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What is Options Trading? 5 Things You Need to Know Before Trading Options in Singapore (2020)

With Singapore being regarded as the world’s fourth largest financial center, trading options is therefore not a rare activity.

In fact, it has become more popular in Singapore ever since after the 1990s. There are even seminars on options trading held in Singapore almost every day.

However, even with its popularity, many would still regard it as a risky endeavour. But there is no need to fret. If you are planning to trade options in Singapore but don’t know how to get a jump start with it, then you are just in the right place.

We have listed below 5 helpful things you need to know before you start trading options in Singapore.

But before anything else, let us first define what options are:

Options Trading

“a financial derivative that represents a contract sold by one party (the option writer) to another party (the option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price during a certain period of time or on a specific date.”

In simple terms, an option is a contract that allows the buyer to hedge against the risk of prices movement of the underlying asset. Traders , on the other hands, use options to speculate the prices and make a profit should they being right.

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Here are two more terms to help you understand options more:

Call Option

Call options provide the buyer an option to buy stock at a certain price—which would make the buyer want the stock to increase. On the other hand, the option writer/trader would want the opposite to happen.

In cases where the stock does goes up, the trader is obliged—under contractual obligation—to provide the underlying shares most especially when the stock’s market price exceeds the strike.

Put Option

Contrastingly to call option, put option gives the buyer the option to sell stock at a certain price. In order to gain, the buyer would want the stock to go down. Likewise, the put option writers would want the opposite.

This especially applies when the underlying market price of the stock will fall below the specified strike price on or before the specified date written in the contract.

Now that we have that covered, let us now move on to the 5 things you need to know about trading options in Singapore:

5 Things to Know Before Trading Options in Singapore

#1 Be Wary of Unregulated Online Trading Platforms

Usually, newbies fall trap into signing up for Foreign Exchange or Forex trading seminars on unregulated online trading platforms. And we can’t blame you; what with the “get rich quick” advertisements and their claims of having 100% return trading options.

However, instead of believing, you must take these as red flags.

One reason for that is how the options trading world is very dynamic. Nothing can be set to stone. Those who claim to make complete success with their returns are definitely lying. In one success out of ten trades, the other 9 failed.

Trading with unregulated online platforms puts you out of the protection of laws and regulations made by the MAS or the Monetary Authority of Singapore to safeguard investors. Continuing to do so will make you very vulnerable to scams and other difficulties such as contacting or resolving any grievances.

On the other hand, regulated financial institutions online are subject to regulations that protect investors’ money and assets. Furthermore, these institutions are required to maintain segregated customers accounts, controls, and records.

So as an investor, you are strongly encouraged to only deal with those financial institutions regulated by MAS.

#2 Be Wary of Binary Options

In line with the first point, unregulated online trading platforms offer another form of investment instrument that you must also be wary of: binary options. Binary option is a type of option that references an underlying instrument.

This instrument can be in a form of asset classes like stocks, commodities, currencies, and interest rates.

The returns of this kind of options are dependent on the instrument. If the threshold amount is exceeded, then there will be payment received. On the other hand, if the threshold is not met, then there will be no payment at all.

While it is true that binary options may provide the potential for high profits, it could also give you a significant amount of loss.

Always be skeptical when unregulated platform providers advertise binary options as “trading with zero risk”, “trading amounts of as little as $1”, and “profit payout of 500% per trade”.

These could be an indication that these platforms could be based outside Singapore which are the most unlikely to recover you any amount of money lost.

#3 Singapore Uses Warrants Instead of Listed Options for Trading

Singapore uses warrants as an options trading tool instead of listed options. It is the country’s market equivalent to the standardized equity options or standardized stock options.

Like options, warrants are contracts between the issuer and the investor that allows the investor the right but not the obligation to buy or sell the underlying stock at a fixed price during expiration.

They are securitized so that they can be traded like a stock in a derivatives exchange.

Warrants and Options also work the same way when it comes to call and put. However, they also differ in a lot of ways.

Here is a list of the main differences between structured warrants and standardized stock options, as listed by

Standardized Stock Options

Structured Warrants
Contract Terms Defined by issuer Standardized by exchange
Trading Cannot be freely shorted Can be shorted
Strike Prices Only those issued Usually a lot more strike prices and expiration
Delivery Delivered by issuer Delivered by investors

#4 There is Not Much Difference Between Options in Singapore and Options in US

Options listed in Singapore are not much different from those listed in the US. At the onset, an option is simply a derivative base on an underlying instrument. There is no difference.

However, the only thing that contrasts the two is the size of their markets. The US market is wider and deeper. So there is a lot of liquidity.

There are also options listed available in US stocks. This provides a wider selection of trading choices for traders.

#5 Many Option Traders in Singapore Exclusively Trade in the US

Since the rise of popularization of online platforms in trading, more and more online options trading brokers accept Singaporean accounts. As a result, options trading in the US market have become more accessible to traders in Singapore.

Singaporean could now directly conduct options trading in the US market which is more convenient to them in terms of having their money wired to and from their accounts.

