It is indisputable that financial options are a burgeoning asset among speculators and traders. Whether for its adaptability as a hedging asset, the leverage capacity it provides to the trader, or the versatility in strategy creation, the demand for instruments is on the rise. For this very reason, in this article, we will examine the top brokers for options trading in the UK, as well as the factors you should consider when choosing an options broker.
What are options?
Options are contracts that give the buyer the option (hence, the name) to buy or sell an asset at a specific price on a future date. The owner of a call option has the right (but not the obligation) to buy the asset at a predetermined price at a future date, while the owner of a put option has the right (but not the obligation) to sell the asset at a predetermined price at a future date.
The person who creates the option (the writer) is obliged to either buy (in case of a put option) at the predetermined (strike) price or sell (in case of a call option) at the strike price – if the option owner decides to exercise their right to buy/sell.
Options are commonly used in the financial world to manage risk or hedge investments, or simply to speculate on price movements for profit. We can observe from this Bloomberg graph how options trading has soared, with records of the past 25 years being surpassed.
Brokers to trade options in the UK
There are only a few brokers that provide comprehensive and unrestricted trading with financial options. While we can differentiate between national and international brokers, it is also noteworthy to distinguish between those headquartered in Europe, subject to MiFID II regulations, and those that allow usage from Europe but have their headquarters in the United States and adhere to FINRA regulations.
Generally, their primary weakness tends to lie in customer service and handling tax reports in case of uncertainties. Here, we present the brokers offering services regulated in the UK. It is indeed common for options traders to also utilise other specialised platforms based in the United States.
Interactive Brokers is renowned as one of the largest and most prominent brokers globally. It provides European clients with access to nearly all available markets. The pricing it offers is highly competitive across various products. Moreover, its platform for options analysis and trading is among the most comprehensive available.
- 🏆 Regulation: Financial Conduct Authority (FCA)
- 🌐 Markets: forex options, share options, stock indices, commodities
- 💲 Costs:
- Zero spreads if held until expiry
- Zero overnight funding
- Variable but low spreads
- 📈 Platform: Proprietary
- 🖥️ Broker profile: For advanced/novice traders.
Let’s see what the pros and cons of using Interactive Brokers for your options trading are:
- ✅ Platform with exposure to multiple options markets.
- ✅ Competitive prices.
- ✅ Multiple options trading tools and features.
- ❌ Minimum deposit is £250 via PayPal or cards (but free for bank transfers).
If you’d like to find out more about this broker, check out this Interactive Brokers review.
Exante is a highly comprehensive broker that offers competitive pricing. It grants access to practically all markets and enables both retail and institutional clients to trade on the same platform.
- 🏆 Regulation: FCA
- 🌐 Markets: Over 270,000 options from global markets, including Germany, Australia, the US, China, and Japan
- 💲 Costs:
- From $1.5 per contract
- 📈 Platform: Proprietary
- 🖥️ Broker profile: For advanced traders/investors
Here are the main pros and cons of option trading with Exante:
- ✅ Platform with exposure to the main global options markets, including Japan or Australia
- ✅ Low commissions, from $1.5€
- ✅ User-friendly and intuitive platform
- ❌ Considerably high minimum deposit of £10,000.
DEGIRO is an online broker that serves as a useful starting point for users to become acquainted with options trading. While it may not be the top broker for these specific derivatives, its value lies in simplifying a complex process and providing users with an entry point. Therefore, it deserves recognition in this ranking.
- 🏆 Regulation: FCA
- 🌐 Markets: Over 10 markets available, including Europe and the US
- 💲 Costs:
- 📈 Platform: Proprietary
- 🖥️ Broker profile: Ideal for beginner investors/traders.
Let’s see the pros and cons of using DEGIRO for your options trading:
- ✅ Easy and intuitive platform
- ✅ Low fees of €0.75€/contract
- ✅ Wide variety of markets in Europe and the US
- ❌Platform quite simplistic
- ❌Geographical limitations, beyond Europe and the US, there is not much access
What options markets can be traded in the UK?
The brokers above allow options trading in multiple markets around the world. Some examples include Eurex Exchange, Chicago Board Options Exchange, and others.
