What They Are and How They Work

In this lesson you will learn:
  • The basic structure of a Touch Bracket
  • How Touch Brackets expire by time
  • How Touch Brackets expire by touch

A Nadex Touch Bracket is a contract which allows traders to speculate on a market’s price movement within a pre-defined range. This price range is capped on the bottom by the floor and on the top by the ceiling. Within this price range, the value of the contract will move in linearity with the movement of the underlying market. Just as with any type of trading, if you think the market is going up, you want to be a buyer. If you think the market is going down, you want to sell the contract.

Touch Brackets are a new type of contract and can expire in one of two ways, by time or by price.

The maximum duration of a Touch Bracket is one week. At the beginning of each week, Nadex will list four unique contracts for each market. Unless a bracket is touched out, as described below, the contracts will typically expire on Friday afternoon; however, holidays may impact the actual date. On the expiration date and at the expiration time, these contracts will expire and settle to the Nadex Indicative Underlying Index for that market. Any realized profit or loss will be determined by the difference between the level at which the contract, or contracts, were bought or sold and the expiration value of the contract.

The straightforward risk & reward profile of Nadex Touch Brackets

Expiration by price happens if either the floor or the ceiling are “touched” by the Nadex Indicative Underlying Index. A “touch” of the ceiling is defined as the price of the Indicative Underlying Index being equal to, or greater than the price of the ceiling. A “touch” of the floor is defined as the price of the Indicative Underlying Index being equal to, or less than the price of the floor. If either of these levels are touched, the contract is immediately expired at that price level. If you are the buyer of a contract, the floor defines your maximum risk and the ceiling represents your maximum profit potential. If you are the seller of a contract, the ceiling defines your maximum risk and the floor represents your maximum profit potential. If a contract is expired by the floor or ceiling being touched, a new bracket is created based on the level of where the previous contract was touched. Any new brackets created will have the same final expiration time as the original brackets created.

Of course, as with all Nadex contracts, you do not have to wait for expiration or for a floor or ceiling to be touched, but you can close your trade early to limit your loss or lock in profits.

 

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At this point you should understand:

The basic floor to ceiling structure of a Touch Bracket and the two means by which a Touch Bracket may expire.

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