When trading options, you’ll inevitably come across the terms “listed” and “OTC.” But what do these terms mean, and what’s the difference between them? We’ll break down the differences between listed and OTC options and help you decide which option is right for you.
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What is a listed option on the stock market?
Listed options trade on a formal exchange, with the most famous ones in the US such as the New York Stock Exchange (NYSE) or the Chicago Board of Options Exchange (CBOE). In Singapore, options can be traded on the Singapore Exchange (SGX). Singaporean brokers and derivatives are regulated by the Monetary Authority of Singapore (MAS), and their trading is overseen by the SGX.
To trade listed options, you must go through a broker member of the exchange on which the option is traded. Members of the NYSE or CBOE must meet specific requirements, such as making a minimum deposit and agreeing to abide by the rules of the exchange.
What is an OTC option?
OTC options, on the other hand, don’t trade on a formal exchange. Instead, they’re traded through a network of dealers. Because there’s no central exchange overseeing their trading, OTC options are less regulated than listed options. As a result, OTC options tend to be more complex than listed options.
You can trade OTC options directly with another party without a broker. This direct trading means no formal market for OTC options and no oversight from a regulating body.
The critical difference between listed and OTC options
The critical difference between listed and OTC options is that listed options trade on a formal exchange, while OTC options trade through a network of dealers. Listed options are more regulated than OTC options, and as a result, they tend to be less complex.
Another key difference is that you can trade OTC options directly with another party without going through a broker. This direct trading means no formal market for OTC options and no oversight from a regulating body.
When deciding which option to trade, you should consider your investment goals and the level of risk you’re comfortable with. If you’re looking for a simple investment with less risk, then a listed option may be right. If you’re willing to take on more risk in exchange for the potential for higher rewards, then an OTC option may be a better choice. Whichever type of option you choose, make sure you do your research and understand the risks involved before trading.
What are the benefits of trading options?
Options offer a versatile way to trade the markets. You can use options to protect your portfolio from losses or speculate on an underlying asset’s price, and options allow you to tailor your trades to your specific investment goals.
There are two types of options: call options and put options. Call options give you the right to buy an underlying asset at a set price, while put options give you the right to sell an underlying asset at a set price.
You can use options to hedge your portfolio against losses or speculate on an underlying asset’s price. For example, if you own shares of a stock that is dropping in value, you could buy a put option to protect your position. Or, if you think a stock will rise in value, you could buy a call option to speculate on the price movement.
Options offer a versatile way to trade the markets and protect your portfolio. If you’re looking to take on less risk, a listed option may be the right choice. If you’re willing to accept more risk in exchange for the potential for higher rewards, then an OTC option may be a better choice. Make sure you understand the risks involved before trading whichever type of option you choose.
What are the benefits of trading OTC options?
OTC options offer many benefits, including the ability to trade directly with another party without going through a broker. This direct trading means no formal market for OTC options and no oversight from a regulating body.
Another benefit of OTC options is that they tend to be less complex than listed options, making them a good choice for investors looking for more direct investment.
Finally, OTC options offer the potential for higher rewards than listed options. However, they also come with more risk. Before trading OTC options, ensure you understand the risks involved and are comfortable with the level of risk you’re taking.
For some more info on options, you can visit https://www.home.saxo/en-sg/products/listed-options.
