A Nadex spread is a derivative of an underlying market with a max trading floor and ceiling level.
Nadex has currency instruments and foreign currency instruments, with Forex spot markets as the underlying market. Unlike the Forex spot market, trading Nadex spreads provides far greater leverage and lower risk, as well as the advantage of not being stopped out by a temporary move against a trade. With Nadex, traders can always exit early to limit loss, if necessary, or to take profits before expiration of the spread.
Forex spots move in pips. There are two currencies in a Forex spot pair, and to avoid stating both currency names, the lowest moving increment or last digit is called a pip. Nadex moves in ticks, where the last digit is called a tick and every tick is worth $1.00, no matter what forex pair is being traded.
Related: Why Trade Nadex Spreads, Versus Future Options
When trading a Forex spot, the best leverage a trader can get inside the United States is 50:1. If a trader wants to trade a mini lot of 10,000 units of currency, they must put up $200 or more. The idea is, if it moves that far against the trader, it will stop them out and the broker will have a bit of a buffer zone.
Looking at this spreadsheet comparison, it is clear the leverage with Nadex spreads far surpasses that of the rest of the instruments traded on this equalized day trade of the EUR/USD. With the Nadex spreads, traders have 500:1 leverage, with the least amount of risk.
Profit on the Nadex spread is still on par with the rest, including the Forex spot trade. In addition, to do this equalized trade with a Forex spot, a trader must put up $3125 for the same leveraged value.
For the spread, it only required $250!
With Nadex spreads, the minimum to open an account and start trading is only $100. There are also no account minimums. The risk is defined upfront when trades are placed. When buying the spread, max risk is the distance between the entry price and the floor.
Related: Misconceptions About Trading Nadex Spreads On Futures
When selling the spread, max risk is the distance between the entry price and the ceiling. To better understand the floor and ceiling levels in a Nadex spread, take a look at the image below for the EUR/USD. Here, the floor of the spread is 1.2400 and the ceiling is 1.2500.
Nadex spreads also have expiration times. A trader has until the expiration time for the trade to be profitable.
For example, if a trader was long and bought a spread at 2:00 pm with an expiration of 4:00 pm and the market went down against the trade, they would still have until expiration time for price to come back up.
In addition, when the price went down against the trade, even if it went below the floor level of the spread, the max risk would still only be the distance between the entry price and the floor.
A trader only needs the max risk of the spread to enter. There is no additional loss, no matter where the price moves, no matter what the leverage. Whereas the risk trading spot Forex could be infinite, for example, if a trader were short a market and price went up.
So effectively with Nadex spreads, traders have increased leverage, defined capped risk and more time to be right on trades.
Nadex offers multiple instruments to trade based on many underlying markets. Below there is a clip of the APEX Spread Analyzer Scanner, which displays the variety of instruments available.
The following is a list of just a few of the Nadex instruments and their underlying markets: The U.S. 500 is based on CME E-mini S&P Index Futures; U.S. Tech 100 is based on CME E-mini NASDAQ 100 Index Futures; Wall Street 30 is based on CBOT E-mini Dow Futures and U.S. Small Cap 2000 is based on ICE Mini Russell 2000 Index Futures.
The currencies and foreign currencies are listed on the right. In addition to the many instruments available, there are spreads with varying ranges providing different profit and risk levels. They are offered daily, with differing expiration times throughout the day.
For example, there are two hour, 8.25 hour and daily spreads with ranges of 100, 300, 400 and even 1000 ticks. Again, the lowest increment move on Nadex is a tick and every tick is worth $1, so there is a potential for profit, limited risk and high leverage.
Nadex offers spreads on the currencies throughout the day and on eight markets. They start up every hour at night.
They can be traded in any market condition including news events, as straddles, iron condors for neutral strategies, and hedges.
For more information on Nadex spreads and how to trade them and get access to the free spread scanner, go to www.apexinvesting.com.
To practice trading spreads on a free demo account, go to www.nadex.com and click on trading demo, trading account.