Nadex representation of Forex prices

S4 - Select - Underlying Markets nadex binaries
1

OK - I’m new here, and fairly new to bin-ops … there is something very strange about the way Nadex current pricing of forex pairs correlates with the rest of the world (or perhaps I should say doesn’t correlate). I have been following and occasionally trading bin-ops with Nadex for several weeks now and I continue to notice that their current price of the underlying instrument often bears only a glancing resemblance to what other data feeds are providing (such as FXCM, Oanda and others, all of whom correlate pretty well with each other). Further, I have noted many instances where it seems that a price might have been artificially held down (or up) until the closing minutes of the contract. I am not accusing anyone of price manipulation but it strikes me as weird that Nadex’s current price is so often at odds with other data sources, and more than odd that often this results in the trader being on the losing end of a contract - just by a hair or two. Has anyone else noticed anything like this … or am I just being too picky? I like the whole bin-op concept, and I don’t mind a gambling atmosphere - but it must be a fair game. I am not an idiot, and tossing money into what may be a rigged game strikes me as idiocy of the first order.

Would really appreciate candid responses from others

2

It has something to do with nadex using an avg of the last 25 prices and no nadex dk manipulate do forex traders of course they do

3

This is simply a misunderstanding of what the number is you are seeing. They are not giving you a quote of the spot forex. As it states it is an Indicative. It is an index.

I have training on how its calculated on the site but to help you here comes the details :slight_smile:

On forex

They take the last 25 MID quotes (average of bid and ask - notice you are only looking probably at either bid or last on your fxcm etc… charts) They drop the highest 5 and the lowest 5 quotes to ensure spurious quotes do not dramatically impact the indicative index. They average the middle 15 MID quotes and that is the indicative index.

They use a thomsan reuters feed and their calcs are spot on perfect to this formula. I have a reuters feed and have a dde api on it as well and have built the engine to check it and its perfect.

Note the binary and the spreads are based on the LIVE spot fx price. They are a derivative of the spot fx mid quote of the Reuters feed.

FX is over the counter (though these contracts are exchange based) with fx over the counter as you obvoiusly konw different “brokers” banks have differerent prices slightly depending on the banks feeding in. Reuters is considered the golden standard so it is the right way to do it.

We also have an indicator called clarity price that does this same calculation (and its faster than the web indicative update) that we use on ninjatrader its great as it again filters out those stinking 1 tick entries and 1 tick stop losses etc… that wwhere like 1 or 2 quotes nothing major and you lose on a trade etc… and could have been profitable. The smoothing impact is a great edge if used correctly. But that is a different topic :slight_smile:

What does matter is at expiration that is where the settlement “index” comes into play as that is what matters at expiration. Note the price listd is an indicative index it is not the “official” settlment as obviously on web it can be delayed milliseconds can matter…But before expiration the price is actually based on the spot price not the indicative price. Just one more reason why there is ZERO need to look at the indicative until you are right near expiration.

Use spot FX and if trading FX use futures volume on those fx pairs like we teach to get a real and true volume reading for your trading.

4

Thanks Darrell for your detailed response - it cleared up several points for me. There is, however, still one thing that I am confused about; if I read your reply correctly, you say that “the price is actually based on the spot price not the indicative price” so there is no “need to look at the indicative until you are right near expiration.” Yet the final settlement “index” that counts is the one on Nadex, which I don’t have to look at until the last minute. Since we agree that the actual spot price of the underlying pair and the Nadex index are not the same for the most part, it seems counter-intuitive to me to rely on the spot price, from whatever source, to determine my trading strategy and then at the last minute check the Nadex indicative to see how I did. It seems I should be looking only at the Nadex chart, since that is the one that will determine whether my trade wins or loses. In other words, I don’t see the point of looking at other data that do not ultimately determine whether the trade wins or loses. What am I missing??

To explain a bit further, I note (as I stated in my first post) that the Nadex indicative often runs a few to several pips different (usually, but not always, higher than the spot price). So, if I use the spot price to determine strategy as you suggest, how am I to allow for this difference - especially since said difference is often difficult to predict? Put another way, I might develop an excellent strategy using spot pricing, but if in the last few minutes the Nadex indicative unpredictably leads or lags (as is very often the case) the spot, then I lose - my “excellent” strategy is wasted, as is my money. Is there some formula that will quantitatively and reliably relate spot Forex prices and the Nadex indicative?

