Despite the panicked headlines, the “limit down” drops in stocks, and David Cameron’s tears at the result of a referendum he called, some traders are calm and profiting amid the Brexit chaos. They’re not all at Nadex, but here’s what we can learn from those who are.
By Vikram Rangala
Friday, June 24, 2016
As I write this at 10am Chicago time, our new member specialists, member support staff, and even some managers are all on the phone and I keep hearing “Brexit,” “volatility,” and “limited risk.” The first two words you’ll hear almost anywhere in the world today. The third phrase, “limited risk,” is one that traders and investors don’t hear enough. But you hear it non-stop at Nadex, because we think it’s the key to successful trading.
Since we’re an exchange that lets members trade directly instead of through brokers, we field many of the same questions stock, forex, and futures brokers are fielding this morning all over the world:
- Is this a good time to trade the euro/pound/Dow/soybeans? (Yes, yes, yes, and yes.)
- Could stocks go lower? (They could.)
- When will this Brexit stuff be over? (When your grandchildren graduate—on Mars.)
However, we’re not getting some other kinds of calls which, sadly, too many ordinary investors are making today. We haven’t once had to talk about any of these things:
- The unexpected loss a member took on a trade. (They know their maximum possible loss up front and can’t lose more than that.)
- Margin calls to traders who lost more than they had in their accounts. (Nadex doesn’t issue margin calls. We don’t need to, because all trades are fully collateralized, not leveraged.)
- Traders getting stopped out of positions. (At Nadex, your loss can go to the predefined maximum, but you remain in the trade. If the market comes back, you can still profit.)
If you trade on Nadex, you never get a margin call, you never lose more than you were prepared to lose or more than you had in your account, and you never get stopped out.
We don’t mean to brag while so many people are going through a very rough day. The world’s markets are taking some big hits. Some people are profiting—there were a lot of put options on pound and stock index futures out there—but regular folks can’t take the kinds of risks a big bank can.
Waves that barely budge a supertanker can capsize a little rowboat. And that’s kind of why Nadex exists.
Once you remove the threat of margin calls, devastating losses, and getting stopped out of the trade, you can focus on the actual trading. You can analyze the trend, the ebb and flow of volume, the price levels the market finds significant. You can analyze without having to worry about how much you might lose. You’ll know, to the penny, how much you could lose—before you place the trade.
Successful traders will tell you that risk management is probably more important than being able to predict market direction. The old rule is “take care of your losses and the profits will take care of themselves.” To some extent, you can do that kind of risk management no matter where you trade. The difference with Nadex is, risk management is built in for you.
And you can start small at Nadex. Not many people looked at today’s news and thought, “Today looks like a great day to start trading!” But we’ve been opening new accounts and watching members make their first trades all morning. Some have even sold binary options and spreads on the GBP/USD forex rate.
How many newbie forex traders would dare short the pound if today was their first day trading? Not many. But if you knew your risk was less than $100 a contract, guaranteed, you could. The volatility that is frightening the world today is great for limited-risk trading. Today is a great day to start trading—if you have the right conditions.
We hope more people will embrace the idea that they have a right to limited risk when they participate in the markets. Without a level playing field, a free market is hardly free. Our products are called binary options and spreads, but what we really offer is that idea: that everyone should be able to participate in the markets, even on a day like today, with the protection of limited risk on a regulated exchange with transparency and no high-frequency shenanigans. At Nadex, we guarantee you that.
That’s why we get so excited about how calm things are at Nadex.
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.