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Discover a product set that:
• Allows you to trade in very small size (risking no more than a few dollars)
• Gives you the security of trading on a CFTC-regulated US derivatives exchange
• Caps your risk under all circumstances
• Provides you with multiple trading opportunities every day, no matter how quiet the markets are
Nadex – Multiply Your Trading Opportunities, Limit Your Risk
Futures trading and options trading involve risk, which may result in financial loss, and are not suitable for everyone. Any trading decisions that you may make are solely your responsibility. The trading activity and other information presented herein are for informational purposes only. The contents hereof are not an offer, or a solicitation of an offer, to buy or sell any particular financial instrument offered on Nadex.
• Nadex, the North American Derivatives Exchange, is a retail-focused futures exchange subject to regulatoryoversight by the CFTC
• We offer easy to understand contracts which expire on very short time horizons (hourly, daily and weekly) andhave a very small notional value (as little as $100)
• Our contracts are based on the world’s major stock market indices, FX rates, commodities and economic events
• No other regulated exchange offers a product set like ours. Nadex’s unique contracts are designed to combinesmall size and limited risk with a high degree of price action
• Nadex traders get the best of both worlds: multiple real-world trading opportunities combined with an absolutecap on risk
About us
• We offer two classes of product: Binaries and Bull Spreads
• Both these classes of products have been designed to comply with the following core principles:
About our product set
Intuitive pricing. Our Binary prices can be thought of as percentageprobabilities of market events occurring. Our Bull Spread prices arereferenced to the underlying market, not to net premiums
Very small contract size. The notional sizes of our contracts can beas small as $100, allowing you to scale in and scale out of positionswith high precision
Strictly limited risk. You can trade most of our contracts withcollateral of less than $100, and you can never lose more than thecollateral you have put down
• Simple, easy-to-understand “yes”/“no” propositions, e.g. “EUR/USD to be greater than 13000 at 3pm ET”
• Intuitive pricing. At any point the price of a Binary is simply the market’s perception of the percentage likelihoodof the contract settling as a “yes”
• Very small contract size. At expiration each lot settles at $100 for a “yes”, $0 for a “no”. The maximum collateralrequired is always less than $100 per lot, often much less. And you can never lose more than your collateral
• Strictly limited risk. At no point can the contracts be priced outside the range 0-100, regardless of volatility inthe underlying market. You always know your absolute worst case risk for any position you take, regardless ofwhether you are going long or short the contract
• Markets are open right up until the moment of expiration, allowing you to place orders to enter and exit a givenBinary position multiple times as the market moves. Even though the contracts have an “all or nothing” payout,you are not restricted to an “all or nothing” trading strategy
How do our Binary contracts work?
What factors make Binaries so compelling?
Binaries are intuitive – the Binary price is simply the market’s view on the percentage probability of a given outcomehappening
Because of this, Binaries can multiply the size of price action in a quiet market
If a Binary is at-the-money as expiration nears, small moves in the underlying can create large percentage swings inthe price of the Binary
Despite these large swings, the design of our contracts means your risk is always known and strictly capped. Youare always in control of your exposure
The following example illustrates this effect
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A hypothetical example: “EUR/USD to be above 13000 at 3pm ET”
The charts on the right show a hypothetical example of price action for spot €/$, and a Binary based on spot €/$, during the 20 minute run-in to the Binary’s expiration
13000
0
10
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A
B
C
D
Spot €/$ Rate
Binary Price
As spot €/$ moves through the strike price of the Binary (13000, shown as the thick red line in the top chart), the price of the Binary changes dramatically
• From point A to point B, €/$ rallies by 0.18%
• The Binary rallies from a price of 4 to a price of 82, a 2000% increase in price
• From point B to point C, €/$ falls by 0.09%, back through the strike price
• In response, the Binary price declines by 83%
• From point C to point D, €/$ edges back up by 0.06%
• The Binary price rallies by 500%, from 14 to 84, in response
You could trade in and out of this price action continuously as the situation unfolds. But at no point do you face unbounded risk and at no point do you face any demands for additional margin
A trader buying one lot of a Binary at, say, 40 can never lose more than $40*. A trader going short of one lot at 40 can never lose more than $60* (100 minus 40)
* Excluding commissions and fees
What factors make Binaries so compelling (continued)?
