Nadex first to offer bitcoin derivatives trading to US retail investors

IG Group's CFTC-regulated binary options exchange, North American Derivatives Exchange (Nadex), announced that subject to a filing with the U.S. Commodities and Futures Trading Commission (CFTC), it will offer binary options contracts on bitcoin prices.

The offering is expected to go live in early December, starting with daily and weekly bitcoin binary options contracts with price quotes obtained from Tera Exchange’s Tera Bitcoin Price Index (“TeraBit Indexsm”).

While Tera Exchange offers swaps based on its TeraBit Index for institutional traders, the upcoming offering by Nadex pioneers a new investment product for the for U.S. retail investors. The company said the launch is in response to rising demand from customers.

Speaking to Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term Magnates, the company’s CEO Tim McDermott commented, “Nadex had to go through the steps required in developing any contract for listing on a regulated exchange. In terms of the process of filing with the CFTC, however, we had to submit the proposal formally prior to launch, but we have been in discussions with CFTC staff in advance of that expected filing.”

Bitcoin and regulation have had a tough time becoming compatible, but the CFTC is viewed as relatively progressive. “The CFTC has probably been the most proactive regulator in a positive way in connection with bitcoin, in terms of looking at the potential benefits that digital currencies and a distributed Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Read this Term can offer the financial markets and the commercial world generally,” McDermott added.

One also notes that there may be more flexibility when it comes to derivatives, where unconventional underlying assets are more accepted, as opposed to bitcoin ETFs or spot trading which are more difficult to regulate.

In the U.S., binary options contracts have to be traded on an exchange regulated by the CFTC. Such offerings are known in the industry as all-or-nothing-options, with the investor purchasing a contract on an exchange and the payoff confined to only two possible outcomes: a fixed amount or nothing at all.

McDermott elaborated on the offering: ”Our innovative short-term contracts provide a way to trade in a transparent, regulated market where the trader’s exposure is known before any transaction is executed. This is especially valuable given the bitcoin price volatility that has often been experienced in the marketplace.”

The selection of the TeraBit index was the only option for Nadex, since it is the only bitcoin price index calculated by a CFTC regulated company.

TeraExchange’s President and co-founder, Leonard T. Nuara, said, "By working with Nadex to launch its bitcoin binary options, we are thrilled to help make another regulated marketplace available to those looking to take directional views on bitcoin."

Nadex's parent, IG Markets, recently relaunched its own binary options offering. But Nadex, previously called HedgeStreet before getting purchased and renamed by IG in 2007, is tailored to meet US regulatory requirements.

This story was first published on our parent website, Forex Magnates.