You feel confident a particular market is going to close above a certain price by the end of the day, but you don't have time to monitor the trade. Or maybe you don't want to set a stop-loss order that might get triggered while you're not looking. Maybe leaving a futures order on autopilot is just not your style. What if you could still trade that day's price action without any of those problems?
By Vikram Rangala
Monday, August 22, 2016
What if you could, for example, guarantee that your maximum loss per contract would be no more than a fixed amount that you choose, an amount less than $100 per contract?
And what if, no matter how far the market moved in the opposite direction, you could never get stopped out of the trade?
In other words, even if you hit that maximum loss amount, you'd still be in the trade, ready to profit if and when the market came back?
And what if you could set all of these values at the start of the trading day, leave the trade running all day, and check it after the close, knowing that you would only have one of two possible outcomes:
- You profit and receive an amount that you knew precisely in advance.
- You lose the exact amount that you decided in the morning you were prepared to lose.
That's it. No surprises, no other possible outcomes to the trade. Either you get a profit that you knew about in advance, or you take a loss that you knew about in advance.
That means you don't have to deal with some of the issues traders on other exchanges might face. You will never get a margin call on Nadex, for example. We don't do margin calls, period. Why not? You set your maximum loss up front, and you never can lose more than you have in your account.
That kind of certainty leads to something every trader can appreciate: peace of mind.
Sure, you can still lose money trading on Nadex. This is real trading, after all. But you can't lose more than you decided you were prepared to lose when you put on the trade. You can't lose more than you already have in your account.
Let's look at a quick example: last Friday, August 19th, the EUR/USD forex contract. (Click on the chart image to open it to full size.)
Let's say you started the day sipping your morning coffee and you saw that big overnight drop to 1.13060 and you saw what might be a bottom. Based on your analysis, let's say you felt that the market would recover during the day and end up higher.
Sure, the market might continue lower, but you were prepared to risk being wrong and you knew that with Nadex binary options, you can set the exact price of that risk yourself. You decide how much you're willing to pay for being wrong.
And you saw that at that moment, with the market at 1.13160, the binary option for the 1.13199 strike price was pretty cheap. If it expired at the money and gave you the full $100 payout, you'd get a nice reward for a fairly low risk.
But, since you've traded before, you know that it's possible to be right about where the market is going to end the day and still get caught up in a choppy market, take losses when your stops get hit, and be stuck on the sidelines when the market finally proves you right.
On Nadex, however, the choppy market can't do that to you. You might lose the full amount you paid to enter the trade, but no more. And even if your binary option's value went to zero (meaning the maximum loss) you still are in the trade. You don't get stopped out. So if and when the market chops back upward, you're still in a position to profit.
As it turned out in this example, the market did close above 1.13199 at the end of the day, Friday August 19th. Your binary option would have paid out the full $100 value. If it had not, you would have lost the amount you paid, but no more.
Do you see how this might make it easier for you to just place your limit orders in the morning (or buy at the market) and not bother to check again until the end of the day?
We're not saying you shouldn't monitor the trade. You can do it easily on your phone with our Nadex mobile platforms for iOS and Android. But you don't have to spend the day worrying or checking every ten minutes or, perhaps worst of all, second-guessing your decision because you're now afraid of losing money.
Of course, on Nadex you can exit the trade at any time before expiration if you want to. But the capped risk nature of binary options gives you greater confidence and flexibility. You can set it and forget it if you choose to, knowing precisely what the risk and reward could be.
Set it and forget it? It's not the only way to trade or even the best way to trade, necessarily. But the fact that Nadex makes it a limited risk and reasonable choice shows that you really do have choices. Nadex binary options may just be a better way to trade your way.
This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.