Before After
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Contract Bid Offer
Daily US 500 (Mar) > 1255 - 2
Daily US 500 (Mar) > 1252 2 5
Daily US 500 (Mar) > 1249 8.5 11.5
Daily US 500 (Mar) > 1246 20.5 24
Daily US 500 (Mar) > 1243 37.5 41.5
Daily US 500 (Mar) > 1240 56.5 60.5
Daily US 500 (Mar) > 1237 72 75.5
Daily US 500 (Mar) > 1234 85 87.5
Daily US 500 (Mar) > 1231 93 95.5
Daily US 500 (Mar) > 1228 96 98.5
Daily US 500 (Mar) > 1225 98 -
Contract Bid Offer
Daily US 500 (Mar) > 1255 21 23
Daily US 500 (Mar) > 1252 38 41
Daily US 500 (Mar) > 1249 55 59
Daily US 500 (Mar) > 1246 72 75
Daily US 500 (Mar) > 1243 86 88
Daily US 500 (Mar) > 1240 92 94
Daily US 500 (Mar) > 1237 95 97.5
Daily US 500 (Mar) > 1234 98 -
Daily US 500 (Mar) > 1231 99 -
Daily US 500 (Mar) > 1228 - -
Daily US 500 (Mar) > 1225 - -
Nadex offers a range of hundreds of different Binary contracts each day, with dozens of strike prices for each underlying market
This variety of strike prices multiplies the trading strategies open to you
The diagrams below show a typical subset of Nadex’s “US 500” contracts, which settle basis an Expiration Value calculated by referenceto the CME® E-mini® S&P 500® Futures, together with representative prices before and after a major positive shock to the underlyingmarket
A trader interested in taking a long-shot on a rally could buy the “>1255” at 2, risking $2 to potentially make $98*
A trader interested in selling volatility and backing a rally could buy the “>1237” at 75.5, risking $75.5 to potentially make $24.5*
A trader interested in taking a bearish view, but with no strong view on volatility, might sell the “>1240” at 56.5, risking $43.5 to potentiallymake $56.5*
These are just simple examples. There are many other possibilities and many other trading strategies that can be built with these contracts.
*Excluding commission and fees
S&P 500 is a registered mark of the McGraw-Hill Companies, Inc. CME and E-mini are registered marks of the Chicago Mercantile Exchange Inc. Nadex is not affiliated with these organizations and neither they nor their affiliates sponsor or endorse Nadex or its products in any way.
How do our Bull Spread contracts work?
• A simple option strategy, packaged as a single contract
• A Nadex Bull Spread is equivalent to a vertical call spread constructed out of very short term (intraday) calls.Each contract is a combination of a long position in a call with a low strike (the Floor) and a short position in acall with a higher strike (the Ceiling)
• Intuitive pricing. Contracts are not priced as net premiums but instead are referenced to the underlying
• Very small contract size. Our contracts have a per-point value of as little as $1, and the gap between Floor andCeiling can be as little as 100 points. The maximum collateral required is always less than the Floor-Ceiling range,often much less. And you can never lose more than your collateral
• Strictly limited risk. At no point can the contracts price outside the Floor-Ceiling range, regardless of volatility inthe underlying market. You know your absolute worst case risk for any position you take, regardless of whetheryou are going long or short of the contract
• The Floor and Ceiling cap risk without exposing you to the risk of being stopped out by a temporary adversemove in the underlying market
• The next few pages give an example of a typical network of Bull Spread contracts on spot €/$
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2 hours to expiry Spread Contract
Zone of linearity (price of FX Bull Spread is same as, or within 1-2 pips, of underlying spot market in this range)
Key
Total range covered by network = 200 pips
100pt €/$ FX Bull Spreads Example
Spot €/$ level at 7am
At 7am ET, €/$ stands at 12750 and the following overlapping 2hrFX Bull Spreads are created:
€/$ 12750-12850 (9am)€/$ 12700-12800 (9am)€/$ 12650-12750 (9am)
Economic figures are expected at 8:30am ET.
This network gives an FX trader several possible strategies fortaking advantage of a market move caused by the 8:30am figures.
Some strategies are very close to OTC spot FX trading, some aremore sophisticated and “option-like”. All offer a high level ofeffective gearing*, all are strictly limited risk and none can result ina trader being “stopped out” by an intermediate adverse move.
In the examples that follow, commissions, fees and bid-ask spreads are omittedfor the sake of simplicity. In practice Nadex traders typically see bid-ask spreadsof 2 pips for €/$ FX Bull Spreads.
* within each contract’s Floor/Ceiling range
Page 10
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2 hours to expiry
Total range covered by network = 200 pips
100pt €/$ FX Bull Spreads Example (continued)
Spot €/$ level at 7am
The “X” against each contract shows the trading price of each BullSpread at 7am.
The 12700-12800 contract is centered on the current market levelof 12750. The price of this contract is also 12750 – it is the same asthe underlying spot market and generally will remain so withinapproximately a 60-pip range.
A trader buying or selling this contract has both his potentialmaximum profit and his potential worst-case loss capped at 50pips. Note that the position cannot be “stopped out” if theunderlying market moves adversely beyond the range of thecontract – the contract remains live until expiry, regardless ofunderlying market movement.
