Take profit order on spreads

#1

To set an early take profit on a spread, what price do we use, same as a binary? small cap 885-905 spread , sold @904.1 currently 904.

#2

No it is different than the binaries. A spread quotes like the market So you put the market price on the spread

Also there is two other factors to consider

  1. Distance to breakeven based on where price will be) - ie how much premium is in the spread - this becomes less the closer you get to expiration and the closer you get to the middle
  2. The Bid/Ask Spread (this can fluctuate a little. This can fluctuate a litttle but should not be more than 5 pips in most circumstances only time is during a fast market (ie flash crash/big news etc…). Some people complain about the bid/ask spread. Understand this is where the market maker makes their money. We want them to make money as they are making a market and we want them there to ensure we have liquidity of orders getting filled. They then can pass the risk off on another trade. The bid ask spread is the buffer zone for the market maker to have time to hedge off their risk. NOTE: Nadex does not make anything on the bid/ask spread they only make money on the exchange fees.

Examples

So right now the distance to breakeven is 1.2 - so lets say take profit was 895 –Then add the bid/ask spread (4 pips)- buy back at 895.4 (note subtract it if bought and selling to take profit) –There will be no premium as that is right in the middle

Say it is closer like 900 –Then set take profit at 901 + bid/ask spread being 4 pips so 901.4

Say your take profit is further - i.e. 888 –Note the 1 pt distance to breakeven gets smaller and smaller the further it moves to the center…THEN goes in your favor as it moves past it to the other side - so if it where at 888 then it would be quoted at 887 (so this is good for you) –So you could easily put in the take profit for 887.4 or 888.4 to be safe –Remember if the take profit happens closer to expiration the 1 pt distance to breakeven wont be working for or against you so you will be closer to the market.

Also make sure to look at the spread chart bid if trying tos sell to exit, ask if trying to buy to exit, this will let you know what to expect on the take profit at the moment. Look at ones that are in the last 2 hours of expiry and you will see the distance diminished.

Darrell