Nadex, an American derivatives exchange affiliated with Crypto.com, a cryptocurrency exchange platform, has been accepted by the Securities and Exchange Commission to handle individual stock futures.
Stock Futures
Stock futures are derivatives, which are financial contracts whose value comes from changes in the price of the underlying asset. It allows the buyer to purchase stock and the seller to sell a stock or set of stocks at a predetermined future date and price. When a stock goes higher than the agreed upon purchase price, say six months from now; the seller is obligated to sell the stock at the agreed upon price. This nets a profit for the buyer.
Stock futures usually cover indices like the S&P 500, Dow Jones, and NASDAQ. This being said, with the rise of new platforms, individual stock futures have been made more accessible. One can therefore buy stock in Coca Cola, and ‘predict’ whether the stock will go up or down at a predetermined date.
The risks involved with stock futures center around the bet-like nature of the transaction. It is speculative, and when a stock goes lower than the agreed-upon purchase price at a specific date, the buyer loses—and the seller profits.
Significance of Nadex Individual Stock Future Registration
Nadex is closely tied to Crypto.com, and this leads to speculation that soon, it will make strides to enable users to purchase individual stock futures with cryptocurrency. Another stride Nadex might take is the push for perpetual futures—where there is an indefinite date of execution. The SEC currently looks at perpetual future applications on a case-by-case basis; therefore, should the step be taken, there will be a process that Nadex will have to undergo before approval for perpetual futures trading.
Perpetual Futures and Crypto
Perpetual futures are especially beneficial for cryptocurrency trading. It reduces the volatility-associated execution price by allowing the buyer of the contract to buy the predetermined price at any time, no matter how long in the future this will be. Analysts say this weathers the unpredictability of some cryptocurrencies. This—in theory—allows futures-buyers to dampen risk while still exploiting the potential profit—or reduce losses—associated with traditional futures trading. Whether or not this will apply to Nadex, the point has been made that it is taking the first step towards a possible path leading to this.
