How Spread Strikes And Widths Are Set And Nadex Spread Basics
Nadex spreads offer unique trading opportunities. A spread is a simple derivative of an underlying market, with a designated floor and ceiling level and an expiration time. Traders can enter any time after the spread starts and can exit before it expires.
Derivative means the price is derived from the underlying market, and Nadex offers spreads on stock indices, forex and commodities. The floor and ceiling level defines the lowest and highest points the spread can settle, which lets traders know their possible max profit and max loss before entering the spread.
The expiration time is the time the spread expires or settles, and the settlement price is based on the underlying market. They can last as long as 22 hours and 15 minutes or as little as two hours, depending on the expiration time. Nadex offers multiple spreads, at differing times and ranges, allowing traders to find spreads with the underlying market close to the floor strike or ceiling strike to help lower their risk.
Nadex provides new spreads throughout the trading day. There are differing widths on the spreads depending on the length of time until expiration. The longer the length of time till expiration the wider the spread will be. For example, below are the Nadex contract specs for the US 500, the 2 hour duration spread has a width range of 10.0, whereas the 8.25 hour duration has a range of 30.0.
The minimum increment of an underlying market whether it is tick or pip, is equivalent to 1 Nadex tick. On Nadex every tick is $1, so therefore a range of 10.0 would be a range of $100 and a range of 20.0 would be a range of $200 etc...
To view example 1 click here.
Also important to note is that daily spreads are wider. There will be one daily spread known as the master spread that will be the widest and trade from open to close. For example above is daily spread for 40.0, and another daily known as the master spread for 80.0, both of those worth $400 or $800 respectively.
In the image below (example image 2), three spreads are available. ON EUR/USD they are each 100 pips wide. The strike is set based on where the market is approximately 15 minutes before the spread begins to be availble to trade. So for example on a 100 pip wide EUR/USD spread from 10 PM ET to 12 AM ET there will be three spreads: one above the market, one below the market and one straddling the market.
Therfore, there will be one spread with the floor at the market price and a ceiling 100 pips above the market. A spread with a ceiling at the market price and a floor 100 pips below the market. And a spread that is 100 pips wide 50 pips above and 50 pips below the market. This allows traders a low risk opportunity not only at the beginning of the time the spread starts to trade but also should the market move, traders have the middle spread to use to get a potentially good trade with a low risk entry.
To view example image 2 click here.
When trading Nadex spreads, the closer to the floor or ceiling that a trader entesr, the lower their max risk. For example, if a trader is long, the distance between their entry and the floor is their max risk. Therefore, the closer a trader enters to the floor the lower their risk will be when going long.
To go short, the distance between the entry and the ceiling is the max risk. Therefore, the closer a trader enters to the ceiling the lower the risk will be. For long plays, the distance between the entry and the ceiling, would be the max profit, and for short plays, the distance between the entry and the floor would be the max profit.
Traders can enter and exit spreads anytime before expiration. To view all expirations on any market and filter down the spreads, traders can use the free Nadex Spread Scanner availble at http://Apexinevsting.com. Below (in example image 3) is a cutout from the APEX Spread Scanner showing the information listed out for each of the above charted spreads. APEX designed the spread scanner specifically to show all the Nadex spread information needed at a glance.
The spreads can be seen on the Nadex platform as well, the information is just listed differently for different objectives. In this example, the first line shows that for the spread EUR/USD 1.3780-1.3880 (10PM), the floor is 1.3780 the ceiling is 1.3880, the Nadex tick width is 100, it will expire in 58 minutes. Also notice at a glance, there is the bid ask price of 1.3871 and 1.3876, and that if bought, the max risk will be -96.9 and max profit would be 2.2. Which makes sense given that the current underlying market is very high and close to the ceiling already.
To view example image 3 click HERE
If one were to chart all of the Nadex spreads onto a chart for a specific market, there would be multiple floors and multiple ceilings running concurrently throughout the day, again allowing traders to find spreads with the underlying market close to the floor strike or ceiling strike to help lower risk.
APEX Investing Institute provides the Spread Scanner that shows all the pertinent details on all the spreads, of the underlying markets, Nadex offers.
This allows the trader to easily compare and decide which spread to trade depending on their strategy. With multiple spreads available to choose, and limited defined upfront profit and loss, spreads are great for traders looking for high leverage, hedging opportunities, and other trading strategies.
To find more information on Nadex spreads widths, strikes and time frames, just go to www.nadex.com, click on markets, then on stock indices, Forex or commodities, then contract specs. Once on that page, scroll down to the details for spreads on the various markets. For more information on how to trade Nadex spreads, or to utilize the APEX Spread Scanner free, just visit APEX Investing at www.apexinvesting.com.
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