Lately I have been spending a lot of time delving into Nadex, one of our top recommended brokers. While exploring Nadex’s many great features, one I have discovered which is particularly unique is events trading. I want to tell you all about this great feature and why it is so useful, but first, I want to talk a bit about the challenges of trading events on other platforms.
Why Events Trading is Usually Difficult
If you are interested in trading binary options, you have probably done some research on fundamental analysis. You may have even taken an interest in trading economic events. If you are a beginner when it comes to trading economic events, you probably have learned a little bit about the non-farm payroll report. This is something that I have actually delved into in detail here.
Join me on this guide to trading events by first setting up a demo account on Nadex (full guide). It is completely free and you can trade with a $25,000 balance of demo money.
The non-farm payroll report, or “NFP” for short, is the first economic event which many newbie traders try to tackle. Some traders have even developed reliable systems for making a steady income on nothing more than trading NFP reports. But it is not easy.
What makes NFP systems and other forms of event trading challenging is the fact that ultimately what you are trading is not the outcome of the event, but rather the way the market gauges that outcome.
So for example, imagine that everyone is expecting the numbers for the non-farm payroll report to decline. Perhaps the numbers in fact decline. You might think that this is something that the market will rally around. And in some cases, maybe it does. But in other cases, the opposite happens. People expected the numbers to drop, but they expected them to drop a great deal more. Because they are disappointed, the market reacts in a negative fashion. So what happens to associated assets is exactly the opposite of what you might have expected.
On top of that, events tend to create a temporary effect much like throwing a stone into a clear pond. When the stone hits the water, it causes all kinds of ripples and disturbances. When an event hits the market, the effect is the same. You get a lot of “ripples” in price, taking the form of spikes and whipsaws. This can result in unexpected volatility and fakeouts.
This is why a lot of people who try trading up on news events up fail. Even if they can correctly predict what is going to happen with the actual news report, they end up failing to predict how the market is going to react. And even if they do get it right, they may still end up losing money because of the temporary chaos that follows the report.
Enter Nadex Events Trading … the Solution
If you find all this frustrating, but you are still interested in trading news, you’ll definitely want to check out Nadex events trading. See this guide on understanding a Nadex ticket.
Nadex has introduced an innovative new way to trade economic events. Traditionally, if you are trading news, you need to actually predict the effect that the news report is going to have on some other asset such as a currency pair. This means you not only need to be an expert in what is going to happen with the news, but the complex ramifications that it is going to have for the economy as a whole.
On top of that, you are dealing with human factors. The psychologies of other traders are also going to have an effect on price. Trying to predict the role of that psychology is not as easy as it may seem.
On Nadex, you can still trade economic events in this way. But you are not confined to it. Imagine if you could simply trade the outcome of the event itself, and not worry about how it is going to impact other assets. That is what Nadex allows you to do.
Nadex does this by making economic events available to you as separate assets. So instead of trading a currency pair or an index or commodity, you literally treat the event itself.
Nadex offers the following three economic events for you to trade as assets:
- The Fed Funds Rate
- Weekly Jobless Claims
- Nonfarm Payroll
I want to talk about each of these in a little bit more detail in case you are new to trading economic events altogether.
Fed Funds Rate
The Fed funds rate is one of the most important economic indicators in the USA. It refers to the overnight interbank lending rate. This lending rate impacts interest rates on a broad array of financial products including student loans and mortgages. Eight times a year, the Federal Reserve’s Federal Open Market Committee meets and discusses whether it is time to adjust this rate up or down. If you have taken an economics class in college, you may be aware that this funds rate exists in a triangular relationship with inflation and employment.
This triangular relationship makes it particularly challenging to guess how the market will react to a change in the Fed funds rate. The Fed is always striving for the best economic balance for the country, but there are diverse opinions on any of the Fed’s actions.
On Nadex, you can trade the Fed funds rate directly. If you can accurately guess whether it will go up or down, you can win your trade without dealing with the complex ramifications of the change in the rate (or lack of change).
Weekly Jobless Claims
Every week in the USA, the government releases the weekly jobless claims report. This report reflects how many people have filed for unemployment benefits that week. This is different from the NFP. It is easy to mix them up as both involve jobs and unemployment.
If you have a good grasp for what is going on with unemployment, this represents a weekly opportunity to make money. Once again, you are able to trade the weekly jobless claims as a unique asset separate from other financial instruments. So you do not need to predict how other people are going to react to the weekly jobless claims report. You simply need to be able to predict what the report will say.
Non-Farm Payroll Report
And of course, Nadex offers the ever-popular NFP to trade as a unique asset. This report is not tied directly to unemployment claims filings. It simply tells you how many jobs have been added or subtracted from the economy in the USA over the past month. As the name indicates, this does not include farming jobs.
Nadex Economic Events Trading Reduces Risk and Simplifies Trading
Nadex’s events trading is an outstanding and unique feature which allows you to approach fundamental analysis in a new way. Because all the unpredictability of market reactions has been removed from the equation, your risk is significantly reduced. The analysis that you need to conduct is also greatly simplified.
As Nadex writes, “Trade the event, not the reaction.”
So if you have been on the fence about getting into trading economic events, you may want to consider giving it a shot on Nadex. Maybe you have been shying away from the complexity of market reactions. But on Nadex, that is not even an issue. Or maybe you have tried to trade economic events in the past, but were overwhelmed by the chaos of market sentiment. Now you can try again without having to deal with that.
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