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8 Best Options Brokers UK 2024

Tobi Opeyemi Amure
Reviewed by:
Best options trading platforms UK

In a nutshell, the best options brokers in the UK are Plus500, renowned for its intuitive interface and risk management tools; Spreadex, offering a diverse range of options including financial and sports markets; and IG, notable for its extensive market access and advanced charting capabilities.

Selecting the right options trading broker is crucial in the fast-paced trading world.

I’ve tested, scored, and ranked the best options brokers in the UK.

Whether you’re looking for security, user-friendliness, or low fees, I’ve got you covered.

Top pick
Award-winning
4.6
4.5
  • Intuitive, user-friendly platform
  • Demo trading account & learning academy
  • Fast and responsive customer service
  • Trading tools & charts
  • Trading platform is near-perfect
  • Excellent safety ratings
  • Great charting tools
  • Low spreads
82% of retail investor accounts lose money when trading CFDs with this provider.
64% of retail investors lose money when trading spread bets and CFDs with this provider.
Top pick
4.6
  • Intuitive, user-friendly platform
  • Demo trading account & learning academy
  • Fast and responsive customer service
  • Trading tools & charts
82% of retail investor accounts lose money when trading CFDs with this provider.
Award-winning
4.5
  • Trading platform is near-perfect
  • Excellent safety ratings
  • Great charting tools
  • Low spreads
64% of retail investors lose money when trading spread bets and CFDs with this provider.

8 Best Options Brokers UK Ranked

Here is a quick list of the best options trading platforms to use in the UK based on my hands-on analysis:

  1. Plus500 – Overall best options trading platform UK for beginners (CFDs)
  2. Spreadex – Award-winning options trading platform in the UK
  3. IG – World’s largest options trading broker
  4. Saxo Markets – Best UK options trading platform for selection of options
  5. Interactive Brokers – Best options trading platform UK for advanced traders
  6. AvaTrade – Best options trading platform for forex options
  7. City Index – Best UK options broker for CFDs & spread betting
  8. Tickmill – Best for options trading on CQG

Best Options Trading Platforms Compared for UK Traders

Here I’ve compared the options trading platforms based on four key factors you must consider and compare.

What are the best options trading brokers in the UK?

RankPlatformMinimum depositOptions markets availableOptions costsAccount types
1Plus500£1002,800+OTC (built into the spread)CFDs
2SpreadEx£05+OTC (built into the spread)CFDs, spread betting
3IG£25050+OTC (built into the spread)CFDs, spread betting, DMA, investing
4Saxo Markets£11,200From £1 per contractCFDs, futures & options, DMA, investing
5Interactive Brokers£110,000£0.6 per contractCFDs, DMA, futures & options, investing
6AvaTrade£10040+From 0.9 pipsCFDs, FX options
7City Index£10040+OTC (built into the spread)CFDs, spread betting
8Tickmill£10010+$1.30 per contractDMA

Best Options Broker UK Reviews

In 2023, around 2 in 5 Brits (42%) invest and trade, up from 36% in 20211.

Choosing the best options trading platform is crucial for newcomers in the market.

Having worked in the retail investment sector in London over the last four years, I had the opportunity to experience the rise first-hand.

Additionally, in my role working for one of the UK’s leading financial companies, “a trustworthy and respected provider of news, education and market analysis for the everyday investor”, I was able to work with and test some of the biggest UK options trading brokers on the market.

Using my experience in this field, I’ve compiled a list of the best options trading platforms in the UK based on four key criteria:

  1. Minimum deposit
  2. Options markets available
  3. Options costs
  4. Account types

Factors such as usability, trading platforms available, research tools, educational materials, and additional features were also considered.

All the options trading platforms I’ve reviewed below are regulated by the UK’s financial watchdog, the Financial Conduct Authority (FCA).

You can read about how we test platforms here.

This article was reviewed by Tobi Opeyemi Amure, a trading expert and writer at InvestopediaInvesting.com, and Trading.biz.

1. Plus500 – Overall best options trading platform UK for beginners (CFDs)

Plus500 - Overall best options trading platform UK for beginners.
81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

The overall winner on my list of the best options trading platforms and what I recommend to beginners is Plus500.

Plus500 offers a seamless blend of versatility and efficiency for UK traders. Its demo account and Trading Academy make it useful for newcomers.

With the platform’s ability to facilitate both CFD call and put options on diverse assets like Germany 40, oil, and metals, you have a broad spectrum of opportunities.

What sets Plus500 apart is its unique leverage offering, enabling you to access significant market exposure with minimal upfront capital.

Trading with Plus500 is not just about broad market access; it’s about cost efficiency. While the platform boasts zero commissions and low spreads, traders should be aware of additional charges like overnight funding and inactivity fees.

Moreover, Plus500 equips its users with top-tier risk management tools, ranging from stop-loss orders to real-time market analysis, ensuring they have the resources to trade in volatile markets.

Designed for the modern trader, Plus500’s proprietary platform shines both on desktop and mobile. Its accolades, including top ratings on Google Play and the App Store, stand testament to its user-friendly design and efficiency.

With over 10,000 positive Trustpilot reviews and FCA regulation (#509909), I’d recommend Plus500 as one of the best options trading platforms for traders at all levels.

Read my full Plus500 review.

Key rating criteria:

Minimum depositOptions markets availableOptions costsAccount types
£1002,800+OTC (built into the spread)CFDs

81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

2. Spreadex – Award-winning options trading platform in the UK

SpreadEx - Best options broker for CFDs on major indices
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64% of retail investors lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Spreadex stands out as a premier options trading platform in the UK, ideal for those looking to trade options via CFDs or spread betting.

