The listed options market in the UAE is still relatively new but is snowballing. There are now several exchanges offering listed options products, and many investors are looking to take advantage of this potentially lucrative investment opportunity.
However, before you start trading listed options, there are a few things you need to know. This article will look at the main things you need to know about listed options in the UAE.
What are the listed options?
Listed options are financial contracts that give the holder the right but not the obligation to buy or sell an underlying asset at a specified price on or before a specific date. The underlying asset can be either share to commodities. Listed options are traded on exchanges and are regulated by the market authorities. It means that they are a relatively safe investment product.
How do listed options work?
When you buy a listed option, you are buying the right to buy or sell an underlying asset at a specified price on or before a specific date. If the underlying asset’s price moves in the direction you anticipated, you will make a profit, but if it moves in the opposite direction, you will make a loss.
Advantages of trading listed options in the UAE
The main advantage of listed options is that they offer protection from downside risk. For example, you can hedge your exposure to a falling stock price by buying a put option.
Another advantage of options is that you can use them to generate income. If you are bullish on a stock, you can buy a call option and collect the premium as long as the stock price remains above the strike price.
Lastly, traders can use options to speculate on future market direction. If you think your stock will go up, you can buy a call option. If you think it will go down, you can buy a put option.
What are the risks involved in trading listed options?
There was always a risk of loss when trading listed options like any investment product. However, as long as you understand how they work and take steps to mitigate your risk, you can minimise your losses.
One of the most significant risks when trading listed options are counterparty risk. This is the risk that the other party to the contract will not fulfil their obligations. It is essential to trade with a reputable broker regulated by the market authorities.
Another risk to consider is liquidity risk. It is the risk that you will not be able to find a buyer for your option when you want to sell it. This can happen if there is low trading activity in the underlying asset. Again, it is essential to trade with a reputable broker who has access to a large pool of buyers and sellers.
Another risk is that of volatility. If the underlying asset experiences high levels of volatility, the option premiums will increase. It can eat into profits or even lead to losses.
Finally, you need to know the risks associated with the underlying asset. For example, if you are trading options on shares, you need to be aware of the risks associated with the share market.
Bottom line
Options can be valuable for hedging, income generation, or speculation, and when used correctly, they can help you achieve your investment goals. Listed options are a relatively new investment product, and as such, there is still a lot of uncertainty surrounding them. Before you start trading, make sure you know and understand how they work and take steps to mitigate your risk.
Trading listed options can be a very lucrative way to make a profit with a bit of care and caution. We recommend using Saxo fx broker UAE and trading on a demo account before investing your money if you are a new trader. It is the best way to ensure you know your markets and strategies before investing your hard-earned cash.
