Nadex Underlying Markets

In this lesson
  • What markets are Nadex binary option and spread contracts based on?
  • Why do binary options and spreads often have a month in the contract name and what does “lead month” mean in a futures contract?
  • Where can you find the contract specifications for each Nadex underlying market?

As you learned in the first module, Nadex is a derivatives exchange. That means the price and settlement of every Nadex contract is tied to the price of an underlying market. This market may be a futures contract, such as a stock index or commodity like gold or oil. It might be the spot exchange rate between two currencies. It might be the current price of Bitcoin or a number in an economic report like weekly jobless claims.

Because the price of the underlying market is what determines the value of the binary option or spread, you do your trading analysis, whether technical or fundamental, on the underlying market. This is great news, particularly if you have previously traded any of those markets. You can use the same analysis methods, even the same indicators that you are used to. The only new thing you need to learn is how binary options and spreads move with those markets and how you can use their unique limited-risk nature to your advantage.

Nadex offers binary options and (in some cases) spreads on stock index futures, forex, commodity futures, economic events, and Bitcoin. 

Stock Index Futures

Nadex offers contracts on many of the most heavily-traded stock index futures. A stock index represents a group of the most heavily traded stocks in a particular category, like the 30 largest industrial companies (Dow®), or the largest tech firms (Nasdaq®) and reflects the movement of the market as a whole, rather than one company. Futures contracts are simply contracts between two parties to make a sale at a future date and time at a price they agree to earlier. Futures are traded on centralized exchanges and their names include the month of the contract.

To make things easy, the Nadex contract also shows the month. For example: US 500 (Sep) >2094.8 (4PM)

That ensures you are doing your analysis on the same month contract as the Nadex option you are planning to trade. The free real-time indicative price charts on the Nadex platforms (see Risk Disclosure PDF) will show you the correct month.

Nadex offers contracts on both U.S. and international stock indexes. 

 

US Stock Indices

Nadex Product Underlying Market Lead Month
Wall Street 30 CBOT E-mini Dow Futures Mar, Jun, Sep, Dec
US 500 CME E-mini S&P 500 Index Futures Mar, Jun, Sep, Dec
US Tech 100 CME E-mini NASDAQ 100 Index Futures Mar, Jun, Sep, Dec
US SmallCap 2000 ICE Mini Russell 2000 Index Futures Mar, Jun, Sep, Dec

International Stock Indices

Nadex Product Underlying Market Lead Month
FTSE 100 Liffe FTSE 100 Index Futures Mar, Jun, Sep, Dec
Germany 30 Eurex DAX Index Futures Mar, Jun, Sep, Dec
Japan 225 SGX Nikkei 225 Index Futures Mar, Jun, Sep, Dec
China 50 SGX FTSE Xinhua China A50 Index Futures Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct, Nov, Dec

Currency (Forex) Markets

Unlike the futures markets which are traded on a centralized exchange, currencies are traded on the spot (also called cash) market, which has no centralized exchange. Currencies and their associated Nadex products do not have contract or lead months like futures do.

Nadex currently lists contracts on 10 of the most heavily traded currency pairs.

 

Currencies

Nadex Product Underlying Market
EUR/USD Spot EUR/USD rate
GBP/USD Spot GBP/USD rate
USD/JPY Spot USD/JPY rate
AUD/USD Spot AUD/USD rate
USD/CAD Spot USD/CAD rate
GBP/JPY Spot GBP/JPY rate
USD/CHF Spot USD/CHF rate
EUR/JPY Spot EUR/JPY rate
EUR/GBP Spot EUR/GBP rate
AUD/JPY Spot AUD/JPY rate

Commodity Futures

Nadex offers commodity binary options and spreads in metals, energies and agricultural products. Commodities are a variety of goods which are extracted, mined, or grown and ultimately used or consumed. The markets are vast because commodities are a part of daily life for everyone. Futures contracts are simply contracts between two parties to make a sale at a future date and time. Futures are traded on centralized exchanges and their names include the month of the contract.

To make things easy, the Nadex contract also shows the month. For example: Crude Oil (Apr) >45.00 (2:30PM)

That ensures you are doing your analysis on the same month contract as the Nadex option you are planning to trade. The free real-time indicative price charts on the Nadex platforms (see Risk Disclosure PDF) will show you the correct month.

 

Commodities (Metals)

Nadex Product Underlying Market Lead Month
GOLD COMEX/NYMEX® Gold Futures Feb, Apr, Jun, Aug, Dec
SILVER COMEX/NYMEX® Silver Futures Mar, May, Jul, Sep, Dec
COPPER COMEX/NYMEX® Copper Futures Mar, May, Jul, Sep, Dec

Commodities (Energies)

Nadex Product Underlying Market Lead Month
CRUDE OIL NYMEX® Crude Oil Futures Every calendar month
NATURAL GAS NYMEX® Natural Gas Futures Every calendar month

Commodities (Agriculturals)

Nadex Product Underlying Market Lead Month
CORN CBOT® Corn Futures Mar, May, Jul, Dec
SOYBEANS CBOT® Soybean Futures Jan, Mar, May, Jul, Nov

Bitcoin

In addition to futures and forex, Nadex also offers trading on Bitcoin. More precisely, Nadex offers a derivative of the price of Bitcoin. You don’t have to run computer programs to “mine” bitcoins or trade the actual digital currency. Instead, Nadex Bitcoin contracts are based on a globally trusted standard, the Tera® Bitcoin Price Index.

Events

When events happen in the news, a lot of people discuss how the markets might or did react to the events, whether they involve monetary policy or economic developments. When the Federal Reserve meets or the latest employment numbers are released, various analysts and pundits give their predictions about what stocks or other markets will do.

What the market actually does, however, may not correlate with the news. A great jobs reports can be met by a stock selloff one month, while a dismal number might be followed by a rally the next. Nadex Event Binary Options let you trade the event itself—the actual Fed Funds rate, jobless claims number, or nonfarm payroll.

Unlike other market-based contracts, event binaries aren’t based on a moving price. There is only the number released by the source agency. If the number is higher than the binary’s strike price, the buyer gets $100. If the number is equal to or lower than the strike price, the buyer gets zero and the seller gets the $100. In other words, you buy or sell the idea that the number will be above a certain level. (Note: for the Fed Funds Rate binary, the buyer gets $100 if the number is lower than the strike price.)

 

Event Contracts

Nadex Market Underlying Release / Source Agency Settlement Date
Fed Funds Rate Target Fed Funds Rate / FOMC Last day of FOMC meeting
Jobless Claims Jobless Claims / Department of Labor Day of ETA release
Nonfarm payrolls Nonfarm Payrolls / Bureau of Labor Statistics Day of Bureau of Labor Statistics release

Contract Specifications

Each underlying market has its own tick size, tick value, minimum tick increments and position limits. Below are all the Nadex contracts and the pages that list their individual specifications.

 

Contract Specifications

 

At this point, you should be familiar with:
  • The underlying markets Nadex lists contracts on
  • What a “lead month” is in the futures world
  • Where to find the contract specifications for each Nadex underlying market

 

How well do you know Nadex Underlying Markets?

You Scored:

 

Next Lesson