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Bull Spread Example: GBP/USD

This example shows how you can open a highly leveraged position on spot GBP/USD, risking no more than 72 pips, without the vulnerability of a stop-loss in volatile markets.

Nadex lists a wide range of Bull Spread contracts on forex throughout the trading day. At most points during the day, you can choose between at least seven different contracts on spot GBP/USD, each with varying Floor/Ceiling ranges.

Which Bull Spread?

It's 10:15am ET and the GBP/USD spot rate is 1.6253-1.6256. You log into the Nadex platform, and see that there are four different Bull Spread expiration times available for GBP/USD:

  • 8-hour Bull Spread (7am – 3pm)
  • 2-hour Bull Spread (9am – 11am)
  • 2-hour Bull Spread (10am – 12am)
  • Daily Bull Spread

Which contract?

Being bearish on GBP in the short term, you select the 10am – 12pm spread. You are now presented with three possible contracts with different Floor/Ceiling values, all with a range of 150 pips, and all with different Bid/Offer prices:

  • 1.6250 – 1.6400 (Bid - 1.6264, Offer - 1.6267)
  • 1.6175 – 1.6325 (Bid - 1.6253, Offer - 1.6256)
  • 1.6100 – 1.6250 (Bid - 1.6243, Offer - 1.6246)

The order ticket

As you can see, the Bid/Offer price of the middle contract (1.6175-1.6325) is similar to the spot rate. The Bid/Offer prices of the two outer contracts are adjusted, however, since the spot value is trading very close to the Floor/Ceiling of these spreads.

If you thought GBP was going to drop a large distance and also wanted to limit your risk considerably, you could choose the contract with the lowest Floor/Ceiling value (1.6100-1.6250). Here you would be risking just 7 pips, but in exchange for this lower risk, the Bid and Offer pips are 10 points lower than those for the middle contract. This means the spot rate would have to move further for you to realise a profit.

Therefore, to maximise your potential gains you decide to trade the middle contract. You select the 1.6175-1.6325 spread to bring up the deal ticket. The details of the contract are:

  • Expiration: 12pm ET, same day
  • Floor: 1.6175
  • Ceiling: 1.6325
  • Best Bid: 1.6253 (50 contracts available)
  • Best Offer: 1.6256 (50 contracts available)
  • Tick Size: 0.0001

Making the trade

You decide to sell 10 contracts at 1.6253 and are immediately filled at that level.

The Ceiling of the Bull Spread is only 72 pips away at 1.6325, so the maximum loss you can take on this position is:

72 pips x 10 contracts (@ $1/per pip) = $720.

This is the amount required in margin to cover the trade upon entry (plus trading fees). Since the Floor of the contract is 78 pips away at 1.6175, your maximum potential gains are $780 if the market moves significantly in your direction.

Closing the Position

At 11:30am ET, as you predicted, the GBP/USD spot rate has fallen. In accordance with the spot rate, the Bid/Offer price of your GBP/USD Bull Spread has dropped to 1.6220 – 1.6222.

The Buy price is now 31 pips lower than your opening position, representing a profit of 31 x 10 contracts = $310. You choose to close the position at this point by entering an opposing bid for 10 contracts and realizing the profit.

Note: When you open a position, you do not have to close the position before expiration; you may also hold it until expiration.

High Leverage and Limited Risk

Using this contract you achieved a high degree of leverage within a 150 point range, as well as significantly limiting your risk to just 72 pips. The Floor and Ceiling of a Bull Spread will never stop out your position – only the Expiration time or your decision to close early, will do that. This keeps your position alive even if the underlying market temporarily whipsaws through your Floor/Ceiling level.

The above hypothetical example provides details of what your gross profit or loss would have been. Of course, these could have been greater had you traded more contracts. In a real trade, you would also have to account for trade and/or settlement fees. For more information, please see our Fees page.

Bull Spread Example: Crude Oil

This example looks at trading on the price of Crude Oil futures using a Bull Spread contract and holding the position until expiration later in the day.

It is 8:30am ET. You think that the price of the underlying Crude Oil future is going to rise during the day and decide to buy a Bull Spread contract on Nadex.

After logging on you view an order ticket on the ‘Daily’ Crude Oil Bull Spread. You check the details and note the following:

  • Expiration: 2:30pm ET, same day
  • Floor: 90.00
  • Ceiling: 100.00
  • Best bid: 95.93 (10 contracts available)
  • Best offer: 95.99 (10 contracts available)
  • Tick size: 0.01

Buy or Sell?

Remembering that the value per tick for all Bull Spread contracts is $1 per contract, you can either buy if you think the value of the contract will be higher at the time of expiration, or sell if you think it will be lower. Looking at the order ticket you see that ten contracts are available to buy at 95.99 and ten contracts are available to sell at 95.93.

You decide to Sell 2 contracts at 95.93 and are promptly filled.

The Ceiling level is 100.00, so the maximum possible adverse movement is 4.17 (100.00 - 95.83) or 417 points per contract.

You have sold 2 contracts so your maximum possible loss is 417 x $2 = $834. You must have this much in your account, plus any trading fees, in order to open this position.

You decide to hold the position for the rest of the day, until it expires at 2:30pm ET.

The Expiration Value at 2.30pm (calculated from a set of NYMEX* April Crude Oil Futures trade prices) is $96.89.

Your loss is calculated as follows:

Opening price:  95.93
Closing price:  96.89

Difference:  -96 points


Loss: 96 x $2 = $192

You decide to Buy 2 contracts at 95.99 and are promptly filled.

The Floor level is 90.00, so the maximum possible adverse movement is 5.99 (95.99 - 90.00) or 599 points per contract.

You have bought 2 contracts so your maximum possible loss is 599 x $2 = $1198. You must have this much in your account, plus any trading fees, in order to open this position.

You decide to hold the position for the rest of the day, until it expires at 2:30pm ET.

The Expiration Value at 2.30pm (calculated from a set of NYMEX* April Crude Oil Futures trade prices) is $96.89.

Your profit is calculated as follows:

Opening price:  95.99
Closing price:  96.89

Difference:  +90 points


Profit: 90 x $2 = $180

Note: When you open a position, you do not have to hold it until expiration. You can log into the platform and enter an order to close, or partially close, your position at any time until expiration.

The above hypothetical example provides details of what your gross profit or loss would have been. Of course, these could have been greater had you traded more contracts. In a real trade, you would also have to account for trade and/or settlement fees. For more information, please see our Fees page.

For specific information on all the Bull Spreads we offer, please see Range of Markets.

*NYMEX is a registered service mark of the New York Mercantile Exchange, Inc.

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Nadex is subject to U.S. regulatory oversight by the CFTC.

The maximum risk for any trade is fixed and required in advance so you cannot be called upon for further funds. But please remember these are volatile instruments and there is a high risk of losing your initial investment on each individual transaction.