Singapore has become one of the world’s most important financial centres in recent years, and its derivatives markets are a big part of that. One popular type of derivative trading on Singapore exchanges is the listed option.
As a trader, you should be aware of the different options available to you. In Singapore, two main types of listed options are available: American and European. If you’re thinking of trading options in Singapore, or are already doing so, here are five things you should know. You can also learn more through Saxo Bank.
What are listed options?
Listed options are simply options traded on an exchange, which makes them different from over-the-counter (OTC) options, which are not traded on an exchange. Singapore’s two leading exchanges for listed options are the Singapore Exchange (SGX) and the Chicago Mercantile Exchange (CME). SGX offers American-style options, while CME offers European-style options.
The main difference between these options is when they can be exercised. American-style options can be exercised at any time up to the expiration date. It makes them more flexible than European-style options, which can only be exercised on the expiration date itself.
The benefits of trading listed options?
There are many benefits to trading listed options. One is that they offer greater liquidity than OTC options, meaning it’s easier to find a buyer or seller for your option contract and that you’re less likely to experience significant price swings.
Listed options also offer more transparency than OTC options, and it is because the prices of listed options are publicly available, so you always know what the market is doing. In contrast, OTC options trade privately between two parties, so getting accurate pricing information can be more challenging.
Another benefit of trading listed options is that exchanges regulate them. It provides higher protection for traders, as exchanges have rules to prevent fraud and manipulation, and OTC options are not subject to the same level of regulation.
Finally, listed options are generally less expensive than OTC options. It is because the exchange charges fees for trading options are typically lower than those charged by OTC option dealers.
The risks of trading listed options?
Before you start trading listed options, you must know the risks involved. One risk is that you may experience price slippage. It is when you try to buy or sell an option at a specific cost, but the trade is executed at a different cost due to the lack of liquidity in the market.
Another risk is that your broker may not be able to fill your order. It can happen if no buyers or sellers are willing to trade at your price. As a result, you may have to accept a different price to execute your trade.
Finally, you should know that some brokers charge higher fees for trading listed options than other types of securities. It is because the exchanges that list options charge broker fees, typically passed on to traders.
How do I trade listed options?
If you’re interested in trading listed options, the first step is to open an account with a broker that offers this service like Saxo Bank. Some brokers specialize in options trading, while others offer it as part of a broader range of services.
Once you’ve opened an account, you’ll need to deposit money into it. This money will be used to buy and sell options contracts. Once your account is funded, you can start trading options. To do this, you’ll need to use a platform your broker provides. This platform will allow you to view the prices of different options contracts and place orders to buy or sell them.
What should I look for in a broker?
If you’re looking for a broker to trade listed options, you should consider a few things. One is the fees that the broker charges. As we mentioned, some brokers charge higher fees for trading listed options than others. So it’s essential to compare the fees of different brokers before deciding which one to use.
Another thing to consider is the broker’s platform for trading options. This platform should be user-friendly and offer all the features you need to trade effectively. It’s a good idea to test out the platform with a demo account before opening a live account, and it will allow you to see how it works and get comfortable using it before risking any real money.
Finally, you should make sure that the broker is regulated by a reputable body such as the Securities and Exchange Commission (SEC) in the US or the Financial Conduct Authority (FCA) in the UK. It will ensure that your broker is subject to strict financial regulations and that your money is safe.