Nadex

Nadex (Northern American Derivatives Exchange), formerly known as HedgeStreet, is US-based retail-focused online binary options^[3] exchange. It offers retail trading of binary options and spreads on the most heavily traded forex, commodities and stock indices markets.

History

Nadex originally was known as “HedgeStreet” and was based in San Mateo, California. The Exchange was launched in 2004 offering an electronic marketplace that offered trading in financial derivatives to retail investors. HedgeStreet shut down its business in late 2007. Shortly thereafter, UK-based IG Group Holdings plc. agreed to purchase HedgeStreet, Inc. for $6 million and began restructuring the exchange, its technology, and its products. In 2009 HedgeStreet was renamed as the North American Derivatives Exchange (Nadex).

HedgeStreet was the first Internet-based event futures/derivatives exchange to be regulated in the US by the Commodity Futures Trading Commission (CFTC).^[2] The company operates the HedgeStreet Exchange, which launched in October 2004 and provides traders with a place where they can hedge against or speculate on economic events and price movements.^[1] The reasoning behind the creation of HedgeStreet was that with the rise of individual private investment in stocks, there might be a similar appetite for individuals to invest in derivatives.^[4] This focus on small investors created sufficient confusion that John Nafeh, founder of HedgeStreet, created the term "hedgelet" to help explain the company's business model.^[2]

In 2007, UK based IG Group announced intent to acquire HedgeStreet^[5][6] and later in the year completed the purchase of the company. Subsequent to the purchase, Nadex began to offer binary options similar to those already available on IG's platform.

Operations

Products

Nadex binary option and spread contracts span a range of underlying markets, from commodity futures and spot forex rates to economic indicators and equity index futures. Contracts are available for a wide range of strike prices with intraday, daily and weekly expirations.^[7]

Regulations

Nadex is regulated by the Commodity Futures Trading Commission. Unlike many binary options providers, Nadex does not take the other side of member trades or engage in trading of any kind. Member funds are held in segregated accounts in US banks.^[8]

Membership

Individuals can become members to trade directly on the exchange with access to a trading platform including order entry, market depth, historical data services, cash accounting and position reporting.^[9] Membership is free, and members can trade with a minimum $250 initial deposit.^[10]

Funding

Nadex requires traders to fund the maximum risk of any trade before the position can be opened. Trades are not done on margin and do not involve leverage. Because all trades are fully funded at the outset, Nadex does not issue margin calls. Furthermore, no matter how far the market goes against a trader’s position, the trader is not stopped out.^[11]

For spreads with a wide floor/ceiling range, the underlying market will generally be trading between the floor and ceiling values. The price of the spread in this scenario is likely to be very close to, or even identical to, the price of the underlying market.

In the case of spreads with a narrow floor/ceiling range, the closeness of the floor and ceiling levels means that the underlying market might be trading near (or outside) these levels. This results in prices that reflect a much higher degree of optionality, differing significantly to the price of the underlying market.

Fees

Members pay trading fees on each side of their trades: once to open and once to close. The fee for each contract is $1.00 with a maximum charge of $50 per order. For trades that expire in the money (and thus receive a payout), the trading fee is replaced by a $1.00 settlement fee per contract. Nadex does not charge settlement fees on trades that settle out of the money.^[12]

See also

• Prediction market
• Futures market
• Binary options
• Paper trading

References