Doing business in the US binary options market – what are the options?

Dan Cook, Director Business Development at Nadex looks at the burgeoning US binary options trading market, and compares his company with Cantor Exchange. Nadex is a Chicago-based derivatives exchange designed for the retail trader. It is a unit of UK-based IG Group Holdings plc (LON:IGG).

The binary options space in the U.S. is definitely starting to heat up.  Trading activity on Nadex has increased dramatically and for the past year or so the Cantor has been trying to enter the space. Because both Nadex and Cantor are offering binary option contracts, we thought it would be the right time to provide a no-nonsense comparison of the two exchanges and their offerings.

There are several factors to consider when looking at binary option providers and we have broken it down into these categories which we feel would be most important to professional Binary options affiliates or IBs, and to traders: Regulation, Product Range, Liquidity, Liquidity Providers, Trading Costs (Fees and Bid/Offer spread), Resources & Education, Overall Size and Partnership Opportunities.


Both Nadex and Cantor are regulated by the Commodity Futures Trading Commission (CFTC). This is great news for the trading community as a whole as it provides rules and oversight yielding additional protection for the participants in the binary options space.  It also provides US traders with clear regulated alternatives to other binary sites that are not regulated by the CFTC.

Product Range

Cantor’s product range is substantially more limited with binary option contracts available on only 6 FX pairs and spot gold.

Nadex’s more extensive offering includes binary options contracts available on 4 US Stock Index Futures, 4 International Stock Index Futures, 7 commodities, 10 currency pairs, Bitcoin and economic events such as the Fed Funds Rate and Jobless Claims.

Beyond the 5 minute, hourly and daily FX expirations offered at both exchanges, Nadex lists weekly FX contracts, as well as its wide selection of intraday, daily and weekly contracts in non-FX asset classes.

In addition to its binary option offerings, Nadex also offers variable payout spread contracts which more closely mimic the underlying stock index, commodity and retail FX markets.

Nadex screenshot


On Cantor 5-minute FX markets, the typical size available on the bid or offer ranges between 0 and 1000 contracts at a value of $1 each for total contract value available of $1,000 at the high end, and the size available is not consistent between the bid and offer. This may be fine for someone trading in very small size; however, anyone trading medium to large position sizes may find it difficult to not only get into a trade, but more importantly, difficult to get out of a trade.

On Nadex, the 5-minute FX markets feature $100 contracts and have a typical size available on the bid and offer of between 100 and 125 contracts, for a total contract value available of up to $12,500. This will allow the serious trader much more flexibility with both entries and exits, and at the same time provides high flexibility to entry level traders.

Liquidity Providers

As exchanges, all members of both Cantor and Nadex can be either market takers, or work a better price and effectively make the market. Of course, when attempting to work a better price, there are no guaranteed fills.

Both Cantor and Nadex utilize liquidity providers to price binary options and provide depth to the markets. One very important distinction between the two firms though is that Cantor does not recognize market makers as different from any other members. At Nadex, designated market makers are obligated to work within the rules of the exchange to provide quotes of at least a required minimum size and within the maximum bid/offer spread. Because market makers at Nadex are obligated to work within these clearly defined rules, individual traders enjoy a fair and balanced trading arena, whether they are looking to buy or sell or enter or exit a position.

At Cantor, because market makers are not designated as such and are under no obligations, they may effectively act as institutions trading against the little guy. For example, at any time on any whim Cantor’s “market makers” may pull pricing or increase the bid/offer spread to the width of the contract, leaving individual traders stuck in their positions with no means of escape.

Nadex currently has two designated market makers providing binary option pricing in their stock index, commodity and currency markets. Also, Nadex is actively pursuing additional market makers to meet the demand in an effort to provide even tighter bid/offer spreads and offer deeper markets to meet the rapidly rising demand for liquidity.

Cantor also suggests it has two non-obligated liquidity providers operating in their market. It is not clear whether they are pursuing additional institutions to trade; however, with a daily volume average from June 1 to June 8 being equivalent to only about 25 Nadex contracts, they probably have sufficient coverage for some time to come.

Trading Costs

Before discussing total trading costs, it should be noted that the binary options listed on Cantor have a total value of $1 per contract whereas the binary options listed on Nadex have a total value of $100 per contract. As such, to make an apples to apples comparison, we have equalized the values at 100 Cantor contracts = 1 Nadex contract.

