By Darrell Martin
There are three basic things necessary for making money in trading: low risk, increased leverage and more time for the market to move favorably.
Nadex spreads provide all three. With reduced risk, investors don’t lose as much money. When reduced risk is combined with an increase in leverage, investors have more control of their “money making money.” Compared to most instruments, Nadex contracts (including Nadex spreads) have the best leverage. Also, risk on Nadex spreads is capped and defined up front. There are no margin calls, or risk of unlimited loss, due to skipping over a stop.
Related: Ticks And Pips And Cents, Oh My! Nadex Makes It Easy To Trade Forex And Futures
Margin and leverage vary, meanwhile, depending on strategy and instrument. To trade a Nadex spread, traders only need to have sufficient funds in their accounts to cover the maximum possible loss. Traders can never lose more than the predetermined amount. Whereas if a trader uses margin on securities, they are borrowing money from the broker, and are therefore paying interest to the broker on the margined/borrowed funds.
For example, if a trader has $10,000 in their account and puts up $5,000 in margin, then they are borrowing $5,000 and will eventually pay interest on that.
Many people, without even knowing it, have what is called a Reg-T Margin account. With this kind of margin, if a trade costs $100 the trader only has to put up $50, but the risk is still $100. If a trader goes into the negative, then the account manager will make a margin call and the trader has to deposit the negative amount. Margins can be raised at any time and can change in the middle of the day. If a trader doesn’t have the money for the margin call, they can be shut out of a position right away.
Related: What Is A Nadex Spread?
Traders can access a day trading account if they have $25,000 or a portfolio margining account with $125,000 for really high leverage. There are also margins on futures, which all have unlimited risk down to zero for long positions, and infinite risk for short positions.
With Nadex spreads, traders only need $100 to start, and only need to cover the maximum potential risk when opening a position. There is no minimum account balance either.
Below is a comparison showing the details of a EUR/USD day trade using different instruments. In the far right column are the details for trading using a Nadex spread.
*Margin on ETFs, Futures, and Options may vary by broker and capital in an account. Margin is always the same on Nadex Spreads. The above is for illustration purposes only and is not all encompassing of all variables.
This is an example of equalized position sizing, to show leveraging examples and where money can be most effectively used. Looking at the day trading margin row, there are differing amounts of money required to trade the position. For FXE and an ETF, a trader needs around $35,000 providing a minimal 4:1 leverage. For Spot FX, a trader needs around $3,000, providing a little better 50:1 leverage.
Futures get better, with only $500 needed and a leverage of 250:1. Future Options are similar to Spot FX, with $2,500 and a leverage of 49:1. All of these mechanisms have uncapped risk. However, Nadex has capped risk and leverage of 500:1; Nadex only requires $250 for the spread trade. If the trade were to move down to 1.2250 for a loss, the Nadex spread loss would only be $250, the amount necessary to place the trade. All of the others have losses in the thousands.
For more information on Nadex spreads and how to trade them and get access to the free spread scanner, go towww.apexinvesting.com. To practice trading spreads on a free demo account go to www.nadex.com and click on trading demo trading account.
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See article on Benzinga