It is time to give Nadex a good look.  The North American Derivatives Exchange is growing and is postured for a great step forward with business introduced by brokerage firms rather than customers just coming directly to the exchange.

While the demise of MF Global and PFGBest have aided Nadex’s no-leverage offering, it was their corporate parent’s pick up of key assets from the bones of PFGBest that have set the stage for their next growth phase.

Nadex’s owner IG Group bought the PFG back office software, the Best Direct front end and some risk management middleware and packaged them all up as Nadex Connect.  They also hired a team of programmers from PFG to make it all work.  This new turnkey offering allows FCMs to connect to Nadex in as little as 2 to 3 weeks, as opposed to the 18 or more months it took before.  

And to top this all off, they are offering FCMs 6 months free of this new offering.  Yes, that is free.  And Nadex is offering an aggressive fee sharing with brokerages for the flat fee they charge clients.  With a minimum account size of as little as $100, Nadex represents a new path for potential market participants to get a start in the markets without excessive risk or leverage.

Think of Nadex as a today’s version of the MidAmerica Commodity Exchange and the CBOE all rolled into one easy to use and understand market.  It is small-sized option trading on a full spectrum of futures contracts.  It is a place to start a path to understanding how to trade.

Nadex is not the land of the GIANTS battling via high frequency trading, rather is is a microcosm where small traders can use a simplified option contract to trade the markets.

I particularly like what they describe as their “single leg option spread.”  It makes it all just easier to understand for a new trader, but also gives experienced traders tools to hedge their risk from the bigger futures markets.

Nadex contracts have no leverage, limited risks, no debit risk and are all cash settled.  There is never the risk of taking or making delivery of anything but cash. Every trade is limited risk.  A participant can lose no more than they put up for the option trade.  There are no multipliers on the contracts, so your risk is what you see.

With contracts based on the futures markets’ largest contracts, Nadex offers traders a way to micro-hedge their risk over hours of the day near a key report, or even for a full day.  Key contracts include currencies, metals, grains, energies and stock indices.  

An agreement with the exchanges that offer the underlying contracts for settlement gives Nadex a symbiotic relationship with its big brother exchanges.  

For a long time, Nadex was dismissed as that exchange that offered binary options, most commonly explained using gambling language.  However that is not the narrative now.  No more political event futures or the like.  Instead, with a focus on real markets, Nadex is finding interest as a way to hedge market risk in the larger markets.  Do you want to hedge your risk around an economic report?  Do you want to change your risk profile for a few hours while some politician, technocrat or other goblin is speaking?  Using Nadex contracts can help you manage your risk.

I am not a broker anymore, but if I were, I would be looking at Nadex and their products to develop new customers and help existing ones manage their risk better. Now is the time to give Nadex a try.

Nadex is a MarketsWiki sponsor.

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