Trading Spreads Instead Of Binaries On News
Binaries seem to be all the rage for traders these days. Trading binaries on a U.S. based CFTC regulated exchange such as Nadex is definitely the route to go when trading them. Another kind of instrument offered by Nadex is spreads. Spreads, unlike binaries, are not all or nothing at settlement. If the market closes 1/10th against the strike on a spread, all is not lost like when trading a binary. On a spread, if the market is one tick or pip against the trade, it is only $1 in loss or $1 less in profit when trading one spread contract. Spreads have a floor and ceiling, which mark the bottom and top of the range of the market that can be traded long or short. Risk and reward is kept to that range.
Friday, multiple news reports on U.S. Personal Spending, Income and Core Personal Consumption Expenditures will be released. This news can be traded using Nadex EUR/USD spreads. Typically, with this kind of news the market will make a move and then pull back. Buying a spread below the market and selling a spread above the market is a trade ready to profit when the market pulls back to center and settles between the spreads.
The bought spread’s ceiling should be where the market is trading at the time and the sold spread’s floor should be where the market is trading at the time. For this trade, based on the average move the market makes after the news is released, each spread should have a profit potential of $12 or more for a combined profit potential of $25. If this seems low, remember more contracts can be traded, as long as both sides of the trade have the same number of contracts. The trade can be entered at 7:00 AM ET with an expiration of 9:00 AM ET.
The spread scanner is the ideal browser platform for finding the right spreads. If all the above seems complicated, then just use the spread scanner. A filter feature narrows down all the EUR/USD spreads expiring at 9:00 AM ET. Then, risk/reward columns for selling or buying the spread show the reward potential. Simply find a spread to sell and to buy with the right reward potential. Click the order ticket to open it, verify all the floor and ceiling information and reward potential once again and place the trade. It’s that easy. Below you can see the columns in the image of the scanner.
To view a larger image click HERE.
If the market settles anywhere in between the breakeven points of the trade, which for this trade are 25 pips up and down, then the trade makes some profit. Max profit is when the market is right between the two spreads at settlement. If the market takes off and doesn’t make a pull back, then there should be stops in place to keep the risk even more in check than the floor and ceiling of the spreads. The 1:1 risk/reward ratio points are 50 pips above and below from where the market was at entry. With this trade, the market has a 50-pip range it can settle in and make some profit.
For free access to the spread scanner and free education on how to trade spreads and binaries, visit Apex Investing.
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