In any case, Nadex binary options are important because they are the fastest growing segment of exchange-listed binary options. But it is important to point out that the Chicago Board of Trade (CBOT) does offer binary options
on event risks. These include the CME Hurricane Index, the Snowfall Index,and the Target Fed Funds.
However, the CBOT binary options remain very small in volume, are highly illiquid, and are tailored really for institutionssuch as insurance companies.There are several differences between the CBOE and the Nadex binaries that should be clarifi ed. First, the CBOE binary options use the cash index as the underlying market for the contract.
In contrast, the Nadex binaries (except for currencies as the underlying market) use the futures index. Importantly,the CBOE binaries have a much wider bid-offer spread. Remember that buyers pay the ask price, and sellers pay the bid price. This creates a spread which generates money to the fi rm. It is also important to note that the CBOE binaries have a much lower liquidity than Nadex binaries. It also appears that the CBOE volume is constantly very low, in the range of a few hundred contracts per month.
In contrast, the Nadex sees volumes in excess of 100,000 lots per month. During the important May 2nd week where huge sell-offs occurred in the markets, CBOE’s S&P binary option volume was close to zero, while Nadex had a volume of 38,682 lots on all U.S. The differences in the duration of the binary options are also important to note. CBOE binary options have expirations of a variety of months: 1-month, 2-month, and 3-month expiration.
The Nadex expirations are much shorter in duration. They are intraday, daily, and weekly. This means that by Friday at 4:15 p.m. all binary option contracts expire, giving the trader a fresh new start every week. These differences point to Nadex as having a signifi cant advantage for traders who want to experience market action. High volume fuels the power of options and is a critical condition for traders—the Nadex fulfi lls that need. Lastly, Nadex binaries offer a logical place to start.
The skills acquired for trading in Nadex can help prepare you for trading options in other markets.In the near future, however, the popularity of Nadex options will surely spur other imitators. There are many binary option over-the-counter fi rms worldwide that provide different forms of binary options. These include, but are not limited to one-touch and no-touch options, as well as range options.
In these options the trader is betting that either a resistance point or a support point will be touched by the price, by a certain time. A no-touch option is a bet that the particular price point will not be touched, by a certain time. A range option presents the bet that the price will stay in between two strike prices, or go through one of them, by a certain time. Some of these innovative binary trades are very short, with expiration time frames of minutes.
Also, in some overseas fi rms, the trader determines the size of the payout! In principle, the skills developed trading the Nadex options can enable effective trading of binary options, and other, perhaps more complex and sophisticated,options. So let’s explore the key features of Nadex binary options in greater detail.