Are you a trader looking to invest in Dubai? If you are, you might want to consider using listed options instead of stocks. This article will outline some of the benefits of using listed options over stocks when investing in Dubai.
If you already feel comfortable with the difference between listed options and stocks, perhaps you would prefer to skip ahead and start trading options straight away. In that case, you can see the available trading instruments on Saxo Broker Dubai.
What are stocks, and what are the benefits of investing in them?
Stocks or shares are names for fractional ownership of a company. That means you own a (usually very small) fraction of the business. That may give you voting rights, or the right to share in any profits via a dividend. Sometimes one company will have multiple different stock types with different voting rights and ‘seniority’.
Equities are a relatively volatile financial asset, but over the long term they have been repeatedly confirmed as the best performing asset. In a very few markets, property may come close, but in general, stocks are by far the best performing asset globally. For long term investors, it benefits holding the majority of your portfolio in stocks.
Another benefit of investing in stocks is that since they offer you partial ownership of a company, you can have a say in how the company is run. For example, as a shareholder, you may be able to vote on who the company’s board of directors should be. If you own stocks via an ETF or mutual fund, the portfolio manager manage this side of things.
What is an option, and what are the benefits of investing in options?
An option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specific period (for American options) or on a specific date (for European options). A third, rarer option ‘style’, Asian, gives a range of dates on which you may exercise the option.
There are two option types: call options and put options.
A call option gives the holder the right to buy an asset at a specific price, while a put option gives the holder the right to sell an asset at a specific price. You can buy or sell (known as ‘writing’) an option. An option seller collects a premium.
There are several benefits to investing in options over stocks.
First, options are more flexible than stocks, which means that you can tailor your investment to suit your needs and goals. For example, if you believe the price of a stock will increase but want to avoid downward moves, you could simultaneously buy call options at the current price, and get the difference between the increased price and the strike price. You can simultaneously buy a smaller number of put options to protect you against a downward move in price. This is known as hedging, and many complex hedging strategies exist using options.
Second, options are less expensive than stocks. It is because you are not purchasing the underlying asset when you buy an option; instead, you are only paying for the right to buy or sell the asset in the future. Additionally, options typically offer investors leverage, which means that you can control a large number of shares with a relatively small investment. This magnifies both gains and losses.
Options are generally more complex and volatile instruments that stocks. They are better fit for professional and experienced investors. Stocks are recommended to anyone with a retirement portfolio as a way of beating the low returns offered by savings accounts. That said, both come with risks.
So, which is better?
It depends on your investment goals and objectives. If you are looking for a high performing investment with the potential for long-term growth, then stocks may be a better option. If you prefer trading and short term, hedged positions, options offer greater flexibility.
How can someone get started investing in stocks and listed options in Dubai?
If you’re a beginner investor looking to start trading in stocks or listed options in Dubai, opening an account with a broker is the place to start. Brokers buy and sell securities on behalf of clients, or offer software that allows them to do so directly.
Many different brokers are available, so you should compare their fees and services before deciding. Once you’ve chosen a broker, simply open an account and deposit money into it. Once your account is ready, you can begin buying and selling stocks or listed options. Always check with your financial advisor if you are not sure about a particular investment.
Read more: Questions to ask before taking a car loan