Trading Binary Options on Nadex

Change Trading vs. Casino Trading

Binary Options
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The term "binary" probably has a negative connotation for most people. And for good reason. Most of the places where binaries can be traded, the trader has very little chance of making any money because making the winning prediction results in a payoff that is far too small.

This article compares exchange-traded binary options trading with trading via websites that offer binary trading. These websites are not located in the US.

By itself, that should not be a problem. However, there is one clue that tells us that we should not expect to make money: Many of the websites offering binary options give traders a "bonus" for opening an account. I was offered $500 bonus cash if I opened an account with $1,000. (I did not accept) This is the same tactic used by online casinos to attract players. If your chances of coming out ahead of the game were anywhere near 50%, no one could afford to offer bonus cash to new players. In my opinion, these binary option exchanges would be more attractive if they did away with the bonus.

All binary options have one thing in common: When expiration arrives, the option is worth "all" or nothing. The "all" payoff is defined at the time of the trade and varies, depending on the underlying asset.

In June 2013, the SEC issued a fraud advisory, alerting investors to a variety of complaints against some unethical practices of the offshore websites.

  In the Advisory,only three exchanges were mentioned as legally listing binary options for trading in the US (CBOE, CME (options on snowfall or hurricane index, for example), and Nadex).

Below is a short (edited) list of the benefits of trading binary options on a U.S. Regulated Exchange, written by someone associated with Nadex.

It is truthful, as far as it goes. However, there is no mention of the odds of profiting. Nonetheless, Nadex is far better than websites with offshore locations.

Regulation
U.S. Exchanges are regulated by government agencies dedicated to protecting traders and investors and are held to extremely high standards in every area of their operation. 

Safety of Funds
Exchanges that hold member funds ​have strict requirements as to how this money must be handled. Funds are held in segregated accounts and the exchanges must provide a quick and easy way to withdraw cash.

Transparency 
Market makers provide published bid and ask quotes for every option. Traders do not trade against the house (Nadex). Traders have complete price discovery and transparency. Time and sales data is available for verification.

Unbiased Marketplace –
An exchange’s basic function is to match buyers and sellers and neither the exchange nor its employees may take positions in its markets. 

Set Rules
 As part of the governance, exchanges must publish well-established, clearly-defined rules. Any changes must be approved by the regulatory authority and members must be notified before they can take effect.

Futures, options and swaps trading involves risk and may not be appropriate for all investors.

On the negative side, the bid/ask markets are fairly wide.

On the positive side:The trade platform is easy to use and market data, along with bid/ask quotes for the options, are live and updated continuously.