Learn the short-term NADEX trading strategies that can be applied to binary options. In this guide, you’ll learn how NADEX trading works, how to trade NADEX successfully, and last but not least we’re going to outline 3 reasons why you should trade NADEX binary options.
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The idea of trading very short-term price action like 60 seconds options trading strategies is synonymous with trading binary options. NADX trading involves very short-term trading strategies that work by holding trades a few minutes or even seconds.
If you have traded forex currency pairs, stock indices, and commodities you can use your favorite trading strategies on NADEX. However, if your strategies are long-term oriented like swing trading, positional trading or trend following you need to refrain from using them on NADEX.
Due to the short-term nature of NADEX contracts, you'll need to learn to trade NADEX the proper way. Using the NADEX trading strategy is all about timing and attention to detail.
Throughout this NADEX trading tutorial, we’re going to share some NADEX strategies to take advantage of the limited risk that comes with binary options. We’re also going to show you an example of how to trade on NADEX and some NADEX trading secrets that you can use to beat the house.
What is NADEX Trading?
NADEX is a US-based exchange regulated by the Commodity Futures Trading Commission (CFTC) that offers three types of tradable instruments:
- Nadex Binary Options.
- Nadex Touch Bracket.
- Nadex Call Spreads.
NADEX trading can be done on the most popular financial market in the world, including forex, stock indices, and commodities.
The whole concept behind binary options is to predict whether the market is going to be above or below the current price at the end of the selected time period. The expiration dates are very short-term.
In other words, the trading instruments offered by NADEX are short-term options.
Traditional options trading is typically used to hedge risk or use some options trading strategies to profit from different market scenarios.
On the other hand, NADEX binary options are done over minutes and take hours.
The NADEX payout is $100 per binary contract.
Next, let’s see an example of how to trade NADEX binary options and NADEX spreads.
How Can I Trade NADEX Successfully?
NADEX trading eliminates the complexity and the risk that comes with other forms of trading. You can see the NADEX trade as a trade that tries to answer a simple question:
“Is this instrument going to be above or below this price at this particular time?”
If you’re able to correctly respond to this question, you can make earn strong returns.
Let’s outline the 4 parts of each NADEX trade:
- Your favorite market and the best time frame to trade.
- Select the strike price you think your instrument will trade at the expiration date (above or below).
- Buy or sell the amount you want to invest.
- Manage the trade.
To better understand the outcomes of the binary options, here is how to trade with NADEX:
Step #1: Pick your Instrument and your Expiration Date
Let’s consider an example where we choose to trade the German index DAX. According to your market analysis, you believe the stock index DAX30 will head lower in the next two hours. At 5:50 AM you decide to sell the DAX30 two-hour binary, expiring at 7:00 AM.
What if the price of DAX30 reverses and goes up from here?
While you can close your NADEX trade at any time, you also have the built-in loss that you know in advance.
Next, you have to choose the strike price.
Step #2: Pick your Strike Price
You have the option to choose between out of the money strikes or some strikes that are near the current market price. Since we’re selling we need to choose a NADEX strike price above the current market price to book ratio.
The nearest strike price is 8572 so we opt for that.
Moving forward, it’s time to execute our trade.
Step #3: Place your NADEX order
Since DAX30 has been selling off all day the NADEX binary options price is below average.
The bid price is 41.00 so, you don’t want to waste any more time as the market can continue moving further down and your potential profit can shrink. So, you go ahead and place your NADEX trade.
As you can tell, after your NADEX order was filled, you find yourself in the red.
The bid price went up even further and it’s now at 49.25.
However, your losses are capped so you don’t need to be worried. This is one of the great features of options trading. Additionally, you can close your trade at any time for a small loss. But, why would you do that since you expect the market to drop further?
In this case, you hold your NADEX binary options trade, and let the market do his job.
Step #4: Manage your NADEX trade
NADEX trading strategies give you a big advantage.
Instead of focusing on the loss, which is capped, you can shift your attention to get the most out of your NADEX trade. While at the moment you open the trade, you incurred a loss, four minutes later you have a $40 profit.
You continue to wait and the value of your NADEX trades shows you a bigger profit. In about 13 minutes your profit will increase to $125 (see figure below).
Now you have two choices:
- Hold on your trade until the maximum profit potential is reached.
- Or, run to the bank and cash in the profits.
You still have more than 50 minutes until the expiration and you decide to hold on your NADEX trade.
Next minutes, DAX30 continues to drop and our profits increase even further.
We’re now up $192.50.
See figure below:
There’s nothing wrong if you decide to close here. After all, your maximum profit on this trade is capped at $302.50.
