Nadex

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HedgeStreet
Type Private
Industry Finance
Founded 2004[1]
Founders John Nafeh, Ph.D.[2]
Headquarters Chicago, Illinois, United States
Area served United States
Key people Yossi Beinart
Products HedgeStreet Exchange
Services futures/derivatives exchange
Owners IG Group
Employees 50[2]
Website http://www.nadex.com

Nadex (North American Derivatives Exchange), formerly known as HedgeStreet, is an electronic exchange that allow trading in a number of financial derivatives. Under US regulations, technically it is a Designated Contract Market (exchange) and a Derivatives Clearing Organization (clearing house) subject to regulatory oversight by the Commodity Futures Trading Commission.

History[edit]

HedgeStreet was the first Internet-based government regulated (CFTC) event futures/derivatives exchange.[2] The company operates the HedgeStreet Exchange, which launched in October 2004 and provides traders with a place where they can hedge against or speculate on economic events and price movements.[1] The reasoning behind the creation of HedgeStreet was that with the rise of individual private investment in stocks, there might be a similar appetite for individuals to invest in derivatives.[3] This focus on small investors created sufficient confusion that John Nafeh, founder of HedgeStreet, created the term "hedgelet" to help explain the company's business model.[2]

"Hedgelets" come in two varieties: binary options and capped futures.[4] Binary options are bets on outcomes, "yes/no" contracts, that pay out a small dollar amount (e.g. $100) if final price of an instrument is above the strike price and nothing if below. For instance, HedgeStreet launched Germany 30 Binary Options in 2008. The Germany 30 contract is based on the DAX Equity Index Futures; if the estimate exceeds the strike price, the binary options pay out. A binary option is a contract with an all-or-nothing payout. BUY if one believes the market price of the underlying asset will settle above a specific strike at expiration. SELL if one believes it won’t. The price of a binary contract is determined by the marketplace and represents the probability at the time of the trade that the underlying will exceed the strike price at expiration. If the investor's insight proves correct, at expiration the investor gets $100 (i.e., the full contract value). Profit equals $100 minus initial investment plus fees. An investor would only lose the initial investment (plus fees) if the investor is incorrect.

As of mid-2006, the company had two major investment partners.[2] The Chicago Board Options Exchange purchased a minority stake in HedgeStreet in February 2006 and assists in marketing the company's "hedgelets". In March 2006, Norwest Venture Partners provided a multi-million dollar investment in the company.

In 2007, UK based IG Group announced intent to acquire HedgeStreet[5][6] and later in the year completed the purchase of the company.

Soon after the acquisition, IG Group renamed HedgeStreet to the North American Derivatives Exchange (Nadex).

See also[edit]

References[edit]

  1. ^ a b Steven Smith (2004-11-25). "Hedging for Small Investors". TSCOptions column (TheStreet.com). Retrieved 2007-12-26. "The site, which launched in early October .... operates as both an exchange and clearinghouse, is a licensed operator, in this case by the Commodity Futures Trading Commission." 
  2. ^ a b c d e Laura Counts (2006-05-26). "HedgeStreet has opened up derivatives trade to Main Street". Print Edition (Silicon Valley / San Jose Business Journal). Retrieved 2007-12-26. "I'd spend the first half of every conversation saying 'no,'" said Mr. Nafeh, chairman of the San Mateo company. "I had to come up with the term 'hedgelet,' so I could explain what it was, instead of what it wasn't." 
  3. ^ Daniel Nasaw; Ian McDonald (2004-10-22). "Firm Offers Hedging on a Small Scale" (Preview). WSJ.com (The Wall Street Journal). Retrieved 2007-12-26. "Now a new online market wants to bring derivatives to the masses, albeit in small doses and not in the speculative form that critics contend can pose financial ruin." 
  4. ^ Jonathan Hoenig (2006-02-27). "Hidden Opportunities". SmartMoney.com (Hearst Corporation with Dow Jones & Company). Retrieved 2007-12-26. "Two types of contracts are offered, binary options and capped futures. Both are referred to as "Hedgelets."" 
  5. ^ Regulatory News Service (2007-11-19). "IG Group Hldgs plc - Acquisition". Hemscott.com (Ipreo). Retrieved 2007-12-26. "IG Group Holdings plc ('IG' or 'the Group') agreed on Friday 16th November to purchase the entire issued share capital of HedgeStreet Inc ('HedgeStreet') for $6.0m, approximately £2.9m." 
  6. ^ Regulatory News Service (2007-12-07). "IG Group Hldgs plc - Acquisition Update". Hemscott.com (Ipreo). Retrieved 2007-12-26.