It offers competitive spreads starting from 4 points for the UK 100 and Germany 30, with a modest minimum stake requirement of £2. While online trading options may have limitations, Spreadex provides access to major markets for a broad trading scope.

For newcomers to options trading, Spreadex emerges as an appealing choice. It’s user-friendly, allowing traders to start with an investment amount of their choice, courtesy of no minimum deposit policy.

With the added benefit of commission-free transactions, traders can manage their finances effectively without the concern of unforeseen expenses.

In addition to options, Spreadex offers an extensive range of over 10,000 securities, such as forex, shares, commodities, indices, and bonds, to enhance your trading portfolio and profit possibilities.

For the more seasoned traders seeking sophisticated tools, Spreadex integrates with TradingView for advanced analysis and social trading opportunities, connecting you with a worldwide network of traders to deepen your options trading knowledge.

Read my full Spreadex review.

Key rating criteria:

Minimum depositOptions markets availableOptions costsAccount types
£15+OTC (built into the spread)CFDs, spread betting

64% of retail investors lose money when trading spread bets and CFDs with this provider.

3. IG – World’s largest options trading broker

IG - World's largest options trading broker for CFDs.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

With over four decades in the trading realm, IG has established itself as a significant player, especially for those well-versed in the intricate world of options trading.

Recognised globally as the world’s largest CFD broker, IG’s rich history and wide market offerings stand testament to its prowess.

Trading options with IG gives you the ability to buy or sell before or after an asset reaches an agreed strike point.

However, be aware of the regional nuances. US traders enjoy the flexibility to buy or sell during the option’s lifespan, British traders are limited to actions at the exact expiry point.

This unique aspect results in slightly reduced fees for UK traders. IG’s office trials in December 2021 laid the foundation for these features, with trading hours for British share options set from 8 a.m. to 4 p.m. (GMT).

IG’s brilliance lies not just in its stock options trading. The platform allows you to explore and trade options contracts on various timescales – from a day to a quarter – across stocks, FX, and index options. This adaptability allows you to maintain positions regardless of market stagnation, decline, or ascent.

Beyond its vast offerings, IG’s long-standing presence assures a secure environment for funds. The platform prides itself on swift execution speeds, giving traders access to over 17,000 global instruments (largely through CFDs and spread bets).

IG is both an FCA-regulated entity and a proud member of the London Stock Exchange.

IG’s other benefits include exemption from taxes on spread betting gains (subject to individual circumstances), no overnight fees, risk capping, and leverage flexibility.

IG provides powerful tools, including a robust strategy builder and integrations with platforms like MetaTrader 4 and ProRealTime. Overall, I’d recommend it as an ideal options trader broker for those with a bit of trading experience.

Read my full IG review.

Key rating criteria:

Minimum depositOptions markets availableOptions costsAccount types
£25050+OTC (built into the spread)CFDs, spread betting, DMA, investing

4. Saxo Markets – Best UK options trading platform for selection of options

Saxo Markets - Best UK options trading platform for selection of over 1,200 options

Based in Copenhagen with a significant presence in London, Saxo Markets has been in the trading arena for three decades, making it one of the more experienced players.

But does experience translate to proficiency, especially in the nuanced world of options trading? Let’s dissect what the platform offers.

With access to over 1,200 options markets from 23 global stock exchanges, the range is admirable. Whether it’s equities, indices, commodities, or forex, Saxo Markets covers a broad spectrum. However, while this variety is excellent for seasoned traders, beginners might find themselves overwhelmed by choices.

Saxo offers a detailed option chain, aiming to offer traders all the necessary data for decision-making. While informative, the interface could benefit from some simplification for those new to options trading. The cloud-based architecture ensures smooth operations, and the multilingual settings cater to an international audience – a thoughtful touch.

Saxo adopts a conservative approach. By default, traders can only buy options, presumably to limit potential risks. This could be seen as a protective measure, but for those seeking more flexibility, it might come across as restrictive. The threshold to both buy and sell, which includes maintaining a minimum account balance of $5,000, feels steep.

A standout is Saxo’s trading strategy builder, which assists with multi-leg orders and offers prebuilt strategies. The rolling feature and integrated risk data are innovative, and the added assistance from SaxoStrats analysts is a bonus. While these tools are robust, the platform could benefit from a more intuitive arrangement for easier navigation.

With £70 billion in UK-client assets, Saxo has a substantial footprint. Its reach extends to over 20,000 stocks from more than 50 global exchanges. The platform’s longevity speaks to its reliability, but new traders might wish for more guidance and mentorship opportunities.

Saxo Markets, with its vast offerings and robust tools, is undoubtedly tailored for the well-versed trader. However, beginners might find the learning curve a bit steep. The platform’s rich legacy is evident, but a bit more user-centric refinement could make it more universally appealing.

Read my full Saxo Markets review.

Key rating criteria:

Minimum depositOptions markets availableOptions costsAccount types
£11,200From £1 per contractCFDs, futures & options, DMA, investing

5. Interactive Brokers – Best options trading platform for advanced traders

Interactive Brokers - Best options trading platform for advanced traders

Interactive Brokers, often abbreviated as IBKR, is well regarded in the UK’s options trading scene, driven by a combination of vast market access, advanced tools, and strong regulatory backing.

IBKR’s credentials in terms of licenses are impressive. With tier-one licenses spanning from ASIC in Australia, the FCA in the UK, to SFC for China, and extending to other significant financial hubs like Singapore and Canada, its global presence is undeniable.

This global coverage translates into access to an impressive 150+ markets, with the bonus of more than 10,000 options markets.

