Binary option contracts are simple yes/no questions that allow the end user to take a position in a particular market on a chance of an event occurring based on his or her outlook of where that market will move in a specified timeframe.
Nadex offers binary option contracts on stock index, forex and commodity futures that have hourly, daily and weekly expirations.
These contracts can be used to speculate on the movement of a particular market or used to hedge an underlying position in that market for a defined dollar amount and time period. Price is an expression of where market sentiment is at a given time.
There are several options for trading binary options, so what does Nadex offer to make it a strong contender in this space?
Nadex is a regulated U.S. exchange where you can become a member and trade directly on the exchange as a retail participant or market maker. Nadex is subject to regulatory oversight by the Commodity Futures Trading Commission.
Nadex operates legally within the United States and can offer a layer of protection that other offshore binary option providers typically cannot give. Binary options traded outside the United States are also typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative, but only if the trader fully understands the two potential outcomes of these contracts.
In June 2013, the U.S. Securities and Exchange Commission warned investors about the potential risks of investing in binary options. In that warning they noted that in the United States, it is perfectly legal to trade binary options, as long as they are exchange based, as in the case with Nadex, which provides a trading environment in which trades are executed via an exchange rather than clients "betting" against the binary options firm itself.
Also, Nadex protects a user’s funds by holding all member funds in a segregated account with a major U.S. bank.
Capped fees and flat markets
Nadex operates a competitive capped fee structure, such that the trading fee for each lot traded is $0.90 with a maximum charge of $9 per order. Settlement fees apply when a position is held until expiration and will replace the trading fees upon settlement of the position.
Nadex also offers opportunities in flat markets. You can benefit from volatility, even when the underlying market is quiet.
Flat markets are low volatility markets that tend not to rise or fall significantly over a period of hours, days or even weeks. Therefore, Nadex Binary Options can exhibit volatility, even when the underlying market does not.
For example, binary contracts ask a “yes” or “no” question. Let’s take this contract: Nadex Gold > $1700 (1:30PM) asks whether the price of gold will be above $1,700 at 1:30pm. If the final outcome is “yes,” the contract settles at 100. If it is 'no', it settles at 0.
As the binary contract nears expiration its price will move towards 100 or 0, even if the underlying market remains stable. On a day when the market does not move a single point, the value of a binary contract could fluctuate by 40% or more.
It’s also important to note that Nadex offers a free, no obligation demo account. In a demo environment you can try trading the financial markets with binary options and spreads using its online platform. Simply following the movement in the market can give you an edge in understanding when market sentiment moves.