Floor-ceiling range (spread range, floor and ceiling levels)

What do floor and ceiling mean in spread trading and knock-outs trading?

The floor and ceiling of a Nadex knock-out define the maximum and minimum risk exposure for both buyer and seller. Between the floor and ceiling, the knock-out's value will move along with the price movement in the underlying market.

However, if the indicative price goes above the ceiling or below the floor with a knock-out contract, you will be knocked out of the trade, taking your maximum possible profit or loss. This is how it works:

Your risk and reward are capped

Knock-out contracts: If you buy a knock-out contract and the indicative price hits the floor of the range, you are knocked out of the trade, taking your maximum possible loss. This gives you protection similar to that of a stop-loss order.

If you buy a knock-out contract and the indicative hits the ceiling of the range, you are knocked out of the trade, taking your maximum possible profit. This gives you a natural profit target.