IBKR’s offerings aren’t confined to a single platform. They have a wide array of trading platforms including IBKR GlobalTrader, Client Portal, IBKR Mobile, Trader Workstation (TWS), IBKR APIs, and IMPACT.

This diversity ensures that traders from all experience levels find a suitable interface. The OptionTrader platform deserves special mention for letting users view a myriad of vital metrics on a single screen, simplifying the otherwise intricate options trading process.

A highly customisable interface coupled with the OptionsTrader tool provides a user-centric experience. Advanced support like detailed charts, price point notifications, watch lists, and demo trading further enrich the user journey. The platform’s ability to pinpoint risk/reward ratios of contracts via robust analytical tools is great for meticulous traders.

Feedback from users seems to be primarily positive. Though some report certain platforms as being slightly clunky compared to rivals, IBKR counters this by providing intuitive platforms like Client Portal and Global Trader, which are tailored even for novices.

Additionally, their trader academy brims with extensive resources, guiding users through the maze of IBKR products.

Interactive Brokers adopts a competitive fee structure, scaling from £0.60 per contract and potentially dropping to as low as £0.15 based on trade volume.

While the platform doesn’t demand a minimum deposit, funding options are somewhat limited. As of the last check, it supports bank transfers but lacks provisions for cards or PayPal, which can extend the funding process.

Interactive Brokers’ expansive market access, an array of platforms, and advanced trading tools make it a formidable contender in the options trading realm. However, its vastness may initially be overwhelming for novices. Still, with its dedicated educational resources, any committed trader can swiftly get accustomed.

Read my full Interactive Brokers review.

Key rating criteria:

Minimum depositOptions markets availableOptions costsAccount types
£110,000£0.6 per contractCFDs, DMA, futures & options, investing

6. AvaTrade – Best options trading platform for forex options

AvaTrade - Best options trading platform for forex options

AvaTrade, a name that resonates in the UK’s trading community, offers a platform that combines depth, variety, and a touch of innovation.

With options being a nuanced form of trading, AvaTrade’s offerings seem to cater especially to those with an appetite for complexity. Here’s a detailed look.

AvaTrade is a veritable hub for options enthusiasts, presenting contracts for over 40 currency pairs, making it particularly appealing for those keen on forex. From GBP/USD and EUR/USD to more exotic pairs, there’s a broad field to explore. Beyond currencies, commodities like gold and silver also find a spot, further broadening the trading horizon.

Enter AvaOptions – AvaTrade’s dedicated platform for options trading. Compatible with iOS, Windows, and web browsers, it’s designed for versatility. Within, you can delve into a plethora of advanced technical and fundamental indicators, reports, and analytics.

The portfolio simulations and risk management tools, especially the ‘negative balance protection’ feature, exemplify the platform’s commitment to trader safety. This feature is a response to financial regulation changes, acting as a more secure variant of a stop-loss, ensuring accounts don’t bleed into the red.

A noteworthy facet of AvaTrade is the flexibility in trading modes. You can directly purchase options or opt for CFDs. While CFDs hold the allure of amplified gains, they are, by nature, a double-edged sword, carrying the potential for equally amplified losses.

Beginners aren’t left in the cold. Despite its tilt towards experienced traders, AvaTrade offers a robust learning environment. The Ava Academy is stocked with guides, articles, videos, quizzes, and more. Furthermore, the demo trading account allows newcomers to get a feel before trading for real.

Beyond AvaOptions, the brand houses other platforms like MT4, MT5, and AvaTradeGO, further enriching the trading experience. Plus, for those inclined towards social and passive options trading, integrations with systems like ZuluTrade and DupliTrade are available.

However, it’s worth noting that while these offer unique value, they may not match the user-friendliness of the best copy trading platforms like eToro.

AvaTrade, with its specialised AvaOptions platform, truly carves a niche in the options trading landscape. While it’s a haven for seasoned traders seeking sophistication, beginners, too, have resources to lean on.

The platform’s multifaceted offerings, from direct options to CFDs and spread bets, are both its strength and its challenge, demanding careful navigation.

Read my full AvaTrade review.

Key rating criteria:

Minimum depositOptions markets availableOptions costsAccount types
£10040+From 0.9 pipsCFDs, FX options

7. City Index – Best UK options broker for CFDs & spread betting

City Index - Best UK options broker for CFDs & spread betting.

City Index stands out as a superior options trading platform in the UK, renowned for its spread betting and CFD offerings.

Its appeal lies in the tax efficiency for UK customers, as spread betting profits are not subject to capital gains tax, setting it apart from traditional options contracts and CFDs which are taxed.

Additionally, City Index provides a unique phone trading service, offering bespoke support for complex options strategies, enhancing its reputation for personal service.

For active traders focused on minimising costs, City Index offers a compelling package. There are no commissions on spread betting options and no overnight financing fees for positions held open past a day, making it a cost-effective choice.

Traders have the flexibility to engage in a variety of markets, from commodities and forex to indices, with a diverse range of strike prices and expiration periods including daily, monthly, and quarterly.

Beyond cost benefits, City Index assures a rich trading experience with access to more than 40 options markets. The platform is a part of the StoneX group, ensuring reliability and robust financial backing.

Client support is accessible 24/5, assisting through multiple channels, including a chatbot, email, and phone.

City Index’s research tools are exemplary, offering a quality news feed from Reuters and detailed market analysis from their expert team. Traders have access to renowned platforms such as MetaTrader 4, as well as City Index’s proprietary web and mobile applications.

