By Darrell Martin
If you have been following this series of articles on creating synthetic pairs using Nadex spreads, you already know that this is an advanced topic. You know that if this is one of the first spread trades you are trying to place, it is best to back up and wait before you try this type of trading.
After you have created your synthetic pair, you know that one side of the pair is long and one side is short in order to cancel out the part of the pair you don’t need in order to make the synthetic pair.
You have probably already placed several iron condor trades and know that when placing an iron condor trade, you need to buy a lower spread and sell an upper spread. It is important to remember that when using the iron condor strategy, you want the floor of the sell spread to be at the current underlying market price and the ceiling of the buy spread to also be at the current underlying market price. This makes the floor and the ceiling price in the middle of the spreads.
You may be wondering how to wrap your brain around how you can possibly place trades that both create your synthetic trade and do an iron condor. It is possible!
You will be actually placing two iron condor trades which will create and place your trade, so hang on. Let’s assume that you want to place an iron condor on your created synthetic EUR/CAD. First of all, you’ll need to find an iron condor on the EUR/USD that meets your criteria.
For example, let’s say you were able to buy the EUR/USD 1.1730-1.1830 (3PM) and sell the EUR/USD 1.1830-1.1930 (3PM). You can see that you bought the lower spread and sold the upper spread, and the floor and ceiling are equal. Both contracts expire at 3 PM.
Now that you found the EUR/USD iron condor, you’ll need to find another iron condor on the USD/CAD. Be sure that both iron condors have the same expiration times.
Let’s suppose that you were able to find the following iron condor: Buy USD/CAD 1.1760-1.1860 (3PM) and Sell USD/CAD 1.1860-1.1960 (3PM). Again, both have the same expiration times and share equal floor and ceiling levels. By placing both iron condor trades, the USD parts are cancelled out leaving the iron condor on the EUR and the CAD.
The following chart may help you understand how the two iron condors work together to make the upper spread and lower spread of the synthetic iron condor
You can see that when you buy or sell the pairs, you are actually going long or short on that particular instrument, thus setting it up to be part of your synthetic iron condor. You can also see how the USD parts of each pair are cancelled out and that is good as they are not needed to make your synthetic pair.
After you have created your synthetic pair, you can watch an actual EUR/CAD chart for trade management. There are several available online that you can use for reference.
Since an Iron Condor and a Straddle are opposites, you could consult this video which further explains the calculations of risk and reward for Synthetic Straddles and use the information with your Synthetic Iron Condors. To get the most related instruction, begin viewing approximately 25 minutes into the program.
If you desire more details and help, go to www.apexinvesting.com. 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 chat rooms, take advantage of trade signal services, use key indicators and access the Apex Forum. The forum content is updated daily and includes over 9000 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.