Tired of Making Risky Trades?

Maybe it's time to investigate another kind of trading platform. With Nadex, the North American Derivatives Exchange, traders aren't simply risking their money with old gimmicks. Unlike many other trading vehicles, Nadex aims to provide its traders with a degree of security by offering limited risk contracts. “The thing we really strive for as an exchange is to appeal to both new traders to the market and to experienced traders who are looking for an innovative product,” Marisa Coleman, a Retail Sales Manager at Nadex, told Benzinga. “Let's say someone has a futures trade out there in the market, and oftentimes they have to put a stop-loss on that trade just to protect themselves. Nadex has a product called Bull Spreads. That trader could buy or sell a Bull Spread at the same strike as the futures trade yet strictly cap their risk. Their risk is simply the premium they pay for the trade up front.” In other words, Coleman says that “traders can be protected from losing more than they initially paid to get into a position by choosing to trade a Bull Spread. That way, if a trade goes against them, the trader's risk is capped without having to worry about putting a stop in the underlying market.” But hold on there for a second. Coleman also said that Nadex is for both new and experienced traders – doesn't every trading platform say that? “As a trader, I'm used to technical trading and listening to what's going on in the news. I then develop my trading strategy based on that,” Coleman explained. “So let's say I think that gold is going to take a big drop in the market and that gold is trading at $1,600 today. A new trader might know that they want to get into a trade, but might not know exactly how to protect themselves. Nadex products can help these traders choose the appropriate risk/reward ratio that fits their trading strategy.” The Nadex Difference When asked about some other things that set Nadex apart from the crowd, Coleman said that unlike other exchanges, Nadex accepts direct retail members with no membership fees. “The products offered on the exchange are unique limited-risk derivatives on stock index futures, commodity futures, spot forex and economic events,” she said. “Because all contracts are fully collateralized, there is no risk of being margined out of a position or losing more than members have in their account.” History in the Making Coleman started trading FX in March of 2008. At that time, she says that she developed a love for technical trading and options. “Now I focus on Binary Options and Bull Spreads at Nadex,” she said. “The heart of my business is institutional relationships. However, I have contact with direct retail traders every day.” Nadex (formerly Hedge Street) was formed in 2004 and was acquired by IG Group in 2007. “IG Group has since rebranded Hedge Street as Nadex and expanded the types of markets and contracts Nadex members can trade,” Coleman stated. “Our goals are to provide retail traders with innovative products in a transparent, regulated environment. Along with that mission, and particularly considering the volatility of today's markets, we hope to educate retail traders on understanding risk management and how they can utilize our limited risk contracts to participate in trading without facing margin calls or taking the chance of losing more than their initial investment as can happen in traditional, leveraged markets.” Inspirationally Creative “The inspiration for allowing individual retail traders to become direct members came from the identification of a unique opportunity to provide retail traders access directly to an exchange – something that did not exist elsewhere in the marketplace before Nadex,” Coleman said. “Many traditional futures and options contracts are designed with the institutional, large scale trader in mind. At Nadex, both the low cost of entry as well as the limited risk nature of our contracts means that retail traders can participate within their comfort level on a CFTC regulated exchange.” So how does it work? “The contracts offered on Nadex are valued at $1/point,” Coleman explained. “Most Nadex contracts' total value don't exceed $100. Since the contracts are fully collateralized, a member can buy or sell most contracts for under $100, instead of needing significantly more capital for more traditional futures.” Coleman said that Nadex's free two-week demo (which includes $25K in practice funds) was designed to give clients a feel for Nadex's proprietary platform and to see how the contracts are traded. “We encourage all clients to try trading a demo account before moving on to trade with real funds,” she said. “Nadex products are unique – they can be utilized by the most green trader, or implemented by an experienced trader for complex options strategies or to hedge a separate position in an underlying market. The contracts are all short-term and many have hourly expirations throughout the day and night. The potential trading strategies for these products are endless, and as everything is limited risk, traders can trade with the security of knowing they can never lose more than they have deposited in their account. We encourage those interested in trading Nadex products to test their strategies in a demo account.” Going All In – With a Degree of Protection Finally, Coleman took a moment to explain another reason why investors should trade with Nadex. “If a trader goes long in the Euro at 1.46 and uses a stop at 1.4550, assuming the stop order is filled at the stop price, he can lose 50 points and he is out of the trade,” she said. “Let's assume 30 minutes after the stop is hit, the market rallies and hits the profit target, it doesn't do any good to the trader because his position has been liquidated. “If instead the client had purchased a Nadex EUR/USD 1.46-1.47 Bull Spread and paid 1.4610, the cost to the buyer is $10 per contract (Entry 1.4610- Floor 1.46= 10 points). Given the same scenario, if the market sells off to 1.4550, the Nadex trader's total exposure is still $10, and he is still in the trade. Assume the market rallies 30 minutes later, the trader is able to liquidate at his limit price as long as it is within range of the floor and ceiling. Note: this trade has a max net profit potential of 90 points (Ceiling 1.47-Entry 1.4610= 90 points).” Interested traders can learn more by visiting Nadex.com. Follow me @LouisBedigian