NADEX Binary Options Strategies
Examples of 1-2 Hour Trades on NADEX:
The following chart shows 2 successful trades for NADEX (1-2hr expiry) using the 15m chart on the MT4 platform. Both of these trades use our PSAR breakout strategy and indicators that you can receive once you upgrade membership to Pro.
FAQ About NADEX
Before a discussion can be effectively done on the Nadex binary options strategies, it is important for traders to get familiar with how binary options on Nadex works. An effective strategy cannot be developed in a condition of ignorance of the workings of an exchange.
So what makes NADEX stand out from other binary options platforms?
1) The Structure of the Exchange: NADEX stands for the North American Derivatives Exchange. This is a wholly American binary options exchange which offers binary options under American option rules. This is different from the other binary options platforms you are probably used to, which operate under European options rules. NADEX currently offers its services to traders with a social security number (i.e. US resident traders) or traders who are US citizens. With a seemingly narrow market, why are we interested in NADEX? This is because other exchanges such as Cantor Exchange have come on stream, and these exchanges have opened their doors to international clients. Thus an understanding of how NADEX works will provide such traders with information on how to use the NADEX binary options strategies on their own platforms.
2) Asset Types: NADEX offers binary options trading only on certain assets. These are as follows:
- Commodities: Silver, gold, copper, soybean, corn, natural gas, and crude oil. There are contracts with daily and weekly expiry times. The only exception is corn which only has a weekly contract.
- Stock Indices: CBOT E-mini Dow Futures (US), ICE Mini Russell Futures, EUREX DAX Index Futures, Kospi 200 Futures (South Korea), LIFFE FTSE100 Index Futures (London), NGX NIFTY Index Futures, SGX Nikkei 225 Index Futures (Tokyo) and CME E-mini S&P500 Index Futures (US).
- Currencies: EURUSD, GBPUSD, USDJPY, EURJPY, USDCAD, USDCHF and AUDUSD. These have intraday, daily and weekly expiries.
- Exotics: EURsystem Main Refinance Rate, FOMC Targeted Fed Funds Rate, Jobless Claims and Non-farm Payroll reports
3) Contract Types: NADEX offers several types of binary options contracts, which are a bit different from the regular contracts traders on European-style binary options platforms are used to. These are:
- In-the-money (ITM)/Deep-in-the-money (DITM)
- At-the-money (ATM)
- Out-of-the-money (OTM)/Deep-out-of-the-money (DOOM)
You can see that the NADEX binary options are a bit unique, and to trade the contract types, you need a strategy for each one, giving us 5 NADEX binary options strategies.
On NADEX a Call option is in-the-money when the asset’s current price is above the entry price. An in-the-money Put option is seen when the asset price is below the entry price. To trade this, you need a strategy which follows a trend that the trader feels will last for some time. For instance, if you hear of a civil war breaking out of an oil rich country (such as Libya in February 2011 which caused crude oil prices to trend upwards for close to 9 months), this is a play which will benefit from using an in-the-money strategy. With this strategy, the news is the trader’s best friend.
This strategy is best deployed on Wednesdays and Thursdays when the market bias (and by extension, the trend) has taken shape.
At-the-Money or Near-the-Money
Unlike the at-the-money trades in European-style options where this outcome yields neither a profit nor a loss, this NADEX binary options strategy actually pays out profit if the trend is flat or in a sideways channel, or if the price is in the process of testing a key area of resistance/support severally prior to a break or a rejection at that level. The strategy therefore is to look for areas where there is expected to be consolidation before a breakout. Trading the NFP with this strategy setup a few days to the news release and trade expiry just before news release is one way this strategy can be deployed.
This is the contrarian NADEX binary options strategy, where the trader bets against the market expectation, pays low premiums as a result and earns a huge payout if the bet is correct. This will require a lot of tact to deploy. Usually, the trader will have to study the behavior of assets on the trading days of the week. This strategy is best set on Mondays when the market bias for the week is yet to take shape.
To trade using NADEX binary options strategies, you have to know what to trade and when to trade so that the deployment of these strategies works exactly as the trader would want them. A firm understanding of American-style binary options trading is necessary and the use of a demo account on NADEX or Cantor Exchange would surely facilitate this.
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