By Darrell Martin
In part one, we talked about what goes into the settlement of a spread. We learned how Nadex figures the settlement value on futures for their binary and spread contracts by taking the last twenty-five trades, dropping off the top five and the bottom five, and then averaging the middle fifteen.
It’s also nice to remember that Nadex calculates the settlement value by using Reuters data feed, primarily, on forex and futures prices. Reuters is considered the standard in data and this ensures you get a fair settlement value on your contract. In this article, we’ll look at an example of a spread settling.
Let’s say you were watching your charts, looking for the perfect set up to trade. You find a spread that has a floor of $75 and a ceiling of $80. You are able to buy at 75.25. Your risk is only 25 ticks which is $25.
It has an expiration time of 2:30PM, so you have time on your side. The chart below shows the many opportunities you have when trading this spread. As always, when trading on Nadex, you can exit at any time before expiration.
As shown above, you may have set take profit at a number of different places. The first example shows that you chose to get out at 76.10 which was 85 ticks for a profit of $85.
The second example shows that you held it until it reached 78 and you got out with a whopping $275 profit! You might have sold at 76.60 for a profit of $135 or if you had the plan to hold it all the way to expiration, you still had a fantastic profit of $175.
It is important to make your decisions based on your charts and whatever strategy you are using. You need to have a plan that you stick to, but also watch for exit points, if the market isn’t going in your favor.
If you would like to learn more about trading spreads, go to www.apexinvesting.com, a service provided by Darrell Martin. Apex Investing Institute offers free education, and free access to the Nadex Binary and Spread Scanner Analyzers. Member traders are invited to trade in the rooms, take advantage of trade signal services, have key indicators and access the Apex Forum. The forum content is updated daily and includes over 7000 members. In a supportive learning community of seasoned as well as up and coming traders, traders of all levels learn how to trade Nadex binaries and spreads in depth, as well as futures, forex, stock and options, and gain an edge for successful trading overall.
(This article was originally published on Benzinga in July 2014.)