Why options trading is on the rise in the Netherlands
Stock trading is on the rise in the Netherlands. Based on data from Euronext, Amsterdam’s stock exchange, trading activity has tripled since 2005.
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The Euronext figures do not yet consider trading involving derivatives. However, options trading (puts and calls) is multiplying.
According to statistics website Statista, Dutch options trading totaled €811 billion in 2008 and had more than tripled to €2.73 trillion by February 2015.
Options are derivative contracts that derive value from an underlying asset or instrument.
They allow investors to speculate on whether the price of an asset will go up or down without actually buying it, which comes with lower capital requirements than stock traders do.
Options offer several other advantages, too: they can be used to hedge existing positions, be part of an efficient portfolio allocation mix, create synthetic long or short works, and can serve as building blocks for more complicated derivatives.
Options have been traded in the Netherlands since 1848. European options are generally traded over-the-counter (OTC), with individual investors typically contracting directly with a market maker or broker rather than through an organized options exchange.
The Life exchanges in Paris, Amsterdam, Lisbon and London are the most popular OTC markets for European calls and puts.
A new generation of online trading platforms has made options far more accessible: these platforms offer leveraged trading and lower minimum order sizes than traditional OTC providers do. What’s more, they operate on a range of underlying assets, including indices, commodities and individual stock.
Institutional and private investors
Options trading is on the rise because institutional and private investors are increasingly aware of its benefits over other investment firms.
The flexible nature of options makes them suitable for market speculation and for hedging existing positions or portfolios, but it also means they are not appropriate for all investors.
Professional traders with detailed knowledge of the markets should find plenty to interest them in options trading. Still, inexperienced individuals could find themselves making costly mistakes if they try to trade without guidance.
The Netherlands’ legal environment and regulatory environment
The Netherlands’ legal environment also favors option traders: the country allows OTC option transactions between two Dutch residents, even though these should be reported to authorities under EU law.
Options trading has thus become an essential part of the financial services industry in the Netherlands.
The Dutch enjoy a highly developed financial services sector, with Amsterdam recognized as one of the critical European hubs for investment firms.
This makes it unsurprising that many online trading platforms chose to establish themselves in the Netherlands back when these new businesses were still emerging.
The country’s permissive regulatory environment – including low taxes on options transactions – further encouraged this trend. As an increasing number of companies chose Amsterdam to be their base, more locals chose options trading as a career path or hobby.
According to the latest research, options trading is becoming increasingly popular among Dutch investors.
A survey of financial services group Rebeca shows that 40% of Dutch investors are currently using options for part of their investment portfolio.
In comparison, 63% have said that they are willing to use them more frequently in future.
This development is being driven by a desire among Dutch investors to increase the potential returns on their capital without taking higher risks.
64% of respondents indicated that they would prefer not to invest more money in more unique risky products.
Instead, they would like to achieve better returns at a similar or lower risk level through options trading.
Investors are also seeking diversification when using options in their investment strategy, with almost 80% saying they would use them to hedge existing investments.
As a result, options trading is becoming an increasingly attractive option for investors who want to receive income from their capital without selling it.
It’s also worth noting that different types of options have attracted varying interest levels from Dutch investors in the past year.
For example, barrier and touch options have seen strong growth in popularity, with around half of respondents saying they were very interested in these two instruments.
On the other hand, digital and Asian options remain less popular among investors, although 87% still say they are interested in learning more about them.
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