Pending orders?

kike0204 · 2014-02-16 07:10:10 UTC

i would like to know how does a pending order work in nadex binaries. and how to know what price to put it in correlation with the assets underlying price

darrell · 2014-02-16 07:48:01 UTC

Depends on what you mean by pending order.

Im assuming you mean a working order? That shows in the working orders section on Nadex or in the Binary scanner.

All orders placed on nadex are limit orders.

This means they are saying at this price or better.

i.e. if i say i will buy at this price but not a penny higher. If the binary is at that price or lower (lower is better when buying) it will fill. If not then it will become a working order until/if the binary order gets to that price.

ie if I say I will sell at this price but not a penny lower… if the binary is at that price or higher (higher is better when selling) it will fill. If not then it will become a working order until/if the binary orders gets to the price.

Note we do have a stop trigger plugin as well that you can use to submit normal nadex limit orders WHEN the indicative underlying hits a price (see the link for the free demo signup under the scanner menu above.

Regarding what price to put it in correlation with the assets underlying price that is a complex question. When you say know what price to put in please explain further what you mean…?

The three prices you always know about a binary is it will be worth 0 or 100 at expiration. It will be worth 50/mid price when the underlying is at the same price as the under binary strike no matter how much time there is till expiration (add in bid ask spread say 45/55 bid/offer with 50 mid.

The price again has to be at 0 or 100 at expiration. The longer there is to expiration the slower it will change price. The less time there is the faster it will change price. The further away it is from the underlying the slower it will change price. the closer the market is to the strike the faster the binary will change price.

You can use the simulator in the binary scanner and put in a price and it will tell you if the market moved x distance right now this is what it would be worth if it moved that distance now. And it will update as price changes and time goes by and volatility changes.

If you want to get super techincal a binary in the simplest and very accurate model is simply the same as what the delta is of a a call strike on that underlying market if the strike where the same on the calla s the binary and the time to expiration was the same.

For example below are CME ES call options expiring on Friday at 4:15 PM ET and US 500 binaries expiring at the same time. The correlation is very very close and very accurate. So if you have the correct IV and a black scholes model for calculating delta of a call strike you can calculate a binaries change in price over time, iv change, and price movement. (example provided by a Apex Student I have taught this to)

If you want to get a bit more complex a binary is priced using the same method as a vertical spread up until the last 15 minutes or so until expiration as gamma gets so high and of course as of expiration vertical spreads have variable payouts and binaries have all or nothing payouts. But it will also give a similar model though delta is a whole lot easier and honestly just as accurate for price estimation.

We will be using the delta model in a upcoming upgrade in the next couple months on the scanner to allow the user to not only have the price for the simulator but also time and even IV as parameters for calculating future binary price based on time, price and IV change (individually or any combination thereof)