Spread Basics (Part Of A Series)

In many of the articles you see here, Nadex Spreads are often mentioned. You probably have noticed the suggestion to use them when trading certain News Events when setting up an Iron Condor strategy. The purpose of this article is to clarify and solidify what a spread is in order to help you use it to your advantage when trading.

What are Spreads?
Spreads are short-term contracts based on an underlying market. The floor and ceiling levels on Nadex Spreads define the lowest and the highest points at which the trade can settle. You can trade spreads with low collateral knowing your maximum potential profit, and loss, from the moment you enter the trade.

Binaries or Spreads?
Trading Binary options seems to be all the buzz right now, but spreads are where the long-term game plan is really located. The truth is that spreads are easier, work better and are a lot less frustrating to trade. Spreads are unemotional. There is plenty of profit to be made in trading them. Spreads are a little bit harder to understand, but they are easier to trade. Binaries are easier to understand and a lot harder to trade.

“But I’m risking more money when I trade spreads!”
Not really! When you are trading binaries and you risk $85 to make $15 on a tenth of a tick settlement value, you are risking a lot! On spreads, just because you have to put up more money does not mean you are risking more. If you are going for 10 ticks of movement, and you win, you are going to make $10. In the image below, look at the bid offer spread. It is only one to two ticks wide.
218s_image1 http://screencast.com/t/fg9n9zR490