At the Trading Pub we are committed to connecting you to some great educators so you can see an impact in your knowledge and trading right away. In today's trading education our own Cam White shares more about the North American Derivatives Exchange (Nadex) where traders can trade directly with each other once they become members.
Cam shares more about the exchange and highlights some of the benefits of trading on the Nadex, as well as a couple of high probability strategies. We have included a brief summary of the class and the video for your reviewing convenience.
Some of the main takeaways from today's trading education include:
- What Are Binary Options
- The Nadex Exchange
- How To Get Started
- 2 High Probability Trading Strategies
- Excellent Resources
So what are binary options?
One of the most common and easy ways to explain what Binary Options are is that they are a Yes or a No trade. The value per contract is derived out of $100, so your risk is $100 minus the cost of purchasing the contract, practically making your absolute loss or gain at any given time $100. Probabilities determine the spread between potential profits or losses, as there are no market makers involved in the exchange.
There is a good example, described in the image below, using the gold market, which explains what those options really are. Binary options trading, however, can be applied to an array markets. As a trader if you have a bias and think a market will be moving in a given direction from a starting point, then you can trade a binary option using this opinion.
The Nadex Exchange
Nadex practically matches the buyer and the seller at the given levels and time frames. It is a very unique exchange, compared to any other binary options exchanges as it is CFTC regulated and you need no broker to trade. Nadex, is simply the platform that connects its members and facilitates each trade versus being the house and collecting any gains against traders' losses. It is now available to US residents, Canada, Mexico and the US territories. See the image below for some more general information about it.
How to Get Started?
How do Binary Options work?! You need to have a very strong sense of where the market is going whether it will be up or down. You also have to have a few good strategies to go along with your direction. Lastly, you can select the asset class you would like to trade. It can be Forex, Stock Indices, commodities and even events.
The next step will be to select from a number of different contract expiration options, such as hourly, daily, weekly. You should determine if you want to buy or sell and what price you are willing to pay for your option. The order can then be placed directly on the exchange. Once you have placed an order you can either close your position early or let the binary option expire based on how the market is looking at that particular time.
The fees for trading on Nadex are $.90 per contract, each side, and are capped at $9.00 even if you have traded more than 10 contracts. If a contract expires out of the money, there is no settlement fee.
In summary, the benefits of trading on Nadex include the simplicity of the Yes and No proposition that binaries offer. Further, the risk is limited to $100, no matter what. You can always set your risk/reward before you place a trade that way you can manage your trading goals and portfolio. The expirations are mostly short-term and that way traders can take advantage of market moves. There is practically no possibility for spikes, as the most you can gain or lose is $100. And remember, unlike any other binary exchange in the world, Nadex is subject to stringent regulatory supervision by the CFTC.
The 7:00 am EST DAX Strategy
The 7:00 AM hourly bar on the DAX is a pivotal point and generally sets the direction of the DAX market for that given day. With this knowledge you have the basis to place a short-term trade on Nadex best executed in the hours of 7-9am EST.
Some of the preparation steps include checking the economic calendar at www.Investing.com and then the Daily, Hourly and 15-5 minute Dax charts to see if there is a confirmed trend. Some of the preferred indicators that work well with the strategy include the 8 EMA (Exponential Moving Average), 50 Simple Moving Average, Slow Stochastic Oscillator and the 5 minute Ichimoku Cloud.
The execution of the strategy starts with choosing the closest in the money strike price. If you Buy the DAX, select the first strike price below the opening price of the 7am hourly candlestick. If you sell the DAX, select the first strike price above the opening price of the 7am hourly candlestick. If the economic conditions do not indicate an immediate signal for market confusion and danger check for a decent Nadex spread opportunity and risk-to-return. Place your Limit working order and wait to get filled.
The London Open Strategy
This trade is based on a successful Forex trading strategy and it is a great tool to gain advantage of the markets before you even go to work as it works best between 3-4 am EST.
The premise is to determine the daily market high and low, which according to this strategy, is established between the 2-5am EST times (when the London market opens). The opposite daily high or low will occur between the hours of 8am-2pm EST after the Opening of the New Your Market. One of the main rules to remember is that if you can’t find a well defined low or high by 5:00 am, you should avoid applying this strategy on that given day.
If you are wondering why does this happen, you should know that at 3:00am EST the London and the BOE open and it overlaps with the last hour of the Tokyo Trading Day. Due to this huge volume of transactions a noticeable bullish or bearish move is established. As a result a binary proposition is formed.
If you would like to learn more about Nadex, or how to trade Binary Options, please check out the free video library and learn why this may be an interesting new way for you to diversify your trading portfolio.
CLICK HERE to test drive Nadex with a free demo!
WATCH THE FULL VIDEO HERE:
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