The platform also caters to educational needs with comprehensive, plain English resources, suitable for those new to derivatives trading. Advanced traders can benefit from powerful tools like SMART Signals and performance analytics.

To top it off, City Index offers a demo account, complete with a £10,000 virtual fund to practice trading strategies, although it’s limited to 12 weeks of use.

Key rating criteria:

Minimum depositOptions markets availableOptions costsAccount types
£10040+OTC (built into the spread)CFDs, spread betting

8. Tickmill – Best for options trading on CQG

Tickmill - Best for options trading on CQG.

Tickmill shines as a top-notch options trading platform in the UK, particularly noted for its integration with CQG.

This setup is designed with dedicated options trading interfaces, enhancing the trading experience. Their strategy builder is a highlight, enabling traders to quickly construct options strategies, such as condor spreads, with ease.

Tickmill offers options trading on notable financial assets, including the Micro E-mini S&P 500 and the Micro E-mini Nasdaq 100.

Tickmill excels in facilitating a seamless platform where traders can agree on terms, with the buyer retaining the right to buy or sell the underlying asset at a predetermined price.

The platform is competitive, boasting a commission structure that is both affordable and transparent, with a base rate of just $0.85 per contract. Tickmill requires a $1,000 deposit to open an account, making it an attractive option for those mindful of costs.

Its multiple trading platforms are intuitive and innovative, complete with a comprehensive array of order types and trading tools for informed decision-making. Tickmill’s rapid execution speeds, API connectivity, and exemplary client services further solidify its position as a top-notch trading platform.

Starting with Tickmill is straightforward: new users register, fund their accounts using various payment methods, and begin trading swiftly. This ease of use, coupled with low fees, positions Tickmill as a go-to options trading platform for UK traders seeking value without compromising on quality.

Key rating criteria:

Minimum depositOptions markets availableOptions costsAccount types
£10010+$1.30 per contractDMA

How to Choose the Best Options Trading Platform UK?

Choosing the best options trading platform in the UK requires a mix of research, understanding your trading needs, and prioritising key features.

Along with the key rating criteria I used to rank the platforms, here’s what to look for:

  • Regulatory Compliance and Safety:
    • Always ensure that the platform is regulated by a recognised authority, such as the Financial Conduct Authority (FCA) in the UK.
    • Check if the platform offers investor protection or is part of schemes like the Financial Services Compensation Scheme (FSCS) for additional security.
  • Platform Fees and Costs:
    • Look into transaction fees, especially if you plan to trade frequently.
    • Consider any monthly or annual platform fees, and whether discounts are offered based on trading volume.
    • Investigate hidden fees like inactivity fees, withdrawal fees, or fees for accessing premium features.
  • User Interface and Experience:
    • The platform should be user-friendly, intuitive, and suitable for your level of expertise.
    • For beginners, platforms with good educational resources, demo accounts, and easy navigation are beneficial.
    • Advanced traders might prioritise detailed analytics tools, customisability, and advanced charting features.
  • Asset Coverage:
    • Ensure that the platform provides a wide range of options contracts across various assets, including stocks, commodities, and currency pairs.
    • If you have a particular market or asset in mind, ensure that the platform supports it.
  • Research and Educational Tools:
    • Platforms that offer research reports, market news, webinars, and tutorials can provide valuable insights.
    • Check if they have a demo or virtual trading feature, which lets you practice without using real money.
  • Trading Tools and Features:
    • Look for features like stop-loss orders, limit orders, and analytical tools.
    • Advanced traders might look for algorithmic trading capabilities or the ability to backtest strategies.
  • Mobile Trading:
    • If you prefer trading on the go, ensure the platform has a functional and robust mobile application.
  • Customer Service:
    • Good customer support can be invaluable. Look for platforms that offer multiple channels of support (chat, email, phone) and have a reputation for responsive service.
    • Consider the availability of customer service – 24/7 support might be essential for some traders.
  • Account Types and Funding:
    • Some platforms might offer different account types, such as margin accounts.
    • Check the methods available for funding your account. Some platforms might support bank transfers, credit cards, or e-wallets.
  • Reviews and Recommendations:
    • While online reviews should be taken with a grain of caution, they can provide insights into user experiences.
    • Speak to fellow traders or join online trading communities to get recommendations.
  • Additional Features:
    • Some platforms might offer features like social trading, where you can follow and replicate the trades of professional traders.
    • Features like tax-loss harvesting or integration with tax software can be beneficial for some traders.
  • Trial Period:
    • If possible, opt for platforms that offer a trial period or a demo account. This lets you get a feel of the platform’s features before fully committing.

What Is Options Trading?

Options Trading is a form of derivative trading that allows investors to buy or sell the right, but not the obligation, to purchase or sell an underlying asset (like stocks) at a predetermined price on or before a predetermined date2.

To understand options trading, let’s break down its key components:

  • Option Contracts: These are the fundamental units of trade in options trading. One option contract typically represents 100 shares of the underlying stock.
  • Call Option: Gives the holder (buyer) the right, but not the obligation, to purchase an underlying asset at a specified price (known as the strike price) within a specific time frame. Traders buy call options when they anticipate the price of the underlying asset will increase.
  • Put Option: Gives the holder the right, but not the obligation, to sell an underlying asset at a specified price within a specific time frame. Traders buy put options when they anticipate the price of the underlying asset will decrease.
  • Strike Price: The predetermined price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.
  • Expiration Date: The date by which the option must be exercised or it will expire worthless.
  • Premium: The cost of the option. It’s the price paid by the buyer to the seller (or writer) of the option for the rights granted by the option.