X
X
X
12750
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Page 11
Spread Contract
Zone of linearity (price of FX Bull Spread is same as, or within 1-2 pips, of underlying spot market in this range)
Key
12750
12800
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12700
12650
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12670
2 hours to expiry
Total range covered by network = 200 pips
100pt €/$ FX Bull Spreads Example (continued)
Spot €/$ level at 7am
The 12750-12850 contract has a floor at the current market levelof 12750. The price of this contract is 12760 – it is 10 pips higherthan the spot rate, reflecting the optionality inherent in its design.
For a trader buying this contract, potential profits are capped at 90pips but losses are capped at just 10 pips.
The 12650-12750 contract has a ceiling at the current market levelof 12750. The price of this contract is 12740 – it is 10 pips lowerthan the spot rate, reflecting the optionality inherent in its design.
Again, a trader selling this contract has potential profits capped at90 pips but losses capped at 10 pips.
Note again that, in either case, the trader cannot be stopped out ifthe market moves adversely against them beyond the range of thecontract – the contract remains live until expiry, regardless ofunderlying market movement.
X
X
X12750
12740
12760
Page 12
Spread Contract
Zone of linearity (price of FX Bull Spread is same as, or within 1-2 pips, of underlying spot market in this range)
Key
12750
12800
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12700
12650
12753
12797
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25 minutes to expiry
Total range covered by network = 200 pips
100pt €/$ FX Bull Spreads Example (continued)
Spot €/$ level at 8:35am
Five minutes after the release of the economic figures, and afterconsiderable whipsawing in the market, spot €/$ is trading higherat 12825.
The 12750-12850 Bull Spread is trading at 12825, exactly the levelof the underlying market. A trader who had bought this at 12760would be sitting on a 65 pip profit as a result of the 75 pipfavorable move in the underlying. But at no point in that movewould he have risked more than 10 pips, and at no point would hehave been in danger of being stopped out.
The 12700-12800 Bull Spread is trading close to its maximumvalue, at 12798. A trader who had bought this at 12750 would besitting on a 48pip profit; a trader who had sold this at 12750 wouldbe sitting on a 48pip loss.
The 12650-12750 Bull Spread is also trading close to its maximumvalue, at 12749. A trader who has sold this at 12740 would besitting on a loss of just 9pips, even though the underlying spotmoved against him by 75pips.
X
X
X
12798
12749
12825
Page 13
Spread Contract
Zone of linearity (price of FX Bull Spread is same as, or within 1-2 pips, of underlying spot market in this range)
Key
T (end of day expiry)
Time
FX Bull Spreads – Why so many contracts?
Spot €/$
Nadex offers networks of FX Bull Spreadsof varying widths and with varying expirytimes. Each network, when created, iscentered on where the spot market is attime of creation.
In total, Nadex offers 70 Bull Spreadcontracts per currency pair per day.
The fact that there are so many contracts,and that they have floor/ceilings governedby the level of the underlying spot ratewhen they were established, means thattraders can almost always find a contractfloor/ceiling in the vicinity of the currentspot rate. This means that sophisticatedtraders are assured of the opportunity togenerate high leverage on a directionalview.
It also means that traders familiar with theOTC spot FX market can almost alwaysfind contracts that behave linearly and arepriced in line or very close to theunderlying spot rate.
Whatever the style of the trader, NadexBull Spreads will tend to have a high levelof effective gearing (compared toconventional spot FX), will always bestrictly limited risk and will never causethat trader to be “stopped out” by anintermediate adverse move.
Single Daily FX Bull Spread, range = 600 pips
Network of 3 8-hour FX Bull Spreads, range = 250
pips each
Network of 3 2-hour FX Bull Spreads, range = 100
pips each
Path of spot €/$ over day
Page 14
Get the full picture at www.nadex.com
We offer contracts on:
Equity Indices: US 500, Wall Street 30, US Tech 100, US SmallCap 2000, FTSE 100®, Germany 30, Korea 200, Japan 225
Spot FX: EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, EUR/JPY, GBP/JPY
Energies: Crude Oil, Natural Gas
Metals: Gold, Silver, Copper
Agriculturals: Corn, Soybeans
Economic Events: Initial Jobless Claims, Fed Funds, ECB Rate, Nonfarm Payrolls
Visit us at www.nadex.com to open a demo trading account and see our full range of markets in action
Futures trading and options trading involve risk, which may result in financial loss, and are not suitable for everyone. Any trading decisions that you may make are solely your responsibility. The information presented herein is for informational purposes only. The contents hereof are not an offer, or a solicitation of an offer, to buy or sell any particular financial instrument offered on Nadex.