Exchange-traded options (ETOs) are derivative products that give investors exposure to financial markets without buying underlying securities directly. Instead, they allow them to benefit from price changes in securities by providing a short position or a long position on the future value of underlying securities.
ETFs differ from options traded over-the-counter (OTC) as they are standardised and traded through exchanges, allowing them to be bought and sold like common stock. OTC options tend to have more specific contracts and conditions than exchange-traded one
Trading options in Singapore
Each Singaporean is only allowed to trade up to 4 stocks and one unit trust at a time. The other three exchanges for trading are the SGX-ST which has 16548 listed companies, HKEx Exchange with a total of 2214 companies and China Financial Futures Exchange Company Limited (China Financial Futures), which is located in Mainland China.
These three exchanges allow you to enjoy more choices in trading options, but one has to know how to choose wisely so as not to be ripped off by hackers or scam artists.
Two types of exchanges
There are two types of exchanges in Singapore;
An electronic auction-style
Electronic Auction Style Exchanges gives clients lower costs, but this could also mean less control over the timing and terms of one’s trades.
Traditional stock exchange
On the other hand, Traditional Stock Exchanges allow for more control and certainty, but you may be subjected to higher commissions and fees.
Platforms for trading ETFs
These platforms can be used to trade either stocks, ETFs or indexes;
The 1st platform would be SGX’s PRO-HOME which is available for both Mac OS X and Windows users, while the 2nd platform would be SGX’s ProTrade which is only available for Mac OS X users.
Lastly, SGX Anywhere is SGX’s web-based trading platform where you could buy sell options with just one click of your mouse! It works on Windows and Mac OS X computers.
Benefits of Trading Options in Singapore
Options can provide excellent protection against losses during market downturns.
The most crucial benefit you get when trading options is the possibility to limit downside risk while still retaining upside potential.
Whether you’re looking at buying call options for capital appreciation or put option for protection, your only loss will be the price paid for the option itself (called a premium). After that point, no matter how low the price of the underlying falls, there is no further loss. The best part is you don’t have to own the stock to benefit from an options strategy in Singapore.
Options are tax-efficient
Another advantage in trading options over trading Singapore shares lies with taxation. While dividends and capital gains apply on shares, there isn’t any such taxation for option holders unless they’re exercising their option to buy or sell at a date different than contract expiry. Thus, even though it might seem like an efficient way of making money through shorting stocks, that approach can be costly due to taxes and margin requirements imposed by brokers and exchanges.
Options can diversify your portfolio and hedge risks.
One of the most significant benefits you get from trading options is to reduce the volatility of a stock portfolio, making it less risky. One way to achieve that is by purchasing low strike price put option contracts with a high volume to protect against downside risk or selling higher strike price call option contracts with a low volume if you’re bullish over a specific stock, thus creating a form of insurance to limit losses should your thesis not play out as expected. There are several ways you can use Singapore Exchange Options to manage risk when trading stocks in Singapore.
The last step would be to choose the right broker who deals with options because not all brokers have access to the SGX market. We recommend using a reputable online saxotrader from Saxo Bank.