Options Trading Example

Suppose you believe that the stock of Company XYZ, currently trading at £55 per share, will increase in the next two months. To capitalise on this potential price increase, you decide to buy a call option.

Details of the Call Option:

  • Type: Call Option (because you believe the price will go up)
  • Underlying Stock: Company XYZ
  • Strike Price: £55 (This is the price at which you can buy the stock if you choose to exercise the option)
  • Expiration Date: 2 months from now
  • Premium: £2 per share

Since one options contract typically represents 100 shares, the total cost to purchase this call option (excluding any commissions or fees) would be: £2 (premium per share) x 100 shares = £200

Possible Outcomes:

  1. Stock Price Increases Above Strike Price: Suppose, one month later, Company XYZ releases a positive earnings report, and its stock price shoots up to £60. Your call option allows you to buy shares at £55, even though they are trading at £60. If you exercise the option, you can buy 100 shares at £55 per share (for £5,500) and immediately sell them at the current market price of £60 per share (for £6,000), netting a profit of £500. However, don’t forget the initial premium you paid for the option (£200). After accounting for this, your net profit would be £300.
  2. Stock Price Remains Below Strike Price: If, on the other hand, Company XYZ’s stock price never goes above the strike price of £55 by the expiration date, your call option will expire worthless. In this case, you’d lose the entire premium you paid for the option, which is £200.
  3. Selling the Option Before Expiry: Instead of waiting until expiration or exercising the option, you might decide to sell the option if it increases in value. For instance, if the stock price rises to £58 (but before the option expires), the value (or premium) of your call option might increase from your initial £2 per share to £4 per share. You could sell the option at this point to realise a profit.

This example illustrates the basics, but it’s essential to remember that options trading can be complex, with many different strategies and risk profiles. Always ensure you understand the intricacies and potential risks involved before diving into options trading.

What Causes Options to Rise or Fall in Price?

The price of an option, often referred to as its premium, can be influenced by several factors.

Here’s an in-depth look at what causes options to rise or fall in price:

  1. Supply and Demand: Just like any other market, the basic laws of supply and demand apply to options. If an option is in high demand, its price (or premium) will likely rise. Conversely, if there’s little demand for an option, its price will likely fall.
  2. Underlying Asset’s Price: The price movement of the underlying asset is a primary driver of an option’s price.
    • For a call option (which gives the holder the right to buy), if the underlying asset’s price rises, the call option’s price usually rises. Conversely, if the underlying asset’s price falls, the call option’s price usually falls.
    • For a put option (which gives the holder the right to sell), the opposite is true. If the underlying asset’s price rises, the put option’s price typically falls, and if the underlying asset’s price falls, the put option’s price usually rises.
  3. Volatility:
    • Implied Volatility (IV): This is the market’s forecast of a likely movement in an underlying asset’s price. Higher IV means the market expects larger price swings (either up or down), which increases the option’s premium because it represents a greater chance for the option to become profitable3.
    • Historical Volatility: Refers to the actual past movement of an underlying asset. While it’s a backward-looking measure, traders use it to gauge future volatility.
  4. Time Decay: Options have expiration dates. As an option gets closer to its expiration date, the rate at which its price decays accelerates, all else being equal. This is especially pronounced for out-of-the-money options.
  5. Interest Rates: Although it’s a less dominant factor, options prices do respond to changes in interest rates. When interest rates rise, call options generally rise in value due to the opportunity cost associated with holding cash (or stock) versus investing elsewhere. Conversely, put options typically decrease in value with rising interest rates.
  6. Dividends: If the underlying asset pays a dividend, it can affect the option’s price, especially if the dividend date falls within the option’s lifespan. Generally, when an underlying asset goes ex-dividend (starts trading without the dividend), its price drops, which can impact the associated options.
  7. Market Sentiment: The collective attitude or feeling of market participants can significantly influence an option’s price. Factors like news releases, earnings reports, geopolitical events, or regulatory changes can sway market sentiment, either favorably or unfavorably, which in turn can impact options pricing4.
  8. Option’s Intrinsic and Extrinsic Value:
    • Intrinsic Value: The difference between the underlying asset’s current price and the option’s strike price (but only when the option is in-the-money).
    • Extrinsic Value: The part of the option’s price not accounted for by its intrinsic value. It’s influenced by time decay, volatility, interest rates, and more.
  9. Depth and Liquidity of the Market: In markets with more participants and higher trading volumes, options prices tend to be more stable. In illiquid markets, options prices can be more volatile, and bid-ask spreads can be wider.

Buying vs Selling Options

Options trading involves two primary activities: buying (or “going long”) options and selling (or “writing” or “going short”) options.

Both activities have their advantages, disadvantages, and risk profiles.

Here’s a comparison:

Buying Options:

  • Definition: When you buy an option, you’re purchasing the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price (the strike price) before a specific date (expiration date).
  • Profit Potential: The potential profit when buying options is theoretically unlimited for call options (since a stock’s price can rise indefinitely) and capped to the strike price for put options (since a stock’s price cannot fall below zero).
  • Risk: The maximum risk is limited to the premium paid for the option. If the option expires worthless (out of the money), the entire premium is lost.
  • Premium: You pay a premium to the seller to obtain the rights that the option provides.
  • Rights & Obligations: Buyers have the right, but not the obligation, to exercise the option.
  • Strategy Use: Often used for speculation, to profit from expected price movements, or hedging to protect other investments.

