To briefly summarise options in layman’s terms, they are contracts between two people in which one party pays another party for the right, but not obligation, to buy or sell an asset at a future point in time.
Options are used by businesses and traders alike when mitigating risk is essential. When someone buys “shares” in any company, they own part of the business and have certain rights regarding how the company should be run. However, there were instances where companies may infringe upon these rights (take note that shareholders can sue), thus giving rise to option contracts due to their flexibility.
It is possible to buy options in Singapore.
There are Several Different ways to do this which Traders can take advantage of.
1) Buying put and call options via a broker
2) Using binary options platforms
3) Forex trading platforms that have an option feature integrated into the software
4) Through peer-to-peer exchanges
5) Contract for differences (CFDs)
Buying Options Via Brokers
There are two main options that traders may wish to purchase when they are outside of the US – vanilla or plain vanilla (also known as European style) and American style. A broker will generally deal with one type only; however, some brokers offer access to both types. American style options are slightly riskier as they can be exercised during their lifetime, whereas European ones can only be exercised on the expiration date. As such, the American style will offer greater leverage and therefore returns (but also with correspondingly high risk).
Using Binary Options Platforms
Binary options platforms enable traders to buy one type of derivative – either a call or put option, depending on whether you’re buying or selling. To execute this trade, you must choose your strike price (how much an underlying asset’s price needs to rise or fall by for the options contract to be worth something), expiry date for the contract, and how much money you wish to spend. Given that you are not buying an actual underlying asset – for example, if you buy a call option on Apple stock (AAPL), you will never own any of APPLE’s shares. Still, you will only benefit if the price of AAPL rises. You are betting against the house with binary options rather than trading actual stocks.
Forex Trading Platforms with Options Feature Integrated Into The Software
Most forex trading platforms have an option feature integrated into the software that allows traders to buy calls or puts depending on whether they think that the value of their chosen currency pair/commodity/asset will rise or fall by at least a certain amount within a predetermined time frame. Thus, this works much like the binary options platform above.
Through Peer-to-Peer Exchanges
An example of peer-to-peer exchange is Local Bitcoins, where traders can buy and sell bitcoins directly using different payment methods (e.g. PayPal or bank transfer). One may also perform trading via an online P2P lending platform – for example, Bitbond. Here you will be dealing with tangible underlying assets rather than derivatives; however, there are risks associated with this type of trading that would not exist when buying options contracts. For instance, if the borrower defaults on their loan repayment, there is no safety net to guarantee you will receive your money back.
Contract for Differences (CFDs)
Trading CFDs is a way of making profits and losses on the price movement of an underlying asset, just like owning that asset. The difference between this and other types of derivative trading (e.g. options contracts) is that with CFDs, you’re not buying any tangible assets; but instead agreeing to pay the difference in value between the price when you bought it and its value at the expiry date.
If you believe a call CFD on APPLE for $100 at $100 – i.e. when APPLE’s current share price is $100, and decide to close your position before the expiration date, which is 1 hour later, if Apple’s stock price has risen to $200 by then (i.e. gain 100% return), then you will pocket a total of $100 in profit, minus the commissions and any fees charged by the broker.