The Expiration Of Your Beloved Binary: How Are Nadex Binaries Settled? Part 2
In the first article, we learned how Nadex figures the settlement value on your binary trade. We learned how they take the last 25 trades, drop off the highest five and lowest five and then average the middle fifteen.
You may think that one trader could just enter the market in the last millisecond and fire off his order to impact the price. This would take an insane amount of orders in order to have any effect on the settlement price.
Another way you are protected is by Nadex using Reuters data feed on forex and futures. Reuters is the standard. If you ever want to know the exact price at which your binary settled, you can see it posted at Nadex.com/results.html.
So how does all of this affect the expiration of your Beloved Binary?
Let’s look at Wall St 30 (Sep) 16910 (4:15PM)(01-JUL-14) for example. You were watching your charts, following the rules and decided that Wall Street was going down, so you sold one contract at 31. >When you look at the ticket, it shows your max profit ($31) and your max loss ($69), if you were to hold your position until expiration.
Remember, when trading on Nadex, you can always exit your position early in order to cut your losses, or to collect your profits. If the market goes in your favor, you can hold to expiration and collect $31. You can also decide on an amount at which you can take profit. Maybe you’re happy to collect $25 on this trade, so you’d set your buy price at $6 on your take profit trade ticket.
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It’s important to remember that when your binary trade settles, the payout may be $100, but that doesn’t include your fees. You also have to consider the money you put up to get into the trade and deduct that in order to arrive at your true profit amount.
So for this example, if you sold the contract at $31, your cost is $69 and, if you exit at $6, your payout would be $94. Therefore, in order to arrive at your profit amount, you would take $100 minus your cost -$69 equals $31. But you have decided to take your profit of $25 by exiting at $6 so that changes your payout to $94 minus your cost of $69 which equals $25.
A good trade because it was profitable and you followed the rules.
But what if the market moved against you? If you do nothing and leave it to expiration, you have lost the $69 in risk. The risk is capped though and no exit is required. Your risk will not grow and could come back.
But do you want to risk that much on this trade? You don’t have to do that.
You can exit earlier by figuring out how much you are willing to lose or risk on the trade should it go against you. When it moves that far, enter a trade ticket to cut your losses. This amount will vary by trader.
You can use tools available at www.apexinvesting.com that will help you limit your losses and protect your gains.
APEX offers free education, effective tools and a room community of seasoned as well as up-and-coming traders. Together in a supportive environment, along with tools to trade with ease and convenience, traders of all levels can learn how to trade Nadex binaries and spreads as well as futures, forex, stock and options, and gain an edge for successful trading overall.
To learn more about how to trade binary options in-depth and for binary options signals, trading strategies, tools and trade rooms see ApexInvesting.com.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
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