Tuesday, 27 October 2020

Nadex Review 2019

Nadex Review 2019
05 Apr
1:58

Nadex is not a broker but an exchange for those looking to use derivatives — think binary options — to make short-term bets on the stock market. In fact, it’s the first and largest legal U.S. exchange for binary options, and its name is an acronym for the North American Derivatives Exchange. For traders looking to try binary options, Nadex should be at the top of their list.

Who should consider Nadex

Nadex allows access to some of the highest-risk, highest-reward trading in the market — binary options. Binary options probably are not appropriate for beginners or those looking to build long-term wealth in the stock market. But Nadex makes it easy to get started with a $250 account minimum, well within the range to attract new investors.

If you’re interested in placing an all-or-nothing bet on how an asset might trade later that day, then binary options and Nadex might be for you. You’ll have to be willing to handle a lot of risk, however, because the chance of losing substantial money is high.

Not familiar with binary options? They allow traders to make side bets on the market over a short time frame, even hours. For example, one binary option bet could be whether a certain stock is trading at more than $50 by 11 a.m. The price on a binary option is always between $0 and $100, and the payout is either $0 or $100.

There are only two potential outcomes:

  • If the option meets the condition (“more than $50”), it’s worth $100 and the seller must pay the buyer any difference between the sales price and $100.
  • If the option doesn’t meet the condition, it’s worth $0 and the seller gets to keep any money received from selling it. The buyer loses any money invested.

Nadex fees and features

Account minimum
Commission $1 per contract, capped at $50 regardless of the number of contracts
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 ACH transfer fee
  • $25 wire transfer fee
  • $0 inactivity fee
Account types
  • Individual taxable
  • Trust
Customer support Phone, Email
Mobile app iOS, Android

Strengths of Nadex

  • Extensive educational offerings for traders: Nadex does a good job of providing a lot of information for traders and would-be traders. The company explains its offerings, including binary options and more complex products such as touch brackets and call spreads. Also included are webinars and videos on how to trade as well as trading news and analysis from third-party contributors. Nadex really tries to get you comfortable with its offerings and how to use its trading platform. And if you’re not quite ready to give real trading a go, you can test out the platform and process by signing up for a free demo account.
  • Low account minimum: Nadex requires a low $250 initial deposit to get started. That’s not a high hurdle, though frequent traders will want to have more in their accounts given the all-or-nothing aspect of binary options.
  • Easy to fund: Nadex couldn’t make it easier to fund your account. You can use the automated clearing house (ACH) to move money from your bank, or if you’re in a hurry, you can get started in minutes by using a debit card. There are no fees for either method, though you also can wire the cash, which may incur a charge from your bank.If you’re ready to cash out, you can transfer your money back to your bank for free using ACH or via wire transfer for $25. Money cannot be withdrawn using a debit card.

Drawbacks of Nadex

  • Limited offerings: While Nadex allows you to bet on many different kinds of markets — including stock index futures, forex, commodities and even economic events — you’re always making a yes-or-no bet on whether a certain thing will happen. Will an index be above a certain level by a certain time? Will gold be trading higher than $1,200 by 1 p.m.? Nadex offers something that isn’t really investing but rather short-term speculation. And it’s the same kind of bet over and over again, always with a winner and a loser.Binary options differ markedly from traditional options, where the kinds of positions are much more extensive and the expirations are much longer. If you’re looking to get started trading traditional options, check out how to trade options.
  • Pricey commissions: At first, it may seem like Nadex charges a low price. After all, it asks just $1 per contract, and Nadex even limits that commission to $50 on any single purchase. So whether you purchase 60, 100 or 200 contracts, you’re paying only $50. Of course, if you sell the options before expiration, there’s the same per-contract fee there too. But there also can be fees when the option expires. If the option is in the money — meaning you won the bet — then you’ll need to pay another $1 per contract as a settlement fee, with no cap. If you lost the bet, you don’t owe any settlement fee.A fee of $1 sounds cheap, but in terms of the percentage of the total cost of the option, it isn’t. With binary options, prices are always between $0 and $100 per contract. So with fewer than 50 contracts, at a minimum, a buyer would pay at least 1% of the purchase price (for a $100 contract) and frequently much more.For example, at $50 per contract, the expense is 2% and at $33, it’s about 3% of the total investment. Those fees are huge in percentage terms, and they get even worse for the option’s winner, with another $1 fee on the back end of the trade.
  • Risky investments: Binary options are by their very nature risky trades. They’re all-or-nothing bets on a short-term move in some asset. The short-term nature of the options means that traders are simply guessing where the market will move in the next few hours. That’s less investing than betting.

Is Nadex safe?

Nadex is an exchange, not a broker, so it doesn’t have a need for the kinds of guarantees traditionally offered by brokers, such as coverage under the Securities Investor Protection Corporation (SIPC). However, as a contract market, Nadex is regulated by the U.S. Commodity Futures Trading Commission (CFTC). It’s one of only three markets legally offering regulated binary options in the U.S., and it’s the largest.

CFTC regulations require client assets to be held in segregated bank accounts, and Nadex stashes them in high-quality banks such as BMO Harris and Fifth Third Bank. Both banks are FDIC-insured, meaning that assets are guaranteed up to $250,000. Of course, any money you put at risk through trading can be lost in its entirety.

Final thoughts

Nadex certainly isn’t for everyone, especially for investors who want to build long-term wealth. But if you’re a trader who is willing to trade the high risk for the potential high reward, Nadex could be the place to go. Plus, the low minimum and easy-to-fund account get you in the market quickly. But watch out for the commissions, which take a higher percentage of your bets than it seems.

If you’re looking to trade more traditional kinds of options and do so cheaply, you should check out eOption, which offers some of the most competitive prices in the market. Another good choice here is Interactive Brokers, which offers an all-around good experience for active traders.

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James F. Royal, Ph.D.

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Source: https://www.magnifymoney.com/blog/investing/nadex-review/

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