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What is Nadex

5dmin January 10, 2020

What is Nadex?

NADEX – North American Derivatives Exchange

Nadex is a CFTC regulated exchange headquartered in Chicago, and is just one of many companies owned by a London based company known as IG Group. Nadex was originally known as HedgeStreet, and shortly after purchasing the company IG Group decided to change the name to Nadex in 2009.

If you want to read more about IG Group and their history you can click the link below.

Binary Options – This may be a phrase you have heard before in the trading space, but it is typically related to some type of scam site where the broker is trading against you. While that is true in some cases it is the exact opposite with Nadex. Nadex is regulated by the (CFTC) Commodity Futures Trading Commission.

“The U.S. Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974, that regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options.

The Commodity Exchange Act (“CEA”), 7 U.S.C. § 1 et seq., prohibits fraudulent conduct in the trading of futures, swaps, and other derivatives. The stated mission of the CFTC is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation. After the financial crisis of 2007–2008 and since 2010 with the Dodd–Frank Wall Street Reform and Consumer Protection Act, CFTC has been transitioning to bring more transparency and sound regulation to the multi trillion dollar swaps market.” – Wikipedia

Since Nadex is regulated by the CFTC this means that all member funds are held in segregated accounts in US banks. This is extremely important as a Nadex trader, because it means that your funds are not commingled with Nadex operational funds. If you have been trading long enough, or have ever heard of the MF Global bankruptcy in 2011 then you’ll know even more so why this is a big plus for you. Nadex specifically uses Fifth Third Bank & BMO Harris to be the custodian of member funds.

Also because Nadex is technically considered an exchange you will have to become a member of the exchange in order to trade directly on the exchange. We will cover how to do this in lesson 4, but if you have ever opened a regular brokerage account it is pretty much the same thing. To become a member is free, and the initial minimum deposit is only $250.

Given that you are trading directly on the exchange each trade must be completely funded by you, and if you don’t have enough available funds in your account then you can not place the trade. This means there are no margin calls issued, and you aren’t using any traditional leverage.

In the next lesson we are going to dive more into Understanding Nadex. We will answer some of these questions together and more.
What is a binary option?
What are call spreads?
What markets are available to trade?
How is the risk/reward calculated?
What is the settlement based on?

And more so mark this lesson as complete, and I’ll see you in the next lesson.