So, I am thinking about implementing a strategy in the 5 minute binaries. It involves two accounts, I am on my account and my wife is on her account. I take the up in a strike contract and my wife shorts the same one at the same time on her account. We try to get ATM as possible and around 50$ each. So, a total investment is around 102$ with fee’s. Then, when there is around 45 seconds left we sell the OTM contact for whatever we can get. We have tried it on the demo account and we have made around 3$ - 25$ each time. We have lost a few because the strike price jumps in the wrong direction at the last second and that is a loss of around 75-90$ each time that happens. So, I may need to tweak the strategy. However, I am curious to see if Nadex would not allow two people to bet in opposite directions of a strike price if they are married. This is not fraudulent because we would be using our own money so it would not be a pass money scheme like the one mentioned where a money manager bet a significant amount of his clients money and transferred it to his wife’s account. Any thoughts?
Is this against Nadex's rules illegal?
Hello MWA,
(Disclaimer: I’m not an attorney, strictly my unprofessional opinion.) I wouldn’t think that it’s illegal.
However, I believe it’s a flawed strategy for many reasons. (Risk/Reward, Recovery, decay, theta, beta, gamma…)
Let’s assume that you make an average of $14 on each bet.that means if the price goes against you in the “dark zone” and you lose an average of $83 you have to be successful 6 out of every 7 attempts just to break even. That’s an 86% success rate. To make money your success rate has to be 92.6%.
If you lose twice in a row, you have to win 12 straight to make that up. Not including fees which is $4 per round trip for you plus your wife. Which adds an additional few trades to cover the fees. Now you have to go 15 straight and THEN continue the streak into profitability.
If you include the fees per trade they eat that $14 profit up quick. Essentially making it a $10 average profit.
The strategy you are looking at is a very popular “gambling” strategy. Just google “Gambling Strategies and Binary Options”. (But they still follow trends and structure)
You could call this a “collar” or “fence” type strategy.
The bottom line is this. The market makers know traders will try this and the way things are set up over the long term you will break even 50% of the time and end up making the broker rich in the process. That’s the best case scenario.
Please keep testing it in demo and you will see that there isn’t a strategy to get rid of the last second “pops” that occur in 5 min binaries.Don’t burn your real cash up on this.
The best way to get the answer is to ask Nadex. If you don’t want to do this, maybe this is something that Darrell, John, or some other higher level Apex member could answer.
I don’t have an answer for you on whether or not your method is illegal, but the general rule I follow is this: If you have to ask if something is illegal, it’s a matter of caution to say YES.
In addition, MICHAELCARREL gave a good and detailed reason why this method would not work.
I don’t know how long you’ve been trading Nadex, but you should stay away from 5 minute binaries, at least until you’ve mastered the other timeframes. Even then, 5 minute profits are very difficult to maintain. One loss means you have to make several more successful trades to break even.
If you’re an Apex member, you have access to the charts and indicators. I’ve had fantastic success with 5 minute binaries using the Brick Wall strategy. However, this success is only at night in the Nadex Demo. The Nadex Live Account does not have the same 5 minute strike prices as the Demo, which means the method I use does NOT work.
Bottom line, 5 minute binaries are the riskiest of Nadex trades and should be avoided.
I believe this very situation came up on Nadex and they informed the trader he was violating terms of services by doing what he was doing… As it was viewed as an attempt to potentially influence the markets if I remember correctly… Theyve fined people in the past for violations and even banned people its caught trying to manipulate prices on the platform… My wife and I are still learning to trade and Im very careful to ensure to remain in compliance so we dont run afoul of NADEX or CFTC… In fact heres the exact ruling handed down by Nadex regarding doing exactly what the OP mentioned… By their ruling its clearly a violation of TOS and subject to action by the exchange.
Found a second reference same thing colluding with opposite positions with another trader is a NO NO per Nadex…
NADEX RULES: RULE 5.19 PROHIBITED TRANSACTIONS AND ACTIVITIES (b) No Person shall enter into or attempt to enter into any non-competitive trade on the Market, including any accommodation trade or any trade that has been directly or indirectly prearranged. For example, a Member may not agree in advance with another Member that one of the Members will enter an order and the other Member will attempt to trade against that order by timing the submission of orders or otherwise.
FINDINGS: An investigation into trading activity conducted by Ashley Pomerville (“Pomerville”) revealed that Pomerville had prearranged multiple transactions on the Exchange from November 15, 2017 through November 22, 2017 with another Nadex Member. During the course of the investigation, Pomerville fully cooperated and acknowledged having discussions with the other Nadex participant for the sole purpose of entering orders on the Exchange that would trade opposite one another. Accordingly, Pomerville was found to have violated Rule 5.19(b), which prohibits entering into any non-competitive trade on the Exchange, when she discussed and effectuated prearranged trades with another Nadex Member.
PENALTY: As a result of the violation, Ashley Pomerville was fined $500.00.
EFFECTIVE DATE: December 19, 2018