Also, another good offering for options trading in the UK is proposed by Saxo Bank. To find out more, check out our Saxo Bank review.
What criteria should a good options broker meet?
There are several factors to consider when evaluating an options broker.
Regulation and security
When discussing financial options, we are referring to complex derivatives that can entail a significant amount of uncertainty, particularly for novices. Therefore, it is crucial to ensure that your options broker is regulated by a trustworthy regulatory body.
If you are a novice in options trading, it is important to consider a regulator that is as accessible as possible. Ideally, being regulated by the FCA would be optimal, although any European supervisory authority would also be viable.
Ease of use and intuitiveness, while still important, are no longer the sole defining factors for a platform. Now, a platform that provides a diverse range of tools and resources to assist in making informed decisions has become crucial.
One such essential feature is the incorporation of the Greeks. As you may already know, the Greeks are a set of measurements used to assess an option’s risk. These measures are referred to as “Greeks” because some of their initial letters are derived from the Greek alphabet.
Some of the most common Greeks include:
- Delta: measures the sensitivity of the price of an option with respect to the underlying asset’s price.
- Vega: measures the sensitivity of the price of an option with respect to the changes in the volatility of the underlying asset’s price.
- Theta: measures how much the option’s price decreases over time.
- Rho: measures the sensitivity of the price of an option with respect to interest rates.
Range of products and markets
Another aspect to consider is the breadth of products and markets to which the broker provides exposure. On one hand, there are various financial assets such as stocks, indices, forex, and commodities. Options serve as a fantastic alternative for engaging with these assets as they facilitate the development of hedging strategies.
On the other hand, the availability of connectivity to major global markets at reasonable prices enhances the appeal of a broker. Let’s explore some of these markets below:
- Chicago Board of Trade (CBOT)
- Chicago Board Options Exchange (CBOE)
- Chicago Mercantile Exchange (CME)
- Hong Kong Exchange (HKEX)
- Osaka Securities Exchange (OE)
Commissions and spreads
Certainly, the cost structure is an important factor to consider. However, it should not be the primary determining factor, but rather a complementary consideration.
The foremost priority should be that the broker meets the aforementioned requirements and criteria. Once those requirements are fulfilled, then it becomes relevant to seek out the most cost-effective broker available.
What are the risks of investing in financial options?
Investing in financial options carries certain risks, some of which include:
- Leverage Risk: Financial options usually use leverage, which means that the investor can control a position of greater value with a much smaller investment. However, leverage also increases risk, as a small fluctuation in the price of the underlying asset can have a significant impact on the profit or loss of the position.
- Total Loss Risk: This risk is derived from the previous one. Unlike other investments, financial options have a total loss risk. If the underlying asset’s price does not move as expected, the investor can lose all the capital invested in the option.
- Volatility Risk: Market volatility can significantly affect the price of options. If the market becomes more volatile, the price of options can fluctuate considerably, which can reduce profits or increase losses.
- Liquidity Risk: Some financial options may have a low level of liquidity, which means it can be difficult to sell them in the market. This can make risk management difficult and can limit the investor’s ability to exit a position.
- Counterparty Risk: Some financial options, such as OTC options, have counterparty risk, that is, the risk that the other party does not fulfil its commitment.
It is important that you understand these risks before investing in financial options and that you make sure you understand how options work and how they can be used effectively in your investment strategy. Precisely for this reason, you must make sure to choose a regulated and reliable broker, learn more about options trading before placing an order, and become familiar with different options strategies, such as covered call and protective put.
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Summary: best UK Brokers for options
It is crucial to understand the risks associated with investing in financial options and to ensure a thorough understanding of how options function and how they can be effectively utilised in your investment strategy. For this very reason, it is imperative to select a regulated and trustworthy broker that provides the necessary support and guidance in navigating the options market.
Are all the listed brokers regulated in the UK?
Yes, all the brokers listed in this article are regulated in the UK.
Can I trade options on multiple markets with these brokers?
The listed brokers provide access to a wide range of markets and products, including stocks, indices, forex, and commodities.
What factors should I consider when choosing an options broker?
When selecting an options broker, consider factors such as regulatory compliance, platform features and tools, availability of educational resources, customer support quality, cost structure, and the ability to execute complex trading strategies.