Selling Options:

  • Definition: When you sell or write an option, you’re agreeing to the obligation to sell (call option) or buy (put option) the underlying asset at the strike price if the option buyer chooses to exercise the option.
  • Profit Potential: The maximum profit is limited to the premium received from selling the option.
  • Risk: Risks can be substantial. If you’ve sold a call option, your potential loss is theoretically unlimited, as the stock’s price can rise indefinitely. If you’ve sold a put option, your potential loss is capped at the strike price multiplied by 100 (minus the premium), since the stock’s price can only drop to zero.
  • Premium: You receive a premium from the buyer in exchange for taking on the obligation.
  • Rights & Obligations: Sellers must deliver the underlying asset (for call options) or buy the underlying asset (for put options) if the option is exercised by the buyer.
  • Strategy Use: Often used to generate premium income, hedge, or take a position in the market.

Key Differences:

  • Risk Profile: Option buyers have limited risk (the premium paid), while option sellers can face significant losses, especially when selling call options without holding the underlying stock (known as naked calls).
  • Profit Potential: Buyers have a higher profit potential, especially with call options, while sellers have a capped profit potential (the premium received).
  • Rights vs. Obligations: Buyers have rights without obligations, while sellers have obligations.
  • Premium: Buyers pay the premium, and sellers receive the premium.

What Assets Can You Trade Options With?

Options can be traded on a variety of underlying assets. Here are some of the most common:

  • Stocks: These are the most widely known type of options. Stock options give the holder the right to buy or sell shares of a particular stock at a specified price. For instance, options on companies like Apple, Microsoft, and Tesla are commonly traded.
  • Indices: These options allow investors to trade options on the entire stock market or specific segments of it. Examples include options on the S&P 500, the Dow Jones Industrial Average, or the NASDAQ.
  • Commodities: These include options on products such as gold, silver, crude oil, natural gas, and agricultural products like corn or soybeans.
  • Foreign Currencies (Forex): Options can be traded on different currency pairs, such as EUR/USD, GBP/USD, or USD/JPY.
  • Interest Rate Options: These are options on interest rate futures, such as the U.S. Treasury bond or note futures.
  • Futures: Just like commodities, options can be traded on futures contracts. These options give the holder the right to enter into a futures contract, rather than buying or selling the underlying commodity directly.
  • Exchange-Traded Funds (ETFs): ETFs are investment funds traded on stock exchanges, and you can trade options on these funds just like individual stocks. For example, options on the SPDR S&P 500 ETF (SPY) or the PowerShares QQQ Trust (QQQ) which tracks the NASDAQ-100.
  • Real Estate Investment Trusts (REITs): Some REITs have options that can be traded, allowing investors to hedge or speculate on real estate markets.
  • Over-the-counter (OTC) Options: These are options that are not listed on an organised exchange. They are customised contracts that are traded between private parties without going through an exchange.

Common Options Trading Strategies

Options trading offers a wide variety of strategies that can be employed depending on one’s outlook on the market, risk tolerance, and desired outcome.

Here are some of the most popular options trading strategies:

  1. Covered Call: This strategy involves owning the underlying stock and selling a call option on it. It’s a way to generate additional income from a stock that you own.
  2. Protective Put: This involves buying a put option on a stock that you own. It’s a form of insurance against a decline in the stock’s price.
  3. Bull Call Spread: This involves buying a call option and selling another call option with a higher strike price but the same expiration date. It’s a way to benefit from a moderate increase in the stock’s price.
  4. Bear Put Spread: Similar to the bull call spread, but uses put options. You’d buy a put and sell another put with a lower strike price. It benefits from a moderate decrease in the stock’s price.
  5. Iron Condor: This is a combination of a bull call spread and a bear put spread. It’s used when you expect the stock to trade within a specific range.
  6. Straddle: This involves buying a call and a put with the same strike price and expiration date. It’s a bet on volatility – you profit if the stock moves significantly in either direction.
  7. Strangle: Similar to a straddle, but you buy out-of-the-money call and put options. It also profits from significant price moves but is cheaper to establish than a straddle.
  8. Butterfly Spread: This strategy involves using three strike prices. For a call butterfly, you’d buy one lower strike call, sell two middle strike calls, and buy one higher strike call. It profits if the stock stays around the middle strike price.
  9. Calendar Spread (or Time Spread): This involves buying and selling two options of the same type with the same strike price, but different expiration dates. It’s a play on time decay and volatility changes between the two expiries.
  10. Collar: This combines a covered call and a protective put. It’s a way to protect against significant losses but also caps potential gains.
  11. Ratio Spreads: This involves buying one option and selling multiple options of the same type but at a different strike. It’s a more advanced strategy that can be bullish, bearish, or neutral.
  12. Naked Options: Selling options without holding the underlying asset or another offsetting option. This has unlimited risk on the upside for naked calls or downside for naked puts.

Pros & Cons of Options Trading

Options trading can offer investors and traders a flexible alternative to traditional stock trading. However, with the potential rewards come potential risks.

Here are some of the pros and cons of options trading:

Pros:

  • Leverage: Options allow you to control a large amount of stock for a fraction of the cost. This leverage can amplify returns.
  • Flexibility: Options can be used in a variety of ways, from hedging against a downturn to speculating on future stock price movements.
  • Defined Risk: When buying options, your maximum loss is limited to the premium paid. This can be especially attractive for those who want to know their maximum risk upfront.
  • Diversification: Options can be a way to diversify a trading strategy beyond just buying and selling stocks.
  • Income Generation: Strategies like covered calls allow stockholders to generate additional income from their holdings.
  • Hedging: Options can be used to protect or hedge against potential losses in other investments.
  • Variety of Strategies: As mentioned previously, there are numerous options trading strategies for various market conditions and risk appetites.

