With Nadex spreads I can make trades where, for example, I’m risking a maximum of $200 to make $600. But for me make to the trade someone would have take the other side and risk $600 to make a maximum of $200. Why would anyone do this?
Why would someone take a disadvantageous spread position?
craigmac
#2
Because of your $200 risk and Possible $600 dollar Profit, this tells me that you are using s OTM Spread. A ATM spread would be $400 Risk and $400 Profit.
For a OTM spread to profit the market has to move and move in your favor. Period.
On the other hand, for the ITM spread ($600) the market can move against it some what and still profit or lose smaller amounts. Market movement in direction of contract will just increase profit potential.
I had the same idea and couldn’t wrap my mind around it for a couple days until someone explained it to me. While it’s true there is someone else buying or selling it’s not the same person for entry and exit of a trade. If you make it to your $600 profit the other person may have gotten out with a $200 loss and sold to someone else. When you take a profit on your trade or it expires for a profit of $600 the computer pools a large group of people with the probability/payout amounts so it roughly breaks even and they can actually lose a little money when a long shot pays off but it’s covered by the fees. This article helped me start to get a handle on it: https://www.benzinga.com/markets/binary-options/14/09/4847843/is-someone-losing-when-im-winning
469BUDDY
#4
Thanks for the explanation.
what is the tick value for Nadex spreads?
Is it $1 per tick?
Yes, and if your contract expires one tick outside of your spread you lose another $1, not the entire risk amount. Pretty nice! 