How to Trade Nadex Spreads

Nadex spreads let you trade a trending market with limited risk and staying power

 

Built-In Floor and Ceiling Price Caps

With Nadex spreads, you can trade all market conditions, within a limited price range. Whether you are bullish or bearish, the contract's floor or ceiling always limit your risk

Every trade has built-in protection from sudden price spikes.

Buying Time for the Trade to Profit

Instead of getting stopped out when the market turns against your position, your spread will stay at the minimum value. If and when the market turns profitable again, you are still able to profit.

You get the protection of a stop-loss, without getting stopped out.

Tick-for-Tick Price Changes

Unlike binary options which are priced as a probability, Nadex spread prices move in greater linearity with the price of the underlying. Within the range of the spread, when the underlying market moves up or down, the spread value moves with it.

 

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1. Choose your market and expiration

First, log into the Nadex platform. At the top of the page is a blue Login button. Enter your username and password. We recommend Chrome or Firefox. Remember that you can trade Nadex spreads on the go using our mobile platforms, too.

The Nadex desktop and mobile platforms make it easy to select markets. Whatever your trading style— technical analysis, fundamental research, or trending news—the platforms are robust and adaptable.

Chart traders will like the real-time charts, technical analysis and drawing tools, plus popular indicators.

Look in the Finder panel on the left. Press the Finder button at the top if you can’t see it.

If you know what market you want, start typing its name in the search box. Or browse the list of markets including stock index futures, commodities and currencies, with their expirations and price ranges. You can also use our pre-made watch lists or create your own.

2. Pick your position and price range

Let’s say you decide to trade the Nadex spread based on the price of Crude Oil. With crude oil futures trading around $44 a barrel, you believe prices will rise. 

From the finder you select Crude Oil - Daily, and from Markets you pick the Crude Oil (Jun) 43.00 - 48.00 spread, expiring at 2:30. If the market drops below 43.00, your risk is capped at $100. Above 48.00, your profit is capped at $400. The spread's total value is $500, with price moving $1 per tick.

Nadex spreads are straightforward. You trade the direction: buy if you think it's going up, sell if you think it's downtrending. Your risk and reward are limited to the $43-48 range. You're not predicting that crude will end up somewhere between $43 and $48. You're trading price movement within that range.

You decide to buy Crude Oil (Jun) 43.00 - 48.00 (2:30PM). Your maximum profit will be at 48.00.  Your maximum loss will be at 43.00. You won't lose more if the price goes below 43.00.

3. Place your order

On the order ticket, you click buy. The offer price gets filled into the Price box. You can adjust this using the arrows or by typing another value. 

Your max loss and profit are shown to you. You can enter different prices and see their risk/reward ratios. The bid and offer sizes show the open interest.

Remember, Nadex will never take the other side of your trade. You are trading with other members.

Enter the number of contracts in the Size field. Let’s say you decide to buy 1 contract at the current offer of 44.00. Your maximum loss would be $100.00 and your maximum potential profit is $400.00, with $1.80 in combined fees.

When you’re ready, click Place Order. You will have a working order. Once you are matched with a seller, that working order will turn into an open position.  

4. Manage and close your spread trade

You can see your real-time profit and loss under Open Positions. You can wait until the spread expires at 2:30PM Eastern or close at any time before.

Take profits early or cut your losses rather than risk taking the maximum $100.00 loss. If you take profits early, you may miss out on the full $400.00 max profit, but as they say, you can’t lose money taking a profit.

You defined your maximum risk and reward before you entered and now you can make decisions within that range. It’s a different way of trading.

Remember that if the price goes way below 43.00, you stop losing money but you don’t get stopped out. If the market spikes down to 30.00 and then popped back up to 44.00, your P/L would have only dropped by $100, and you would still be in the trade. With Nadex, you get staying power.

 

Your trade will end one of three ways:

Expiration in the Range

You wait until expiration and the market is between 30.00 and 35.00. Your profit or loss will be the difference in dollars between the closing price multiplied by 5 for the five contracts you traded. This is similar to how P/L is calculated in forex, stocks, or futures.

Expiration Outside the Range

You wait until expiration and the market is outside the range. If the underlying market is above 35.00, your profit is $2000.00. If it’s below 30.00, your loss is $500.00. Remember that you saw that maximum profit and loss displayed on your order ticket before you placed the order.

Exit Early to Take Profits or Cut Losses

You exit early. If the market is outside the range when you exit, the same rules as #2 apply. If the market is within the range, your profit or loss will be the difference in dollars between the bid price at which you exit and where you bought at 31.00, multiplied by 5 for the five contracts you traded.