Cons:

  • Complexity: Options can be complex and may be daunting for beginner investors. A solid understanding is required to use them effectively.
  • Potential for Large Losses: While buying options have a defined risk, selling options can expose you to significant potential losses. For example, selling naked calls can have unlimited losses.
  • Time Decay: Options have expiration dates, and their value erodes over time, a phenomenon known as theta or time decay. Traders need to be right not only about the direction but also the timing of the move.
  • Liquidity Issues: Not all options are liquid. Illiquid options can have wide bid-ask spreads, which can be costly when entering or exiting positions.
  • Over-leveraging: The leverage that options offer can be a double-edged sword. It’s easy to over-leverage, leading to significant losses.
  • Counterparty Risk: While this risk is generally low in standardised and exchange-traded options due to the presence of clearinghouses, it can be a concern for over-the-counter (OTC) options.
  • Short-Term Focus: Many options traders focus on short-term movements, which can lead to a trading mindset rather than a long-term investment approach.
  • Costs: Commissions and fees related to options trading can add up, especially if you’re frequently trading.

How Do I Start Trading Options in the UK?

Here’s a step-by-step guide to get you started:

  1. Educate Yourself: Before diving into options trading, ensure you have a solid understanding of what options are, how they work, and the various strategies you can employ. Several online courses, books, and webinars cover options trading in depth.
  2. Choose the Right Broker:
    • Not all brokers in the UK offer options trading, so you’ll need to choose one that does.
    • Look for a broker with a user-friendly trading platform, reasonable fees, good customer service, and educational resources.
    • Popular brokers in the UK that offer options trading include Plus500, IG, Saxo Markets, and a few others.
  3. Open an Account:
    • You’ll need to provide personal details, proof of identity, and possibly financial information.
    • Some brokers may require a minimum deposit to start trading.
    • Be prepared to answer questions about your trading experience as options trading requires a certain level of knowledge and expertise.
  4. Get Approval:
    • Due to the complexity and risks associated with options trading, brokers typically require clients to be approved for options trading.
    • This process might involve answering questions about your investment goals, experience, and risk tolerance.
    • Depending on your experience level, the broker may only approve you for certain types of options trades.
  5. Start with a Demo Account: Before trading with real money, consider starting with a demo or virtual account to practice. This will help you get familiar with the platform and test your strategies without any real financial risk.
  6. Develop a Strategy:
    • Decide in advance how much you wish to invest and at what price point you aim to buy or sell.
    • Set clear goals and decide on the strategies that best align with your risk tolerance and objectives.
    • Always have an exit strategy. Know when you’ll close your position, either to take profits or cut losses.
  7. Stay Updated: Keep yourself informed about market news, trends, and any factors that might affect the underlying assets on which you have options.
  8. Monitor and Adjust: Regularly review your options portfolio, understand the implications of time decay (Theta), and make adjustments as necessary.
  9. Consider Taxes: Profits from options trading can be subject to capital gains tax in the UK. It’s essential to keep good records of your trades and consult with a tax advisor to ensure you’re compliant with all tax obligations.
  10. Continue Learning: The financial markets and strategies evolve. Continuously educate yourself, attend workshops, read relevant books, and be open to learning from your experiences, both positive and negative.

Option Trading Fees

When you trade options, you’ll likely encounter various fees and commissions. These costs can impact the profitability of your trades, so it’s important to be aware of them and factor them into your trading decisions.

Here are the typical fees associated with options trading:

  • Commissions: This is the fee that you pay to your broker for executing an options trade. The structure of these fees can vary:
    • Flat Fee Per Trade: A fixed amount for each trade regardless of the number of contracts.
    • Per Contract Fee: A fee for each options contract traded.
    • Combination: Some brokers may charge both a flat fee per trade and a per-contract fee.
  • Exercise and Assignment Fees: If you decide to exercise an option (use your right to buy or sell the underlying asset), or if an option you sold (wrote) is assigned (meaning the buyer exercises their right), there may be an associated fee. Not all brokers charge this, but some do.
  • Spread Fees: The bid-ask spread isn’t a “fee” charged by your broker, but it’s a cost you’ll need to consider. It represents the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). Less liquid options often have wider bid-ask spreads, which can increase trading costs.
  • Margin Interest: If you’re trading options on margin (borrowed money), you’ll be charged interest on the borrowed amount. This is more relevant for traders who write options or engage in more complex strategies that require a margin account.
  • Account Maintenance or Inactivity Fees: Some brokers charge fees for maintaining an account or if an account is inactive for a certain period.

Options Trading Risk Management

Risk management is a critical aspect of options trading. Given the complexity and leverage associated with options, traders can easily incur significant losses without proper risk management.

Here are some strategies and best practices to manage risk in options trading:

  • Position Sizing: Never invest more than a small percentage of your total portfolio in any single options trade. By limiting your investment size, you ensure that a loss on one trade doesn’t significantly impact your overall portfolio.
  • Set Stop-Loss Orders: Some traders set stop-loss orders to automatically sell an option if its price drops to a certain level, thereby capping potential losses.
  • Use Defined Risk Strategies: Some options strategies have defined risks, meaning you know your maximum potential loss upfront. For example, when you buy a call or put option, your maximum loss is the premium you paid.
  • Diversify: Don’t put all your capital into one type of option or underlying asset. By diversifying across various trades and assets, you spread risk.
  • Avoid Selling Naked Options: Selling naked or uncovered options can expose you to unlimited losses. If you sell options, consider covered strategies (like covered calls) or use spreads (like credit spreads) to define and limit potential losses.
  • Monitor Time Decay: Options have an expiration date, and their value decays over time. Be aware of the impact of time decay on your options, especially as expiration approaches.
  • Limit Leverage: Just because options offer leverage doesn’t mean you should use the maximum available. Excessive leverage can magnify losses.
  • Review and Adjust: Regularly review your options portfolio and adjust based on market conditions and your risk tolerance.
  • Plan Your Exit: Before entering any trade, decide when you’ll take profits or cut losses. Having a clear exit strategy can prevent emotional decision-making.
  • Use Paper Trading: If you’re new to options or trying out a new strategy, consider paper trading first. This allows you to practice without risking real money.
  • Stay Liquid: Ensure you have enough liquidity or margin in your account, especially if you’re selling options. You don’t want to be in a position where you’re forced to liquidate at unfavorable prices due to a margin call.
  • Understand Implied Volatility: A sudden increase in implied volatility can impact the price of options. Understand how changes in volatility can affect your position.
  • Hedging: Use options to hedge against potential losses in other parts of your portfolio. For instance, buying put options can help protect against potential drops in the value of owned stocks.

