When it comes to options trading, there are two main types of options that you will need to choose from – options and listed options. So, what’s the difference between the two?
Why should you care about options trading in SG?
One of the most significant benefits of options is that they offer leverage. You can invest a smaller amount of capital in controlling a more prominent position in the underlying asset.
They are versatile and can be used for various purposes, such as hedging your portfolio from risk, speculating on market direction, or generating income through covered calls or cash-secured puts.
However, it’s essential to note that trading options involve risks and require high knowledge and experience. Before venturing into this arena, do your research and consult with an experienced professional first.
If you are new to trading options and want to know more about how they can benefit you, check out our comprehensive guide on the topic, where you can find information on how to select and trade options and how to manage risk when trading them more.
The differences between listed options and options
Listed options are standardised contracts traded on exchanges, whereas options are not.
This means there is higher liquidity in the market for listed options, as more buyers and sellers are willing to trade them. It also means that listed options are subject to regulatory oversight by organisations like the Securities and Exchange Commission (SEC). On the other hand, because options are not traded on exchanges, they are not subject to the same level of regulation. This lack of regulation can make it more challenging to find counterparties to trade with and get accurate pricing information.
Regarding valuing and pricing options, listed options are generally easier to value as they are traded on exchanges. However, you will need specific tools and expertise to price options that are not traded on exchanges accurately.
Finally, while there is higher liquidity in the market for listed options, this can come with a higher premium cost – making them more expensive than their option counterpart.
How to trade in SG using options and listed options
So, how do you trade in SG using options and listed options? Here are a few tips to get you started:
Do your research- Before jumping into the world of options trading, read up on the topic and consult with an experienced professional or broker (such as Saxo Bank). It will help you better understand how the market works, what tools are available for pricing, etc.
Choose the correct type of contract- Options can be used for various purposes – such as hedging your portfolio from risk or speculating on market direction – so it is crucial to choose the right type of contract when trading.
Manage your risk- When trading options, make sure to understand your risk tolerance and position size clearly. It will help you avoid over-leveraging your positions and incurring significant losses.
Consider using a broker- Working with a broker who specialises in options trading can be helpful, as they will have access to the latest tools and resources and expertise in the field.
The benefits of trading using options and listed options in SG
Increased leverage allows you to control a more prominent position with less money, which can help maximise your returns.
Versatility – Options are versatile and can be used for a range of purposes, including hedging risk, speculating on market direction, or generating income through covered calls or cash-secured puts.
Regulatory oversight – Because listed options are subject to increased regulation by organisations like the SEC, they offer more excellent protection from fraud and manipulation.
Tips for beginners trading in SG using options
If you’re a beginner who wants to start trading in SG using options, here are a few things to keep in mind:
Do your research – make sure to read up on the basics of options trading and consult with an experienced professional before getting started.
Consider using a broker – working with a broker can give you access to the latest tools and resources, and expertise in the field.
Manage your risk – clearly understand your risk tolerance and position size before trading.