Nadex binaries, spreads, options, futures, CFD’s, forex, even stocks are all derivatives.
A trader is either a speculator (meaning they are trading that a market will rise, fall, or stay flat. A speculator provides liquidity to other traders, to hedgers, and attempts to make a profit from a directional move (or neutral price action) in the market.
A hedger is a commercial company hedging exposure with commercial interest. Whether it be a farmer hedging by locking on profits on a crop, a cereal company hedging the cost of corn for corn flakes, or a international business hedging currency conversion risk.
Most trading is done for the purpose of speculation (ie most futures contracts are not taken to expiration). The trader may be directional, may be spreading against another future or even against options etc…
The original reason for the futures market was to bring together commercial buyers and sellers. They did this using a “contract” a price of an agreed upon delivery at a certain grade level by a certain date. With this creation came the introduction of traders trading those contracts which added liquidity and allowed for them to speculate on price movement.
The majority of the volume on forex is commercial and bank transactions. The retail trader really has little to no impact on the liquidity of these transactions. They may be speculating they may be hedging. Most retail FX is counter the broker with little or no other traders involved.
Options markets exist as both speculating and hedging instruments. They are no more for the buyer than they are for the seller they are equally for both as for there to be a buy there has to be a sell in all instruments. They may be doing a bought call. They may be buying a put to hedge a stock. They may be selling a call to potentially bring in income on a stock they own or just short a put to make the same income. They may combine optoins in well over 75 different strategies to make money in a variety of market conditions.
Binaries similarly are speculating instruments that may be used in a variety of methods for directional or neutral trading and can even be used as a hedge instrument agains other binaries, spreads, options, futures, and forex.
Regarding no option to exersice. It is exercised automatically at expiration at the settlement value and exercised into a cash settled position. Just like a index future on the CME. If you hold ES to expiration you are not delivered the 500 stocks of the S&P you are simply cash settled at your entry versus the settlement price. This is no different than a binary at expiration it is settled and auto exercised into a cash settlement.
You roll as a retail trader whether it be binaries, futures, forex, options, CFD’s, etc… is that of mainly a speculator or a hedge of another speculation position (speculating long/short or neutral). This adds liquidity for other traders to do the same. Volume increases and so do market makers. Market makers come in and compete when volume arrives. This drives down the cost of bid/offer spreads.
