Options and futures trading in Singapore is an increasingly popular way for investors to diversify their portfolio, manage risk and capitalise on price movements. This type of trading allows traders to speculate on the direction of a security or commodity by buying or selling contracts with predetermined terms and conditions.
As such, it can be a great way to both limit losses and potentially increase profits. In this comprehensive guide, we take a look at the basics of options and futures trading in Singapore – what they are, how they work and the best strategies for success.
What Are Options And Futures?
At its simplest level, options are financial contracts that provide buyers with the right but not the obligation to purchase or sell an asset at a predetermined price, known as the strike price, before or at a given date. This is referred to as a ‘call option’ if it gives the right to buy and ‘put option’ if it gives the right to sell.
Futures are also financial contracts that allow traders to speculate on changes in security prices or interest rates. They involve an agreement between two parties to buy or sell an asset at a predetermined price on a specified future date. Futures trading has become increasingly popular in Singapore over recent years due to its flexibility and low cost of entry.
How Does Options And Futures Trading Work?
Options and futures trading follows a simple set of steps which can be summarised as follows:
Decide On An Asset Or Security To Trade On
Traders must first decide what underlying asset they want to buy or sell options/futures contracts for, and then research the market to better understand its movement.
Choose A Strike Price And Expiry Date
Once a trader has identified their underlying asset of choice, it is important that they select an appropriate strike price – the price at which the option will be exercised – as well as an expiry date for the contract.
Place Your Order
Traders can place orders either with Singapore Exchange (SGX) directly or through a broker who will execute the trades on their behalf.
Monitor Your Trades
Once orders have been placed, it is important that traders keep an eye on their positions and be ready to act if the market moves against their trades.
Close Your Position
When a trader has achieved their desired profit or loss target, they must close out the trade by either buying back the option or exercising it.
How To Be Successful In Options And Futures Trading?
Options and futures trading can be highly lucrative but it is important that investors understand the risks involved before diving into the markets. Here are a few tips for success:
Start Small
Don’t risk too much money at once as this can lead to large losses if things don’t go your way. Start with smaller amounts and work your way up as and when you become more comfortable with the markets.
Research & Learn
As with any form of trading, options and futures traders should always do their research and stay up to date with news and market developments. This will ensure that they are aware of all potential risks before you buy options in Singapore.
Monitor Positions
Traders must be ready to act when the market moves against them, so it is important to keep an eye on open positions at all times.
Manage Risk
Options and futures trading can lead to large losses if not managed correctly, so traders should employ appropriate strategies such as stop-losses or position limits in order to limit their exposure to downside risks.
At The End Of The Day
Options and futures trading can be a great way to diversify your investments and potentially increase profits, but it is important that traders understand the risks associated with these types of trades. By following the steps outlined above, as well as employing strategic risk management techniques, traders should be able to maximise their chances of success in options and futures trading in Singapore.
Overall, options and futures trading represent an attractive investment opportunity for investors who are looking for ways to diversify their portfolios. Understanding how these markets work and developing a sound strategy is key to achieving long-term success. With the right approach, investors can enjoy both the flexibility of these financial instruments as well as the potential returns they offer.
