Did you read anything I posted? Have you ever traded there or are you just an expert without any actual experience assuming Nadex is the same as the bucket shops you do have experience with? You can make a market on Nadex. Anyone can. So you should be able to make millions, you can do exactly what the house can do! Thanks for playing, but you're really adding no value when you haven't the first clue what you're talking about.
The fact that you can sell on Nadex does not mean that these trades are real. You're not trading a contract on the underlying in the open market. It's just you, Nadex, and maybe whoever else is trading on Nadex. They're all fake in-house trades. I have no doubt that Nadex will pay out if you win...but that's not the point of the argument. Nadex is a bucket shop. If you are trading on Nadex, and your orders actually execute options positions in the real market then that 's a different story, BUT I highly doubt that is what is going on.
The big difference is that IB doesnt own the exchanges that Timber Hill trades on. I can bet you IG makes vastly more profit from being the market maker than it makes from the fees Nadex charges. The business model is to trade against clients. They have to go down the indirect 'Exchange' facade route as they cant legally do it directly in the US.
So I'll take it you agree that there is no disadvantage to the customer to have GAIN market making then (and in fact huge advantages compared to the Cantor model). Unless they're doing something illegal, which we have no indication of, the fact that they own the exchange is irrelevant. GAIN could also be running a puppy factory, but unless you can show how anything they're doing is detrimental to those trading trading there it just doesn't matter.
Nothing is real. I'm not real. You aren't real. These words aren't real. But sure as shoot a CME option is real; ever been hit up side the head with one of those suckers, it hurts! Keep it real bro.
CME options can be used to hedge portfolio risk. Casinos and sports gambling can at least be described as entertainment. But betting and gambling on intra day financial events, what real world financial or social purpose does doing that serve?
OK, so now we have to pass a societal benefits test to list a trading product? That's a slippery slope, we could go on all day with that bit of mental masturbation. We should probably stop all trading of all options the day of expiration by that logic, because we arbitrarily decided intraday trading serves no purpose and by definition the last trading day is intraday? One of about a hundred arguments against this "benefits test" concept. It's interesting how we morphed from "Nadex is a bucket shop and therefore bad" to "Nadex serves no hedging or entertainment purpose therefore bad" when we couldn't support the first. The argument is getting more and more rediculous! I don't trade 20 or 5 min contracts, in fact I don't do the majority of my trading at Nadex at all. But I can see that someone who had a strategy that reliably yielded something like a 51% win rate over a large number of iterations could use them. I don't care if they exist or don't at this point, but there's nothing inherently "wrong" with them or Nadex or GAIN acting as a MM, just like an option on one CFTC regulated exchange is no more "real" than an option on another. I probably would do more trading at Nadex and certainly at Cantor if they had more liquidity, and people spreading disinformation about them hurts that, so I am going to step in and point out the fallacy that Nadex customer's are somehow treated unfairly or getting ripped off every time I see it.
We are pointing out that it is a BS exchange offering a BS product. And you are right to stay away until bid/ask spreads tighten but they never will because short term volatility is often easy to predict, much easier to predict than short term direction. Anyone placing a limit order that is even slightly badly priced is quickly picked off and the spread widens again. This is why the market makers (more correctly bookmakers) bid/ask prices are so wide, they can not make money with a tight spread.
You're calling it a BS product with no justification. You don't see a need for it, great, don't trade it. We all need to be humble enough to realize that just because we don't see a use for something doesn't mean that there is no use! I'm guessing it's been a while since you're logged in there, but spreads are usually 6 points on the products I trade during market hours, which is much higher than I'd like it to be but hardly usurious. And again as I've pointed out over and over YOU TOO CAN MAKE A MARKET!!!! If the spreads are usurious or there is some kind of "picking off" that the MM can engage in to make profits you feel they shouldn't, then why aren't you taking advantage of that instead of complaining about it being unfair? By the way, my experience is that the GAIN owned MM has a very naive algo that completely ignores other orders. I wish they'd "pick off" my orders inside the bid/ask, but they don't. And the only one doing any "picking" of non-market maker bids/offers inside the spread in my experience is me. If you want to have a serious discussion about binary options pricing theory and how to mitigate risk I'd be happy to do that as soon as you dispense with the ever shifting argument that Nadex is somehow bad despite the fact that I've shown every one of your assertions to be incorrect, unsupported, or irrelevant. The truth is that the best way to deal with laying off risk for a binary options MM is to have a greater dispersion of outstanding contracts. Taleb has a good section on this in his book Dynamic Hedging: Managing Vanilla and Exotic Options (another guy I grudgingly pay attention to!) The current wide spread is a direct result of the small size of the MM's order book across products and strikes. As they get more volume across products and strikes, they will be able to provide smaller spreads and still make money; it's incorrect to say that "they cannot make money on a tight spread". Again, hence my interest in dispelling the haters out there who start with a gut feel that Nadex must be bad, then come up with ever more ridiculous reasons to justify that gut feel when they're asked to justify it. At some point, one would think it would be easier and make you look less foolish to simply acknowledge that your initial gut feel might not have been fully fleshed out, and upon further investigation you realize you were incorrect.