extended run-up. The US Stock indices are too flat right now to call a reversal or signal a continued run to the upside. My bias is neutral for now.

Gold, on the other hand, is continuing it's run toward $2,000. As of Monday morning, Gold was trading around $1,940, if it continues its upward trajectory, it's quite possible that the elusive $2,000 target could be hit this week.

Gold prices are traveling on a very steep uptrend, and showing no sign of reversal.

Last week, we had a bullish outlook on Gold, and I see no reason to buck the trend. My opinion on Gold is Bullish. 

When the markets opened Monday Morning, Gold was traveling around $1,966 before dipping around mid morning.

Using Nadex as my guide, I formulated the following opinion:

Gold prices will settle above $1,996.50 by Friday at 1:30pm ET when the Gold Markets close.

Click on Charts to Enlarge

So I clicked on the Weekly Binary Options contracts for Gold, and selected the > 1966.5 Strike Price. Here are the contract details:

Contract: BUY  Gold (Dec) >1966.5
Contract Expiry: Weekly: Expires on Friday, July 31 at 1:30PM ET
Number of Contracts: 5
Price: $43.8
Maximum Risk: $43.80 per contract traded = $219 (plus exchange fees)
Maximum Reward: $56.20 per contract traded = $281 (less exchange fees)

I will monitor this trade throughout the week, and publish trade results..

Trade Results

With over four days remaining in this trade, I have three options:

1. Take an Early Profit - If Gold prices continue to skyrocket upward, I can opt to exit the trade and lock in profits. Nothing wrong with that.
   
2. Exit Early to Minimize Losses - If the trade moves sharply against me, I can also exit the trade to minimize losses. I might consider this if my losses hover around 50 percent of capital risked (-$110)
   
3. Set it and Forget it - Let the trade ride until Expiration. - I'm okay with losing $219 if the trade goes against me. This uptrend looks good. I'm all in for a $281 reward. Come on, Gold at $2,000!

Update: Tuesday, July 28

In the overnight hours, Gold briefly touched $2,000, and then got "Monkeyhammered", according to a tweet from Zerohedge.

On Tuesday morning, Gold started to rebound. The question is whether Gold will re-test the 2,000 level or whether it will sell-off from current levels.

When I grabbed my screen shot this morning, this trade was down $110, right at where I was considering stopping-out. As I continue to update this post the trade is now down only $49.

There are over 3 days remaining in this trade. I'm going to stay in and see what happens for the meantime.

Tuesday, July 28 - Trade Exited for Modest Profit of $80

In a discussion with Stephen Bigalow about this trade, Steve pointed out that a long-legged Doji had formed in overbought territory, signalling a potential reversal in Gold.

This trade was already up $80, out of the maximum $281 reward possible. In this trade, I opted to exit the trade and lock in a sure profit.

Try Nadex Today, Risk-Free

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

US Dollar Getting Hammered vs. the Swiss Franc

The US Dollar Index has been in free fall throughout the month of July.

The US Dollar Index, which had once hovered around $100 is down to $94.

Part of this is due to the perception that the strength of the US economy is weakening, in light of the Coronavirus outbreak in the US.

Technically, a "Death Cross" set up, where the 50 SMA, crossed the 200SMA to the downside, as illustrated in the chart below.

With this information in mind, let's take a look at the US Dollar vs. the Swiss Franc.

Click on Charts to Enlarge

Same deal. The dollar is getting hammered against the Swiss Franc. Price is traveling well below the 200 SMA, 50 SMA and the T-Line (8EMA). From now through the end of the week (tomorrow), this trend is showing no signs of reversal.

A Low-Risk Way to Trade the USD/CHF is with Nadex Binary Options

With Nadex Binary Options, you are you expressing your opinion about where a market will travel relative to a fixed price level (strike price), and also within a specified time frame.

Nadex Binary Options are traded in Contracts. Each contract is valued at $100. The marketplace of buyers and sellers determines what your risk and reward will be.

Example: Let's say the underlying market is at the same level of a strike price. You might be able to buy a contract for $50. That means someone on the other side of the trade is also willing to risk $50.

When your trade fills, $50 will be deducted and withheld from your trading account. If you hold that trade until expiration, then there are 2 possible outcomes:

1. You are right, and will collect $100, per contract traded, or
2. You are wrong, and your payout will be $0, so you forfeit the $50 that was withheld.

You are not married to the trade. You can exit any time you wish. You can exit to lock in profits or to minimize losses if the trade is moving against you.

In this case, I was trading my opinion that the USD/CHF would close below 0.9260 by 3:00 PM ET at the end of the day.

The order filled at around 11:15am. Here are the details:

Contract Details:

Contract: SELL  USD/CHF >.9260
Contract Expiry: Daily: Expires on Thursday, July 23 at 3PM ET.
Price: $50
Maximum Risk: $50 (plus exchange fees)
Maximum Reward: $50 (less exchange fees)

Trade Results

At this point, I have two options:

1. Take Profit - This trade is already up $35.00 in profit out of the maximum $50 profit per contract. That's not too bad. I could lock in a sure profit and call it a day.
2. Let it Ride - With 1 Hour and 47 minutes left until expiry, you could decide that the likelihood is slim that the market will reverse and take you out of the trade for a total loss. All it has to do is close anywhere below 0.9260 for you to receive the maximum profit of $50 per contract.

In today's trade, I'm going for Option #2. I'm going to bet that the downtrend continues.

UPDATE: Thursday at 3:00 PM ET. This Contract expired below .9260 yielding the maximum profit of $50 per contract traded.