The most important reason why Singaporeans do this is that the US market is the biggest and provides more liquid options in the world. Therefore, there are more trading opportunities and grants exposure to international blue chips.

Furthermore, the US Market’s standardized stock options comes with a lot more strike prices across more expiration dates.

CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.

3 Traders In Singapore Share With Us The Winning Attitude Behind Their Success

Collin Seow from The Systematic Trading, Rayner Teo from Trading With Rayner and Alex Yeo from Big Fat Purse share with us some important attitudes to adopt to become a successful trader.

Trading can be described as the younger cousin of investing. Both trading and investing are vastly different ways of making money from the financial market.

While investors try to make profits over the long term by buying and holding an investment portfolio that they believe would do well, traders aim to make profits relatively quickly by using their skills to take advantage of the price volatility in financial instruments that they buy and sell.

These instruments could include stocks, foreign exchange (Forex), options and many others. When appropriate, traders will also leverage their positions to increase their exposure, and hence potential returns.

Because trading is generally considered riskier, and requires more skills, returns for successful traders also tend to be higher than it is for investors.

However, being a successful trader is far from easy. Not only does a person need to be knowledgeable in the instrument(s) that they are trading, and to be familiar with the markets they are in, they also need to have the right attitude towards trading.

For a better understanding on what it takes to be a successful trader, we spoke to three well-known traders in Singapore who have been successful in their respective field.

Part 1: Stock Trading – Collin Seow

Collin Seow is the founder of / TradersGPS. He is a qualified Chartered Portfolio Manager (CPM) holding a Certified Financial Technician (CFTe) qualification, and is a member of MENSA Singapore.

A charismatic trainer, his courses equip people with trading and investment strategies that help them navigate the complex financial markets.

Qn: How long have you been trading stocks for? What does your trading strategies focus on?

CS: I have been trading stocks for more than 21 years but to be honest, for the first few years, it was more like buying and “hoping” for the best.

My strategy has definitely evolved over the years. In the initial years, it was a discovery process. I was mainly using fundamental analysis to identify and buy stocks that I thought had dropped below their true value. The next stage of my learning journey was to trade short term using technical analysis (TA) and finally developing a rule-based trading system (algo) based on TA to buy and sell. The time frame that I hold stocks can range from weeks to months.

Qn: What are some common mistakes that you typically see new traders making ?

CS: 2 mistakes most new traders make.

1. No confidence in their strategy

Losses are part and parcel of trading. However losses are also what shake people’s confidence in their strategies. This is the main reason why new traders constantly jump from one strategy to another. Each time they meet a few losses on a strategy, they will switch to another. To become a profitable trader, we must become masters of our strategy, psychology and risk. To become masters, we need to put in the time and effort, to gain the experience and knowledge in our strategy.

2. Not paying attention to money management

Money management is very important in trading. A lot of new traders focus on making money but not on losing money properly. This one simple step of learning how to manage your losses can turn you from a losing trader into a breakeven, or even slightly profitable trader.

Qn: What are the areas of focus that new traders should pay attention to instead?

CS: Instead of focusing solely on making money, traders should focus on the process and routine, and then refine their strategy along the way according to their personality. I find that processes help us do our work better.

Qn: What are some myths that people typically hold when it comes to stock trading?

CS: “Trading is easy to learn.”

New traders are often lured by the success stories they hear in the marketplace – of course for every success story, there are dozens of heartbreak stories they do not hear. They also tend to underestimate the difficulty of trading because it looks deceptively easy. Sit at a desk, watch the screens, click a few buttons and their bank account is topped up with more money. Some traders think they can be profitable by just from watching a few videos online or reading some books. Trading is a psychological endeavor. You can save a lot of time, and money, by getting a good mentor and having a good trading system.

Qn: Aside from having the right skills and strategies, how important is the attitude for the success of a trader?

CS: Most people are not disciplined and cannot, or do not, put in the time and effort required to trade well. They need to have a system that is back-tested to be profitable and robust. Keeping records is extremely important because if you cannot measure your past performances, you cannot improve. You need to create a feedback loop to receive feedback from your trading.

In one of my courses, The Systematic Trader Course (SMT), we share this acronym to help you remember: ETET. You should always know your Entry price, Target price, Exit price (stoploss) and Time frame. These are some of the information that should be recorded for feedback and future learning in your trading plan.

Qn: What are some attitudes that you have which you think have allowed you to become successful in what you do?

CS: Being introspective and retrospective. I know myself well enough to know what will work for me and what will not. Also learning more about the current state of my trading, through the feedback loop, and constantly making necessary adjustments.

Part 2: Forex Trading – Rayner Teo

Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner.

He is the most followed trader in Singapore, voted Top 5 most helpful traders on Twitter, with more than 23,000 traders reading his blog every month.

Qn: How long have you been trading Forex for? What does your trading strategies focus on?

RT: I’ve been trading Forex over the last 8 years.

I adopt a Trend Following approach. This means I buy when the market is trending higher, and sell when the market is trending lower. I exit my trades if it goes against me and I ride the trend if it moves in my favour.

Qn: What are some common mistakes that you typically see new traders making?

