The E-mini S&P 500® stock index futures are popular among day traders and swing traders. In the past, large institutions used the "spoos" to hedge their stock portfolios against market dips. But the $50,000 margin requirement was prohibitive for individual traders.
More recently, the E-mini S&P 500 futures contract with its roughly $500 margin requirement made day trading stock index futures accessible to individual traders. But even the E-mini has downsides:
- Relatively high minimum account balance
- Potentially large risk exposure
- Possibility of margin calls
- Need stop-loss orders or option strategies to manage risk
Nadex binary options and option spreads offer a new, possibly better way for individual traders to day trade the S&P 500® and other US and international stock indices, with a low opening balance requirement and built-in risk protection.
What is a stock index like the S&P 500® and why trade it?
A stock index is a weighted average reflecting the value of the 500 largest US corporations. Often called the “big index,” it covers multiple sectors and a broad cross section of the economy.
When you trade an stock, that individual company could run into trouble—a lost contract, mismanagement, or competition—even as the overall market thrives. Trading the index lets you take a position on the overall sector or market.
Nadex is designed for day trading stock indices like the S&P 500®
Nadex binary options and option spreads are designed for trading short-term moves in markets like the S&P 500®, which can go through alternate phases of being volatile one day and quiet and range-bound another. With durations from 20 minutes to one week, these contracts let you trade without worrying about some of the downsides associated with futures trading:
- Minimum opening balance is just $250
- All binary options cost less than $100 each
- You set your maximum possible loss and profit before each trade, so you never lose more than you planned for
- You don’t need a stop-loss and you can never get a margin call
How to hedge your portfolio using Nadex binary options and spreads on the S&P 500®
Banks, funds, and investors use stock index futures to hedge against downturns in their stock portfolios. If are a buy-and-hold investor you can use Nadex to do something similar.
Hedging means making a trade that will gain value if the S&P 500® drops. That way, the loss in your stock portfolio is offset somewhat by gains in your other short-term trade. Some traders short-sell index futures or buy put options.
Nadex traders can sell binary options and options spreads on the S&P 500® or other indices . You can use a variety of strategies, like selling out-of-the-money binaries or spreads. In fact, you can hedge positions in many markets, including crude oil futures (see the video).