By Darrell Martin
Nadex, the North American Derivatives Exchange, lists binaries and spreads for day trading. Spreads offer traders the opportunity to trade a range of a given market, long or short based on the floor and the ceiling of the spread. The great advantage of spreads is the capped risk. If the market passes through the floor or ceiling, the risk stops there, yet the trader may remain in the trade should the market turn around and pullback. This instrument presents unique opportunities for trade strategies, especially when trading scheduled news events when it is unknown which direction the market will go in reaction.
The straddle strategy has two spreads and is used when it is anticipated the market will make a big move in one direction. Wednesday, June 14, at 4:30 AM ET, three reports out of the UK will be released including:
-
Average Earnings Index
-
Claimant Count Change
-
Unemployment Rate
Based on previous market reaction, the straddle can be used for a possible big move, trading Nadex GBP/USD spreads.
The trade can be entered as early as Tuesday evening at 11:00 PM ET for 7:00 AM ET expiration. One spread is bought with a maximum risk of $20 and one spread is sold with a maximum risk of $20. The floor of the bought spread should meet the floor of the sold spread, and be where the market is trading at the time of entry. The advantage of this trade strategy is low capped risk and no stops necessary.
Take profit orders do need to be entered where the market would hit 80 pips above and below from where the market was at entry. For example, if the market moved up 80 pips after the news, at the 20 pip up point, the sold spread would be -20; the bought spread would be breakeven. At the 40 pip up mark, the sold spread would be -20, and the bought spread would be +20. Finally, at the 80 pip up point, the lower sold spread would be -20, and the bought spread would be +60. This would mean a net profit of $40 keeping the trade to a 1:1 risk reward ratio.
If one side profits and the take profit order filled, leave the other spread on. The market may pull back and the other side may profit as well.
For free day trading education, and free access to the spread scanner for at-a-glance spread choice with accurate and immediate execution, go to www.apexinvesting.com.