It is very important to understand that the total cost of trading should include both fees as well as typical bid/offer spreads as both impact the potential profitability of the trader.

From a bid/offer perspective, the typical spreads witnessed on Cantor are around 12 to 18+ points versus the average of 6 to 9 points witnessed at Nadex. This means Cantor trading spreads may be twice as expensive as Nadex, even before the trading fees. This is a very important cost to the trader and one that needs to be considered carefully as it adds roughly $6 to $9 a contract per round turn to the cost of trading on Cantor versus Nadex.

Given the sizeable cost reflected in the wide spreads on Cantor, Cantor’s additional fees are limited with respect to orders that execute at the market, which incur no fee. At Nadex, there is a fee per contract of $0.90 but that is capped at 10 contracts per order no matter how large the order is.

When entering or exiting a position using a resting limit order, traders at Cantor incur a $0.01 per contract fee, which multiplied by 100 to equal 1 Nadex contract would be $1.00, obviously slightly higher than Nadex’s $0.90 fee. One very important note, particularly for a trader doing any type of size, because the fees at Nadex are capped on a per order basis whereas there is no fee cap at Cantor, it can quickly provide the trader an edge to execute their trades at Nadex. For example, a trader successfully working a 20-lot position at Nadex would incur an exchange fee of just $9.00. A trader doing the equivalent size at Cantor would incur an exchange fee of $20.00,(2000 x $0.01), more than double Nadex. And, as the size goes up from there, the gap grows wider.

At settlement, neither Nadex nor Cantor charge fees for contracts that settle out of the money for the trader. For in the money settlements, Cantor charges $1.00 for the equivalent of 1 Nadex contract, whereas Nadex charges $0.90. Again though, Nadex fees, even at settlement are capped at $9.00 whereas the settlement fees at Cantor can literally go on into infinity.

One other fee at Cantor, which is minimal but seems worth mentioning, is the $2.00 per month inactivity fee for any traders not trading in the last 60 days. There are no inactivity fees for Nadex members.

Resources and Education

While awareness and knowledge of binary options in the U.S. has been growing, the market is in its early stages and resources and education will be a primary component to the future growth of both of these exchanges.

In scouring the Cantor website, one can find virtually no education on the platforms available, how the contracts trade or strategies. Nadex on the other hand can boast of hosting multiple free webcasts each week, a full video library covering the exchange, the contracts and the platforms available, downloadable contract and strategy guides and an extensive (150+) YouTube Channel with instructional videos for every level of trader.

To support all of the information available, Nadex offers a fully functional demo account which mimics the live trading environment. This allows traders the opportunity to learn the platform, how the contracts trade, and the ability to practice strategies prior to risking any real money. Cantor does offer a web page which provides a sneak peek into the platform, but does not allow a trader the ability to really test the software by placing trades or testing strategies.

Overall Size

Taking a snap shot of June 2015 for the time frame of 1 June to 9 June, Cantor has averaged the rough equivalent of 25 Nadex contracts per day over the first 7 trading days of the month. During this same time frame Nadex has averaged over 24,700 per day. As a comparison of value, this would mean that Cantor would have seen the total value of contracts traded on an average day of $2,500 versus Nadex with over $2,470,000 traded on an average day. By these measures Cantor trades about 1/10th of 1%, or .001 the value and volume of Nadex.


Partnership Opportunities

Both Cantor and Nadex offer referring party arrangements for Introducing Brokers (IBs) that are members of the National Futures Association (NFA). Nadex has been offering this program since July 2011, signing their first of several IBs the same month. In addition, Nadex is planning to launch an affiliate marketing program later this year, allowing industry websites to partner with the exchange.

For ISVs (Independent Software Vendor) both Nadex and Cantor offer API solutions allowing developers connectivity to the respective exchanges.

Nadex is actively pursuing additional market makers to meet the growing demand for their contracts. At this point, Cantor does not seem to be in a position where additional liquidity is yet needed.

Traffic Share desktop visits


We are very happy to see the growth in the participation levels and welcome competition in the U.S. binary options market. With regard to the comparison of offerings, however, it seems that Cantor may be pursuing the very beginning trader who wants to trade in very small contract size. Nadex, on the other hand, provides a market for both new and more experienced traders and definitely has the edge when it comes to anyone who wants to trade in even a medium size. Also Nadex’s combination of wider variety of products and lower exchange fees makes it more appealing to a larger audience and therefore, we believe, a more attractive business partner.

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