BULL SPREAD EXAMPLE
European leaders are meeting to discuss economic policy, and you believe a positive outcome may shorten demand for gold.
In this example the underlying gold futures market is trading at around $1728.2, and you decide to trade a Bull Spread.
You believe the price of gold will fall in anticipation of positive news from Europe.
Gold (Feb) 1700.0-1750.0 (1:30PM)
This contract will expire at 1:30pm today.
You Sell because you think the gold future will be below 1728.0 at 1:30pm.
You select 3 contracts at the bid price of 1728.0. Each pip that the price moves is worth $1 per point.
Your Maximum Profit and Maximum Loss are displayed automatically.
In this trade, the 'floor' and 'ceiling' have been set at 1700 and 1750 respectively, which means:
The most you can make is $840; the most you can lose is $660*.
Your position will expire at 1:30pm.
The difference between Nadex's calculated expiration value and your opening price of 1728.0 will determine your profit or loss.
At 1:30pm, Nadex's calculated expiration value for gold is down at 1692.5
This is beyond the floor of this trade, so your profit is calculated against the floor level of 1700.
The difference between your opening price (1728.0) and the floor level (1700.0) is
Multiply 280 by the number of contracts (3) and the contract value per pip($1) to calculate your gross profit.
280 x 3 x $1 = $840*
At 1:30pm, Nadex's calculated expiration value for gold is up at 1748.0.
This is within the ceiling of this trade, so your profit is calculated against the settlement value of 1748.0.
The difference between your opening price (1728.0) and the settlement value (1748.0) is 200 pips.
Multiply 200 by the number of contracts (3) and the contract value per pip($1) to calculate your gross loss.
200 x 3 x $1 = $600*
Bull Spreads are simple derivatives suitable for traders looking for high leverage and hedging opportunities.
Step by Step Guide
An in-depth guide to placing your first Bull Spread trade, from the first step to the last.