Options vs stocks trading in Mena
There are two main types of investment vehicles when it comes to investing: stocks and options.
Both have pros and cons, so which one is right for you?
What are stocks?
Stocks are shares in a company that represents a portion of that company’s ownership. When you buy stocks, you become a part-owner of the company, and you can earn money when the stock price goes up. However, stocks are also riskier than options because they can go down in value.
What are the options?
On the other hand, options give you the right but not the obligation to purchase a stock at a specific price within a certain period. It means that if the stock price goes down, you can choose not to buy it, and you will lose only the option’s price. Options are also less risky than stocks because you can’t lose more than you invest.
Benefits of stocks
Stocks are less risky than options.
Stocks are less risky than options because they can only go up in value. While they may be riskier than options, they offer the potential for greater returns.
Stocks are more accessible to sell than options.
If you need to sell your stocks, it is easy to find a buyer because there is a liquid market for them. However, if you want to sell your options, you may have a more challenging time finding a buyer because the market for options is not as liquid.
You can get paid dividends with stocks.
Companies that issue stocks often pay out dividends to their shareholders. It means that you can earn money even when the stock price is not increasing.
Benefits of options
Options are less risky than stocks.
Options are less risky than stocks because you can lose no more than your investment. You only have the right to purchase the stock, not the obligation.
Options offer the potential for high returns.
While options are less risky than stocks, they offer the potential for higher returns. It’s because you have the potential to purchase the stock at a lower price than it is currently trading for.
Options can be used to hedge against the risk.
They can be used to hedge against risk by giving you the right to sell the stock at a specific price. If the price goes down, you can still make money.
Risks of stocks
Stocks are riskier than options.
Stocks are riskier than options because they can go down in value and up. Meaning that you can lose money if you invest in stocks.
Stocks are less liquid than options.
The market for stocks is less liquid than the market for options. It might be harder to sell your stocks than sell your options.
You are not guaranteed dividends with stocks.
Not all companies that issue stocks pay out dividends to their shareholders. You may not earn any money when the stock price is not going up.
Risk of options
Options are riskier than stocks.
Options are riskier than stocks because you can lose more money than you invest. It’s because you have the potential to purchase the stock at a higher price than it is currently trading for.
Options are less liquid than stocks.
The market for options is less liquid than the market for stocks. It means that it may be harder to sell your options than selling your stocks
You may not receive dividends with options.
Not all companies that issue options pay out dividends to their shareholders. You may not earn any money when the stock price is not going up.
Which is right for me?
If you are looking for a less risky investment, options are better than stocks. However, if you are interested in becoming a part-owner of a company and earning money when the stock price increases, stocks are a better option. It would be best if you choose which investment is suitable for you. For more info, check out Saxo fx broker UAE.