Hoping someone can clear this up for me.

5

The point you are missing is one of the biggest mistakes you can make as a binary trader and that is holding a binary contract till expiration.

You should be closing your binary trades before expiration to take profit or limit losses (ie if an ITM binary).

If you are holding to expiration you will not be profitable over the long run by the very nature of what a binary is.

its a probability

I have trainings on this

but in short

if it is priced at say $70 on a buy that is a 70% probability - if always held to expiration 70% of the trades will expire ITM and 30% OTm

You will make $3070 $2100 and lose $7030 - $2100 so breakeven not account for fees etc…

To be able to be profitable in the long run you have to close the trades before expiration or you will at best be spinning your wheels.

So to deal with the difference - exit before expiration.

Depending on where the 15 of the 25 trades that are average lie above or below the market will determine if it is spot on above/below etc…

Only if you are not able to ie take a profit etc… would you then flip to and be concerned with the indicative regarding profiting or not on the trade.

To hold to expiration is to hold on to make a few more dollars (greed) when a trader often has a majority of all profit and should be getting out of the thing.

You also need to know how to read the price ladder in order to know what is a realistic exit price. I cover this in my articles and many of the webinars.

To not exit before expiration is to miss one of the main points of being able to trade binaries on nadex which is you have the control of the exit not buy and hope or sell and hope it will expire ITM. Don’t bet the binary trade the binary.

Have an exit plan to exit so a profitable trade does not become a losing trade at the settlement.

Note the same goes if doing just about anything in trading. You don’t buy and sell calls and hold them till expiration (you should not even do this on credit and debit spreads on vanilla options, you don’t hold stocks till the companies buy it back, you don’t hold futures to last trade date or delivery date and you should not hold binaries till expiration.

Everyone learns this lesson sooner or later. I try to help as many as i can learn it sooner rather than later.

6

… and finally the light goes on! Strategic exiting before expiration makes it all make sense. I was viewing early exit as purely a way to limit losses, but not as a way to lock in profit. Thank you for staying with me until I finally got it … most teachers would have flunked me out and gone on about their business.

I plan to have this tattooed on the back of my hand - “Don’t bet the binary - trade the binary”.

Thanks again.

7

LOL love it!

8

“Don’t bet the binary - trade the binary”. This makes sense but I don’t seem to see it.

For example, intraday 2-hour binaries on AUDUSD, Indicative is at 0.7200 and I buy a binary at 0.7220 for $30.00. Later, the indicative is 0.7260, above the topmost strike of 0.7245. Expiration is in 30 minutes.

I could sell the binary ITM to capture the profit before expiration with a payout of $95.00. If, however, I let the binary expire ITM, the payout is $100.00. A $5 difference between closing the binary trade ITM versus letting the binary expire ITM.

The binary would have to move against me by 40+ pips in 30 minutes for me to be OTM. It’s probable but not likely.

$5 can be the difference between having a negative expectancy vs positive expectancy system.

9

In the long run, over many trades, $5 at a time does add up. In your example above you were a good ways in the money above your strike. Totally understand your point of $5 adding up, but also a few things to consider on the other side as well. But, you also have to keep in mind, especially when not that far in the money, that in those 30 minutes, or even in the last two minutes ( dark zone) that if a binary goes against you and you can not get out , you can lose the entire amount as well. Once you are that far up in profit, you have to weigh the decision to risk it coming back against you and losing , or coming back against you and giving up a lot of profit, just for holding it to make and extra $5. When you could have taken most of your profit there and moved on to another trade. Also, for someone with a smaller account, who can not really afford to be in multiple trades at once, if they are holding onto a nice winning position like that for an extra 30 minutes just to get an extra $5, they are limiting themselves to being able to get into another trade perhaps that they could have got into and ridden that trade up to $95 and got out etc. So just showing the other side of the coin as well and things to consider