Sunday, June 26
Shadow

Different Options Available in Australia

The options market has created thousands of millionaires around the world, making them successful traders. With this revolutionary trading instrument, anyone can earn money without investing a considerable amount by participating in the options market worldwide. You can trade options easily with Saxo bank.

Options are tradeable assets that give you the “option” of buying or selling a stock at a predetermined price. The seller must fulfil your order with an option and not any other order on the open market.

The options market is also called the over-the-counter (OTC) market because it’s not listed on any formal exchange but rather by dealers online or in-person on electronic boards who match buyers and sellers using an electronic trading platform. Buying one contract will get you 100 shares.

There are three options available for Australian investors: Call Option, Put Option and Binary Options.

What Should You Know About These Options?

1. Call Options

Call options are contracts that give its holder, the buyer, the right to buy an asset – in this case, shares – at a specific price before or on an agreed future date known as the expiry time. The seller of the option – in this case, a stockbroker – is obligated to sell you those shares if you choose to exercise your rights and purchase them before the expiry date. A call option is best used when you expect the market price to increase shortly after buying it.

2. Put Option

Put Options give its holder, the buyer, the right but not obligation to sell you specific stocks at a specified price before or on an agreed future date called expiry time. In other words, it’s an opportunity for sellers to profit from falling prices of stocks by repurchasing them from you at a higher price. A put option is best used when you expect the market price of those shares to fall shortly after buying them.

3. Binary Options

A binary option is also referred to as digital options and offers fixed returns of 0% (if you don’t make any profit) or 100% (if you do make a profit). One key advantage of this type of option over call and put options is that it requires a much lower capital outlay – typically just 10%-20% since your risk can be calculated up-front via an odds calculator. If, however, the odds are not in your favour, then you will lose all of your initial investment without further gains. Many trading platforms allow their users to set stop losses on each trade, protecting some of your funds from losing value. This equally applies to all types of options and not just binary options.

Binary options are usually used for short term trading, which is reflected in their expiry times. As the name suggests, binary options have only two possible results you can get out of any trade. You win, or you lose. There are no in-between outcomes, which is perfect if you are a risk-taker interested in being rewarded quickly instead of waiting months to take home your earnings.

What Are the Benefits of using Options in Trading?

The most significant benefit of using an option is that it can be cheaper than buying the shares themselves. If you are interested in quick profits, you should avoid this type of trading entirely since options have much smaller margins or returns than other types of trading, which typically offer 60%+ returns on investments over just one month.

That being said, options tend to have shorter expiries, so if your outlook for the market is very short-term, then it might be worth looking into. Options also allow you to diversify your portfolio without investing more money than you initially intended. This allows for better risk management and purchasing multiple contracts (or lots) across different Australian stocks. This brings down the average cost per trade, which may make the strategy more profitable overall.

Conclusion

There are three main types of options that allow traders to buy and sell shares, and each type has its advantages and disadvantages. Please keep in mind that the abovementioned information is general knowledge and does not contain any financial advice. For more details about getting started trading in the market, please consult your financial advisor or broker.

Leave a Reply

Your email address will not be published.