How is the expiration value of a Nadex contract calculated?

Forex

Nadex uses different expiration value calculation procedures for normal markets vs. highly active markets. Spot FX midpoint prices are collected from the underlying market activity of an FX pair for the last 10 seconds before each Nadex contract expiration. Nadex then defines instances where 10 or more midpoint prices are generated within this 10 second time window as a highly active market.

In this scenario, Nadex utilizes all midpoints generated in this 10 second time period (10 pips wide or less), removing the midpoint prices in the highest and lowest 30% of those collected. After removing the highest and lowest 30%, if the remaining number of midpoints are not equal to a whole number, Nadex would round down the number of midpoints that would be removed from the data set (see “Integer” example below). Nadex then generates a simple average price of these remaining midpoint prices to calculate the final expiration value of each Nadex contract, rounding the resulting calculated price to one decimal point past the precision of the underlying market.

“Integer” Example:

• 14 midpoints are generated in the last 10 seconds of an FX pair before settlement

• 30% of 14 midpoints would be 4.2 midpoints – as 4.2 is a non-integer number, this value would be rounded down to 4

• The top 4 and bottom 4 midpoints would be removed, resulting in 6 remaining midpoints

• A simple average of those 6 midpoints is then used to calculate the expiration value of the FX contract at Nadex settlement

If 10 or more prints are not generated within the 10 second window before expiration, Nadex defines this as a normal market. In this scenario, Nadex collects the last 10 qualifying midpoints prior to expiration in the relevant FX pair, which would extend beyond the original 10 second time window. Nadex then applies the same FX expiration value calculation to these collected prices:

• Remove the highest and lowest 30% of midpoints collected (the highest 3 and lowest 3)

• Take the simple average of the remaining four midpoints and round to one decimal point past the precision of the underlying market

Indices and Commodities

For contracts based on indices and commodities markets, Nadex collects the prices from each trade in the underlying market during the last 10 seconds before each Nadex contract expiration. Where 25 or more trades are generated during this time period, Nadex defines these instances as highly active markets.

Nadex then applies a similar process to the highly active market methodology listed above in Forex, removing the trade prices in the highest and lowest 20% of those collected. After removing the highest and lowest 20%, if the remaining number of trade prices is not equal to a whole number, Nadex would round down the number of trade prices that would be removed from the data set (similar to the “Integer” example below).  Nadex then generates a simple average price of these remaining trade prices to calculate the final expiration value of each Nadex contract, rounding the resulting calculated price to one decimal point past the precision of the underlying market.

If 25 or more trade prices are not generated within the 10 second window before expiration, Nadex defines this as a normal market. In this scenario, Nadex collects the last 25 qualifying trade prices prior to expiration in an index or commodity underlying market, which would extend beyond the original 10 second time window. Nadex then applies the same formula to these collected prices:

• Remove the highest and lowest 20% of trade prices (the highest 5 and lowest 5 prices)

• Take the simple average of the remaining 15 prices and round to one decimal point past the precision of the underlying market

The market prices we use to calculate the expiration values for indices and commodities contracts are obtained through a data feed from Reuters. If Reuters is unavailable, we may obtain market pricing data through Bloomberg or another data provider that we deem appropriate under the circumstances.

The market prices we use to calculate the expiration values for forex contracts are obtained through a proprietary data feed (‘NadexFX’) comprised of quotes from well-known banking institutions. If NadexFX is unavailable, we may obtain market pricing data through Bloomberg or another data provider that we deem appropriate under the circumstances.

Event Contracts

The expiration value for event contracts varies based on the contract.  Please reference specific event contracts in the Nadex Rulebook to determine relevant expiration values and source agencies.

Learn more about expiration value. For more specific details, please see the individual contract in the Nadex Rulebook.