We see more selling pressure coming into the market and decide to give it a go one more time.
11 minutes later our maximum profit potential is reached and we cash in $302.50.
Now that we know how it works, we’re going to reveal three reasons why the NADEX trading strategies can give you an edge.
3 Reasons why you should Trade NADEX Binary Options
Our team of experts will outline 3 reasons why finding NADEX trading success is attainable.
Reason #1 More Trading Opportunities
NADEX binary options and spreads offer countless short-term opportunities in all kinds of market environments. NADEX has designed its binary options to work even when the market is flat and it’s generating small market movements.
Reason #2: Flexibility
The NADEX trading exchange gives you the option to get out of the trades before expiration. If you don’t want to wait until the expiration, you can close your binary options trade early.
This comes with added benefits:
First, you can minimize your losses.
If you believe it’s futile to wait until the expiration due to the fact that the market conditions have changed, you can close the trade and cut short your loss.
On the other hand, if your position is in profit you can lock in profits early.
Reason #3: Risk is Capped
NADEX is an exchange so there is no counterparty risk.
Secondly, all NADEX trades have a capped risk that is equal to the amount you pay for the binary option.
In other words, your maximum loss is always equal to the amount you pay for the binary option.
Here is an example:
If you pay $25 for a NADEX contract, your maximum loss will be $25 regardless of how much the market moves. You’ll always know upfront not just your potential loss, but also your risk-reward profile.
However, binary options have an asymmetrical risk-reward ratio.
The maximum NADEX payout per contract is $100. So in our case, the maximum reward is $75 (Nadex payout – initial investment).
Moving forward, we’re going to share the key to NADEX trading success from trading flat markets, volatility, and how to collect the premium.
There are ways to get rich from trading, but there are no get-rich-quick NADEX trading strategies. However, there are some trading tactics that you need to know. It’s very important to understand that the market conditions are changing all the time, so you need different NADEX strategies for ranging markets and different NADEX strategies for more volatile markets.
Let’s take a look at different NADEX trading secrets for different market conditions.
NADEX Strategies for Range Markets
Traditional investment vehicles are useless in flat markets. In order to make money, you need the market to move. However, binary options prices can move even if the underlying instrument isn’t. This means that you can use NADEX binary options or trading NADEX spreads to take advantage of flat markets.
Note* NADEX binary options have only two outcomes 0 or 100.
So here is how to apply the NADEX strategies for ranging markets:
- Buy well in-the-money binary options (binary options priced above 70).
- Sell far out-of-the-money binary options that are priced below 30.
The idea behind this NADEX strategy is to collect the premium. Due to the time erosion, ultimately the underlying instrument will push the binary options towards 100 or 0.
Now, the only downside to this approach is that the risk-reward ratio is skewed against you. You have to risk more for a limited profit potential (see the above DAX30 example). Still, this particular strategy can be profitable when market conditions are right.
NADEX Strategies for Volatile Markets
Unlike the NADEX trading strategies for flat markets, these NADEX strategies offer a positive risk to reward ratio. These are directional strategies so you need to correctly forecast the direction of the market.
Here is how it works:
- Buy binary options priced at 30 or below.
- Sell binary options priced at 70 or above.
Due to the flexibility that comes with NADEX trading you can take close your trades and lock in profits before the expiration date. This is especially helpful in volatile markets where the price can go up and down very fast.
Trading NADEX Spreads
The NADEX call spreads are innovative instruments that allow you the flexibility to buy more time on your options. The call spread comes with a floor and a ceiling that create a trading range.
If you buy a NADEX call spread and the underlying instrument moves below the floor, you’re kept in the trade but you simply stop accumulating losses.
The NADEX call spreads are great if your timing is wrong. While in the short-term the market may prove you wrong, maybe in the long-term (by expiration) you’re still right. So, this allows you time for the instrument to turn in your favor.
Final Words – NADEX Trading Strategies
In summary, NADEX trading strategies can be used to take advantage of different market scenarios. NADEX trading offers you the flexibility to limit the risk, trade based on your own schedule and it’s easy to trade with the NADEX platform. The bottom line is that traders need to practice these NADEX strategies so that when you risk your own money you have the needed experience.
Here is a short recap of what you have learned through this binary options guide:
- NADEX offers 3 types of tradable instruments.
- NADEX binary options are short-term (minutes and hours).
- NADEX binary options offer more trading opportunities.
- NADEX binary options offer flexibility.
- NADEX binary options limit the risk.
- You can trade flat markets as well as volatile markets.
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