Bull Spread Example
The Fed is due to release its latest U.S. economic forecasts, and you expect these to be poor overall, leading to depreciation in the dollar.
The spot EUR/USD rate is the basis for our EUR/USD contracts, and in this example is trading around 1.2985.
You think the dollar will depreciate against the euro, in anticipation of disappointing economic forecasts.
You choose to trade our EUR/USD 1.2930-1.3030 (2PM) contract.
You opt to Buy as you think the rate will be above 1.2988 at 2pm.
You select 25 contracts at the offer price of 1.2988. Each pip that the price moves is worth $1.
Your trade's floor and ceiling are 1.293 and 1.303 respectively.
The most you can make is $1050; the most you can lose is $1450.*
Your position is now open and will expire at 2pm.
The difference between Nadex's calculated expiration value and your opening price of 1.2988 will determine your profit or loss.
At 2pm, Nadex's calculated expiration value for EUR/USD has risen to 1.3038.
This is beyond the ceiling of this trade, so your profit is calculated against the ceiling level of 1.303.
The difference between your opening price (1.2988) and the ceiling level (1.303) is 42 pips.
Multiply 42 by the number of contracts (25) and the contract value per pip ($1) to calculate your gross profit.
42 x 25 x $1 = $1050*
At 2pm, Nadex's calculated expiration value for EUR/USD has fallen to 1.2921.
This is beyond the floor of this trade, so your loss is calculated against the floor level of 1.293.
The difference between your opening price (1.2988) and the floor level (1.293) is 58 pips.
Multiply 58 by the number of contracts (25) and the contract value per pip ($1) to calculate your gross loss.
58 x 25 x $1 = $1450*
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.