Listed Options vs CFDs in Dubai

You have many options to choose from for investing and trading. You can invest in stocks, bonds, or mutual funds. Or you can trade in commodities like gold or oil. And then, there are the more complex options, such as derivatives and CFDs.

So which is the best option for you?

Here is a brief overview of two of the most popular investment options: listed options and CFDs.

Listed Options

Listed options are contracts between two parties that give one party the right but not the obligation to buy or sell an asset at a specific price on or before a specific date. Listed options are traded on exchanges, just like stocks.

There are a few different types of listed options:

• Call Options: A call option is the right to buy an asset at a specific price on or before a specific date
• Put Options: A put option is the right to sell an asset at a specific price on or before a specific date
• European Options: European options can only be exercised on the expiration date
• American Options: American options can be exercised at any time before the expiration date
• Barrier Options: Barrier options are options that become activated (or “triggered”) if the underlying security reaches a certain price level
• Index Options: Index options are options on a basket of securities rather than a specific security

CFDs

CFDs (contracts for difference) are a type of derivative product. It’s a contract between two parties that gives one party the right but not the obligation to buy or sell an asset at a specific price on or before a specific date. CFDs are traded over the counter, not listed on exchanges.

There are two types of CFDs

• Long CFDs: A long CFD is when you buy a CFD and hope the price will increase
• Short CFDs: A short CFD is when you sell a CFD and hope the price will decrease

Benefits of listed options?

Exchanges regulate listed options

Which means they are subject to greater scrutiny and transparency. It can give you peace of mind knowing that your investment is in good hands.

Listed options are more liquid than CFDs

Meaning there is usually a buyer for every seller. It makes it easier to buy and sell listed options when you want to.

Listed options are less risky than other types of options.

Such as barrier options. It’s because the terms of listed options are more standardized and well-known.

Benefits of CFDs?

CFDs are a great way to trade on margin

It means you can trade with a smaller amount of capital and still make a profit.

CFDs are tax-efficient

You do not have to pay capital gains tax on profits made from CFD trading.

CFDs offer a variety of benefits

Such as the ability to short sell stocks or trade-in commodities and indices.

Risks of listed options

Listed options are complex products

Which means they may not be suitable for all investors.

Listed options are subject to market risk

The underlying asset price can go up or down, and you could lose money.

Listed options are subject to time decay

Meaning the longer you hold the option, the less valuable it becomes.

Listed options are subject to liquidity risk

There might not always be a buyer for your option when you want to sell it.

Risks of CFDs

CFDs are a complex product

It means they may not be suitable for all investors.

CFDs are leveraged products

You can lose more money than invested if the market moves against you.

CFDs are subject to counterparty risk

The other party in the CFD trade could go bankrupt, and you could lose your investment.

CFDs are taxed as income

You may have to pay tax on profits made from CFD trading, even if you haven’t withdrawn the money yet.

Which product is right for me?

That depends on your circumstances and needs. It’s better to speak to a financial advisor (Saxo broker Dubai) to determine which product is right for you.