A common mistake many traders make is to look for a “holy grail”. Well, it doesn’t exist. If you ask me, the closest thing to the Holy Grail is having a loss of not more than 1% of your capital on each trade, so you can live to fight another day.

Another common mistake is hopping from one trading strategy to the next after a few losing trades. This “cycle” keeps you in an endless race to find a perfect system, which as mentioned earlier, doesn’t exist. Instead new traders should find an approach that suits their personality and their goals.

Qn: What are the areas of focus that they should pay attention to instead?

RT: Traders should pay more attention to having a detailed trading plan. It should set some parameters for your trades such as what type of market conditions you should trade in, how to enter your trades, how to exit your trades and how to manage your trades. And if things don’t work out, you can look back at your plan, learn from it and find ways to improve it.

Also, you want to focus on risk management. Without it, even the best trading strategy will not save you from blowing up your trading account.

Qn: Aside from having the right skills and strategies, how important is the attitude/mentality for the success of a trader?

RT: Discipline and attitude is everything.

Qn: What are some attitudes they need to have?

RT: You have to accept that you may be wrong more often than you are right and still make money. Always stay hungry and keep learning about yourself and the markets. Have the grit to keep pushing forward even when times are tough.

Qn: What are some attitudes that they are better off not having?

RT: “The know it all” attitude, refusing to acknowledge and learn from your mistakes, and being too attached to an individual trade outcome.

Qn: What are some attitudes that you have which you think have allowed you to become successful in what you do?

RT: Perseverance and the ability to reflect and improve.

Part 3: Option Trading – Alex Yeo

Alex Yeo is a self-directed trader and the co-founder of BigFatPurse, a leading financial education & technology company in Singapore.

He trades futures options primarily and holds a Certified Financial Technician (CFTe) designation, accredited by the International Federation of Technical Analysts (IFTA).

Qn: How long have you been trading Options for? What does your trading strategy focuses on?

AY: I started trading options 3 years ago.

I sell options primarily and collect premiums. I focus on selling futures options.

It’s very similar to how insurance companies sell you policies and collect premiums from you. If nothing happens to you, the insurance company just keeps the premium.

As an option seller, I pick a price level that I think the market wouldn’t reach, sell an option contract at that price level and collect a premium. In other words, buyers pay me when they buy the option contracts.

There are several reasons why people buy options – higher leverage, hedging their positions. When they want to buy, someone has to sell it to them. I am the one selling and I get paid for underwriting the risk.

Qn: What are some common mistakes that you typically see new traders making?

AY: One thing I observed is that new traders tend to think that if they worked more on their trading psychology, they will be profitable.

While psychology is important, before they focus their attention on it, they should make sure that their strategy has an edge in the first place. If your strategy doesn’t have an edge, no matter how much you work on your trading psychology, you would never be profitable.

Qn: What are the areas of focus that they should pay attention to instead?

AY: They should find and develop their edge in the market. They need to have an in-depth understanding of how prices move, utilize 2 nd level thinking, back-test or forward-test their strategies.

Qn: What are some myths that people typically hold when it comes to options trading?

AY: They think that trading is easy and that they can make money with just a little bit of effort. All you have to do is to recognize some chart & candlestick patterns and easy money is up for grabs.

If it is so easy, everybody would be making a killing in the financial markets, and nobody would need to work anymore.

Another one of the myths is thinking you can trade for a living with a $1000 account. Because assuming you need $3000 a month to survive, you are looking at a return of 300% each month consistently. It’s only a matter of time before you lose that account.

Qn: Aside from having the right skills and strategies, how important is the attitude/mentality for the success of a trader?

AY: Extremely important. If you look at successful traders, they all possess certain character traits and attitudes.

Qn: What are some attitudes they need to have?

AY: Discipline and perseverance

Qn: What are some attitudes that they are better off not having?

AY: Ego. Traders can be egoistic. They always think they are right.

Qn: What are some attitudes that you have which you think have allowed you to become successful in what you do?

AY: Although it sounds clichéd, perseverance plays a huge part. There is a learning curve and it may take a few years before traders can see any success.

What We Can Learn From Their Insights

When we see the responses from the three traders, we observe some undeniable similarities among their answers even though they trade very different financial instruments.

For starters, all three traders advocate the importance of having a right trading strategy, and spending time to refine and improve on the strategy, rather than to constantly hop around from one strategy to another. Another important area of focus is risk management, since losses are part and parcel of trading.

Once a trader is able to develop a trading strategy with an edge, and knows how to manage losses, it boils down to attitude. All three traders agree that discipline and perseverance are vitally important for developing long-term success, especially since it takes time and much experience before traders are able to become effective in their trades.

If you wish to learn more about trading in general, we strongly recommend that you first get yourself educated. IG has a comprehensive guide of seminars, webinars and articles to help get you acquainted with trading. A demo account is also a good way to refine your trading strategies without taking risks with actual money. Last but not least, get yourself familiar within a trading community so that you can gather and share insights with other like-minded traders in order to learn, be exposed to other strategies and of course, improve.

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