Try Nadex Today, Risk-Free

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

Gold Continues its Upward Trajectory

In spite of the daily onslaught of morbid Covid news, the markets are showing incredible resilience.

Today, the US State Department ordered China to close its consulate in Houston. China is vowing retaliation.

Still, the markets are flat to slightly up.

Gold has been remarkably resilient over the past several years chugging steadily upward from $1,100 per share to a place where $2,000 is a distinct near-term possibility.

Traditionally, Gold has been viewed as a "safe haven", having an inverse relationship to the S&P 500. When the stock markets usually go down, then gold goes up. When stocks rally, gold goes down in price.

In the past year, that relationship has changed. Gold and the S&P 500 are now tracking with each other. In the chart below, you can see that both Gold and the S&P 500 took a dive during the February-April Covid selloff.

Since the selloff, both gold and the S&P 500 have tracked along the same upward trajectory.

Looking at the Daily Chart for Gold, the price is on a "Steady Eddie" upward trend, staying above both the T-Line (8EMA) and the 3EMA, as well as the 50 and 200 SMA.

There is no reason to think the trend won't end anytime in the short-term, unless gold closes below the T-Line.

If your bias is to the upside, you can to trade gold prices without exposing yourself to excessive risk is with Nadex Binary Options.

With Nadex binary Options, you are you expressing your opinion about where a market will travel relative to a fixed price level (strike price), and also within a specified time frame.

 Nadex Binary Options are traded in Contracts. Each contract is valued at $100. The marketplace of buyers and sellers determines what your risk and reward will be.

Example: Let's say the underlying market is at the same level of a strike price. You might be able to buy a contract for $50. That means someone on the other side of the trade is also willing to risk $50.

When your trade fills, $50 will be deducted and withheld from your trading account. If you hold that trade until expiration, then there are 2 possible outcomes:

1. You are right, and will collect $100, per contract traded, or
2. You are wrong, and your payout will be $0, so you forfeit the $50 that was withheld.

You are not married to the trade. You can exit any time you wish. You can exit to lock in profits or to minimize losses if the trade is moving against you.

In this case, I was trading my opinion that Gold would close above 1,840.50 by 1:30 ET Friday, when the Gold Pits close.

Click on Chart to Enlarge

On Monday afternoon, Gold was traveling around the 1840 strike price. I chose a Weekly Binary Option, expiring Friday at 1:30pm ET.

Contract Details:

Contract: Buy Gold (Aug) >1840.5
Contract Expiry: Weekly: Expires on Friday, July 24 at 1:30pm ET
Price: $50
Maximum Risk: $50 (plus exchange fees)
Maximum Reward: $50 (less exchange fees)

Trade Results

I could have opted to do nothing and let this trade expire for a highly probable maximum profit of $50. But in these volatile markets, I opted to exit the trade for a $42 profit.

In my mind, I cut most of the meat off of the bone, and locked in a sure profit. There are still 2 full days until expiration, and anything can happen. 

This was a very nice trade.

Try Nadex Today, Risk-Free

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

Nadex Market Commentary Week of July 20-24

This week could be another interesting and volatile week in the markets.

It will be a strong week for earnings reports, especially in the tech sector. Last week, banks reported with results that were largely in-line with expectations.

Covid-19 continues to be a cause of concern as cases continue to explode, especially in the Southern United States. Florida is reporting that some hospitals are out of ICU beds, and the mayor of Los Angeles is considering further shut-downs.

Looking at the markets we like to cover in Nadex, the Euro is continuing to show signs of bullishness against the US Dollar, at least for the short-term. Price has formed a Fry Pan Bottom, and the market is continuing to churn upward above the T-Line (8 EMA) on the Daily Charts.

There is no reason not to stay bullish, unless the EUR/USD closes below the T-Line.

If your short-term bias on the EUR/USD is to the upside, then one way to trade your opinion is with Nadex "Knockout Trades". This allows you to trade your bullish sentiment on the EUR/USD with capped risk. You know exactly what your maximum loss will be before you trade.

Knockout trades have a week-long duration. They start on Monday Morning and expire on Friday. There is also a fixed "floor" and "ceiling" to knockout trades, which defines the maximum amount you can win or lose on the trade.

If you're bullish and price goes through the "ceiling" price level, then the trade is automatically closed for the maximum profit available. Conversely, if price goes through the "floor", then the trade is automatically stopped out for the maximum loss.

Here's a trade I took today (Monday, August 20)

I have a weekly bullish bias on the EUR/USD so here's what I did:

BUY EUR/USD 1.1370 - 1.1620  (250 pip or $250 depth., per contract traded)
Entry Price: 1.1442
Maximum Risk: $75, per contract traded
Maximum Reward: $175 per contract traded (less exchange fees)
Contract Expiry: Friday July 24 at 3pm

What does this all mean?

As long as price is moving above 1.1442, I'm making money. I can choose to exit this trade any time that I want. If it's Wednesday, and I'm up $75.00, then I can exit for $75.00.  Conversely, if the trade is moving against me and I'm down $50, I can also close the trade for a partial loss.

Update: Tuesday, July 21

Click on image to Enlarge Chart

1. EUR/USD Current Price is staying on the uptrend
2. Bought Contract at  1.1442
3. Current Price is 1.1459
4. Current Profit is $17.00 per contract traded (1 contract in this example)
5. Contract Duration: 3 days, 4 hours remaining until expiry.

I'm going to let this trade run. This could set up for a gain of 50+ pips.

Update: Trade Closed Tuesday Afternoon

This trade had a nice run-up today. In today's volatile markets, anything can happen, so I felt an 86 pip reward ($86) was well worth the $72 I put up as risk.

Conclusion

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.