Final Thoughts

Navigating the intricate world of options trading requires a robust and intuitive platform.

The UK offers a plethora of options trading platforms, each with its unique features tailored to different trader needs.

Whether you’re a novice seeking educational resources or an expert desiring advanced analytical tools, there’s a platform in the UK to fit your requirements.

But, for beginners, I’d recommend Plus500 as the best options trading platform in the UK for utilising CFDs.

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Award-winning mobile app for options CFD trading. Comprehensive platform for all levels of experience.

Pros:
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  • Demo trading account & learning academy
  • Fast and responsive customer service
  • Trading tools & charts
82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

FAQs

Which broker is best for options trading in the UK?

Interactive Brokers and IG are some of the best brokers for options trading in the UK.

Can you do options trading in the UK?

Yes, options trading is available in the UK. Traders can participate in options markets for various underlying assets such as stocks, commodities, and indices. It’s essential for traders to use regulated brokers, understand the complexities of options trading, and be aware of the associated risks. Before starting, one should also consider seeking advice from financial professionals or conducting thorough research.

Where can I trade stock options UK?

In the UK, you can trade stock options through regulated online brokers. Some well-known brokers that offer options trading include Plus500 (CFDs), IG Group, Interactive Brokers (IBKR), and Saxo. Always ensure you select a broker with a strong reputation, appropriate regulatory oversight, and a platform that fits your trading needs. Before committing, it’s a good idea to test their platform through a demo account and to research user reviews.

Is options trading tax-free UK?

In the UK, options trading is not tax-free. Profits from options trading are typically subject to Capital Gains Tax (CGT). However, if you’re trading options through spread betting, which is a derivative product, the profits are generally free from Capital Gains Tax. Always consult with a tax professional or accountant to understand your specific tax obligations and ensure compliance.

Can I trade US stock options from the UK?

Yes, from the UK, you can trade US stock options. Many online brokers offer international trading platforms that provide access to major US exchanges where these options are listed. When choosing a broker, ensure they support US markets and understand any additional fees or currency considerations related to trading overseas assets.

What’s the best options trading platform for beginners?

For beginners, the best options trading platform typically offers an intuitive interface, robust educational resources, and strong customer support. Plus500 and AvaTrade are two platforms often recommended for beginners due to their user-friendly design, extensive educational content, and tools that cater to new traders. It’s important to choose a platform that aligns with your learning pace and trading goals. Always consider testing out a platform with a demo account before committing financially.

Is options trading legal in the UK?

Yes, options trading is legal in the UK. However, it’s important to use regulated brokers and ensure you’re trading in line with the rules set by regulatory bodies such as the Financial Conduct Authority (FCA). Always conduct due diligence before choosing a broker and be aware of the risks associated with options trading.

Is options trading risky?

Yes, options trading is risky. While it offers the potential for significant profits, it can also lead to substantial losses, sometimes exceeding the initial investment. Factors like market volatility, leverage, and the complex nature of options strategies can amplify risks. It’s essential to understand the intricacies of options, employ risk management techniques, and only invest what you’re prepared to lose. As always, education and careful research are crucial before diving into options trading.

Can I trade options on eToro?

No, you cannot trade traditional options on eToro. The platform focuses on other trading instruments such as stocks, cryptocurrencies, and CFDs.

Are binary options trading legal in the UK?

No, binary options trading is not legal for retail consumers in the UK. The Financial Conduct Authority (FCA) banned the sale of binary options to retail consumers in 2019 due to concerns about significant consumer harm from excessive losses and the potential for fraud.

Can you make a living off options trading?

Yes, some traders do make a living off options trading. However, it’s essential to note that success requires a deep understanding of the markets, a well-thought-out strategy, strict risk management, and consistent discipline. Many traders also face significant losses, especially when starting. Making a consistent income from options trading is challenging, and it’s crucial to approach it with caution, education, and a willingness to continuously learn.

You may also like:

Sources:

  1. https://www.finder.com/uk/investment-statistics ↩︎
  2. https://www.investor.gov/introduction-investing/investing-basics/glossary/options ↩︎
  3. https://core.ac.uk/download/pdf/196268649.pdf ↩︎
  4. https://pure.manchester.ac.uk/ws/portalfiles/portal/137645874/Draft_July_2019.pdf ↩︎
Our #1 recommended options trading platform in the UK.
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Will Fenton is the founder of Sterling Savvy. He is a personal finance expert and writes about trading, investing, budgeting, and other financial topics.

Along with his education in Economics & Finance, he has experience working in the financial services industry in London working for one of the UK’s leading financial companies, “a trustworthy and respected provider of news, education and market analysis for the everyday investor”.

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