The 4 Parts Of A Nadex Binary Option Contract
It’s important to understand Nadex binaries have four simple key components.
Here's an example of a binary contract and its four key components:
Gold (April) > 1335 @ 1:30 PM 19th of March 2014 (Bid 48/Offer 52)
1) Underlying Market: Gold (April)
2) Strike Price: > 1335
3) Expiration Time & Date@ 1:30 PM March, 2014
4) The Buy or Sell Price Of the Binary: Bid 48/Offer 52
Let's break this down as follows:
1) Underlying Market: The underlying market is the market the binary contract is based upon.
Nadex has binaries contracts based upon U.S. and International Future Indices, Commodities on Futures Exchanges, and on Spot Forex Pairs.
Binaries that follow futures markets will also be assigned to a specific futures month contract. Examples of markets covered are the Dow, the S&P 500, the FDAX, the SGX Nikkei 225, Gold, Crude Oil, EUR/USD, USD/JPY and more.
2) Strike Price: That is the price you believe the underlying market will be above or at/below by the expiration time. There is a binary price ladder, also referred to as an option chain, that will have between three and 21 strikes available per expiration time, depending on the market and the expiration time. The width between strikes is set for each market and each expiration time.
If there are 21 strikes for a binary's expiration time, there will be one strike at the price right before that binary strike's expiration time starts trading, with 10 strikes above the market and 10 strikes below the market to choose from.
3) Expiration Time: This is the time when it will be determined if the underlying market is above or below the strike price. There are up to 29 various expiration times throughout the day on Nadex binaries. Nadex binary markets open at 6:00 pm on Sunday and trade as late as 5:00 pm each day. This allows for trading up to 23 hours a day, depending on the day of the week and the market being traded.
4) The Buy & Sell Price Of the Binary Contract: The price of a Nadex binary will be between $0 and $100 per contract. The price of the binary is the reflection of the probability of that binary expiring above or below the strike. The bid is the price you can sell the binary for, and the offer is the price you can buy the binary for.
The difference between the bid and offer is the bid offer spread. The bid offer spread is often what is made by the market maker.
Nadex is an exchange; they are not the counterparty and they are not the market maker. You can also make your own market by placing an order inside the bid offer spread. You may get filled by another trader or place it at the market bid or offer for an immediate fill. You can buy first and then sell or you can buy and hold to expiration. You can sell first and then buy back or you can hold to expiration.
To see examples of trading on Nadex binaries and spreads, see these articles posted on Benzinga, click here.
To learn more about how to trade binary options and for indepth binary trading strategies, tools and trade rooms see ApexInvesting.com
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