How To Get Excellent Leverage with Capped Risk Using Nadex Spreads On Index, Futures and Forex Markets

To make money in trading, you need three things; you want to reduce risk, increase leverage, and more time to be right for the market to move in your favor. Nadex spreads provide all three. With reduced risk you obviously don’t lose as much money, but when combined with an increase in leverage then you have more control on your ‘money making money’ for you. Compared to most instruments out there to trade, Nadex contracts including their spreads, have the best leverage, or leverage that gives you an edge. Also, risk on Nadex spreads is capped and defined up front. There are no margin calls, or risk of unlimited loss, due to skipping over a stop.

Margin and leverage vary depending on strategy and instrument. On Nadex to trade a spread you only need to have sufficient funds in your account to cover the maximum possible loss, you never lose more than this amount. Whereas if you use margin on securities, you are borrowing money from the broker, therefore you are paying interest to the broker on the margined/borrowed funds. I.e. if you have $10,000 in your account and put up $5000 in margin, then you are borrowing $5000 and will eventually pay interest on that. Many people without even knowing it will have what is called a Reg-T Margin account, if they have stock/ETF accounts. With this kind of margin if your trade cost $100, you only have to put up $50, but your risk is still $100. If you go into the negative, then they will margin call you and you have to deposit the negative amount. Margins can be raised at any time and can change in the middle of the day. If you don’t have the money for the margin call, you can be shut out of your position right away.

You can have a day trading account, if you have more money like $25000, which is what’s required in stocks, or a portfolio margining account with $125,000 to get really high leverage. There is also futures margins, which all have unlimited risk down to zero if you are long, and infinite risk if you are short and the market continues going up. With Nadex spreads you only need $100 to start, and only need to cover your max potential risk when opening a position. There is no minimum account balance you need to maintain either.

Below is a comparison showing the details of a EUR/USD day trade using different instruments. In the far right column you will see details for trading it using a Nadex spread.  

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*Margin on ETF’s, Futures, and Options may vary by broker and capital in your account. Margin is always the same on Nadex Spreads. The above is for illustration purposes only and is not to be all encompassing of all variables.

This is an example of equalized position sizing to show leveraging examples and where your money can be most effectively used. Looking at the day trading margin row, you can see the differing amounts of money required to trade the position. FXE and ETF you need around $35000 providing a minimal 4:1 leverage. Spot FX you need around $3000 providing a little better 50:1. Futures get better, with only $500 needed and a leverage of 250:1. Future Options are similar to Spot FX with $2500 and a leverage of 49:1. Again all of them have uncapped risk. Nadex however, has capped risk and leverage of 500:1 only requiring $250 for the spread trade. If the trade were to move down to 1.2250 for a loss, the Nadex spread loss would only be $250, the amount necessary to place the trade. All of the others have losses in the thousands.

For more information on Nadex, or to open a demo account, please visit Nadex.com and go to getting started. To learn more about Nadex spreads, how to trade them, and the tools to easily trade, visit ApexInvesting.com. There you will find free training videos, courses and chat rooms with traders helping and supporting each other toward successful trading.