Nadex 101 Series – Part 2 – Nadex Bull Spreads
Presented by: Charlie Comber
What are Bull Spreads?
Bull spreads have become very popular in the trading industry. With a low risk and high profit potential, you can make a serious cash flow daily, with only a few trades.
Bull spreads have built in floor and ceiling levels – You will always know your maximum potential loss and profit
Each pip that the price moves is equal to $1
Example… You enter a Buy at 1.309 on the EUR/USD that has a spread of 1.297 – 1.397
The price rises 50 pips, leaving you with a profit of $50 per contract
You purchased 5 contracts; therefore you profited $250 on one trade
Nadex Offers Bull Spreads On:
Stock Indicies
Forex
Commodities
How Do I Trade Bull Spreads?
Let’s take an example:
The EUR/USD may have an available Bull Spread that states:
EUR/USD 2.799 – 3.799 (3pm) – The current price is at 2.900
What this means is:
Floor = 2.799
Ceiling = 3.799
Expiration of the contract(s) is 3pm
You have a potential profit of $899 per contract
You have a potential loss of $101 per contract
It is currently 1pm and you see from your strategy that the price is going to rise over the next few hours
At this point you would choose a Buy direction, since you believe the price will rise
The current price of the EUR/USD is at 2.900
You decide to purchase 7 contracts
Scenario #1 : The Price rises to 3.00 or 100 pips at the time of expiration (remember that each pip equals $1)
This would leave you with $700 profit in one trade
Scenario #2 : The Price decreases to 2.850 at the time of expiration – that is 50 pips or $50 per contract
Your loss would be $350
SL & TP
Remember – You can always exit a trade early to:
SL – Stop Loss
OR
TP – Take Profit
Let’s See A Few More Examples
US Tech 100 3590 – 3690 (4:15PM)
The floor equals 3590 and the ceiling is 3690
You believe that the price will be above 3604
The current price is at 3606
You would choose a Buy for the Direction
Choose the # of contracts or Size
Your max profit equals $84 per contract
You max loss equals $16 per contract
Crude Oil 95.00 – 100.00 (2:30PM)
The floor equals 95.00 and the ceiling is 100.00
You believe that the price will be above 95.48
The current price is at 95.48
You would choose a Buy for the Direction
Choose the # of contracts or Size
Your max profit equals $452 per contract
You max loss equals $48 per contract
US 500 1955.0 – 1965.0 (3PM)
The floor equals 1955.0 and the ceiling is 1965.0
You believe that the price will be below 1963.3
The current price is at 1963.2
You would choose a Sell for the Direction
Choose the # of contracts or Size
Your max profit equals $82 per contract
You max loss equals $18 per contract