We have put together a list of what we think are the best currency options brokers that are regulated by the FCA where you can trade OTC FX options. OTC (over-the-counter) currency options can help protect you from foreign exchange price fluctuations between two currencies without actually having to buy, sell or trade the underlying currency.
Best Currency Options Brokers 2023
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❓Methodology: We have chosen what we think are the currency options brokers based on:
- over 17,000 votes in our annual awards
- our own experiences testing the fx options accounts with real money
- an in-depth comparison of the features that make them stand out compared to alternative foreign exchange options providers
- interviews with the currency option company CEOs and senior management
Global Reach Partners: Best for corporate currency options
Global Reach offer currency option products, which can play an important role in foreign exchange hedging, used to complement Spot transactions and Forward Contracts as part of a blended hedging strategy.
- 30+ currencies
- Personal service & advice
- International money transfers
- High minimum transfer of £3,000
- No derivatives
Interactive Brokers: Best for on-exchange currency options
Interactive Brokers offers currency options trading on over 30 market centres worldwide. IBKR is most suitable for sophisticated currency hedging strategies for those comfortable with complex transactions.
- 100 forex pairs
- Low minimum deposit of £1
- No international money transfers
- Speculation & hedging only
60% of retail investor accounts lose money when trading CFDs with this provider
Saxo Markets: Best for DMA currency options
Saxo Markets offers access to 40 FX vanilla options with maturities from one day to 12 months. Spreads are as low as EUR USD from 3 pips and USD JPY from 5 pips and also provide extensive option chain tools, option analytics and innovative risk-management tools.
- 84 forex pairs
- DMA on-exchange hedging
- Low minimum deposit of £500
- No international money transfers
- Speculation & hedging only
70% of retail investor accounts lose money when trading CFDs with this provider
⚠️ FCA Regulation
All currency options brokers that operate in the UK must be regulated by the FCA. The FCA is the Financial Conduct Authority and is responsible for ensuring that UK fx options brokers are properly capitalised, treat customers fairly and have sufficient compliance systems in place. We only feature OTC fx options platforms that are regulated by the FCA, where your funds are protected by the FSCS.
How To Choose A Currency Options Broker
Of the currency options brokers we compare, only Global Reach offers physical currency options for taking delivery of foreign currency for transfers and international payments. Other providers we have compared like Saxo Markets and Interactive Brokers do offer currency options, but more for speculation that hedging currency exposure.
The main things to compare when choosing a currency options provider are:
- Currencies – how many currencies can you buy and sell options on
- Transfer size – what is the minimum amount you can transfer and deposit
- Account types – what type of accounts do they offer?
Currency Options Explained
In this guide we will explain what OTC currency options are, what they can be used for and the main risks and rewards.
What are OTC FX options?
OTC (over the counter) FX Options can help protect you from foreign exchange price fluctuations between two currencies. In this guide we will explain the risks, rewards, alternatives, and where you can trade OTC FX Options.
- Related guides: Preparing for a large currency transfer here and to find out more about your options of OTC with currency brokers, compare currency brokers
How do OTC FX options work?
OTC FX Options give you the right, but not the obligation to buy a certain amount of currency at a certain price, on a certain date in the future.
This can benefit currency traders because if the currency rates move against your position, you do not have to proceed with the transaction.
They can also benefit those looking to transfer currency internationally as you can benefit if the rates move in your favour.
Where can you trade currency options?
There are two ways to trade currency options, for hedging or speculation.
You can hedge currency exposure with a currency broker, this is a more appropriate for businesses wanting to reduce the amount of currency exposure they have and is a good tool for budgetting and locking in profit from current or upcoming revenue.
Or you can speculate on the currency markets through a forex trading platform. Speculating via currency options can be both very low risk (if you are buying puts and call) or very high risk (if you are selling or writing puts and calls). It is a very complex form of speculation and only for experienced investors.
Advantages of OTC FX options
Unlike currency forwards where you buy currency for a specific date in the future and are locked into the deal. With OTC FX options, you pay a premium for the right to buy the currency. If you change your mind, you don’t have to. Your risk is limited to the cost of the premium you paid for the option to do so.
Advantages of currency options:
- They are very cheap to trade
- They are available on or off exchange
- Risk is limited to premium (if you are a buyer)
- Very high potential returns versus risk
- Lots of strategies to speculate on volatility and price movement
Disadvantages of OTC FX options
Although options can be a limited risk financial product there are still downsides.
Firstly, being an OTC (Over The Counter) product there is no centralised exchange, you are contracting with your broker. In most circumstances, the broker will hedge the position and mark up your premium. But the financial security of your broker is something to be considered.
Secondly, if you are buying, an option you risk is limited to the price you’ve paid for your premium. But if you are selling options then your losses are potentially unlimited. So it’s vital that you fully understand what exposure your option may have.
Disadvantages of currency options:
- They can be illiquid
- Quickly become worthless
- Risk is potentially unlimited (if you are a seller)
Who should use OTC FX options?
The short answer is only those that understand them. If you don’t, learn about whether they are the right option for you and consider carefully before you commit, speak to a professional currency broker if you are not sure.
If you do they can be a valuable addition to any corporate hedging strategy. Currency traders can use them for speculation and some forex brokers will offer them on an execution only basis. If you are using a currency broker for hedging purposes they may be able to provide you with some strategy advice.
In general, though, currency options should only be used by sophisticated professional investors or corporate clients who fully understand the risks. Also, there are plenty of alleged experts out there who are not properly regulated and claim to have experience. The only brokers that are allowed to offer OTC FX options in the UK are regulated by the FCA. You can check a brokers regulator status on the FCA register here.
Here’s more information on why currency hedging strategies are important.
What are the alternatives to OTC FX options?
If you have some currency exposure you need to hedge there are a few alternatives to OTC FX options.
The first and most obvious being “On Exchange” currency options listed on the CME. However, these are dealt in lot sizes so you don’t get the flexibility of exact trade sizes. But, as they are listed on the CME you do reduce your counterparty exposure.
If you just want to lock in an exchange rate for a future currency transaction you can use a forward contract. These are great for reducing the risk of the exchange rate moving against you. But, if it moves in your favour, then you do not get the benefits. The old adage applies:
In foreign exchange, it’s next to impossible to speculate to make money, but very easy to hedge against losing it…
Here’s more information about what currency forwards are and how they work.
Currency Option FAQs
The two types of currency options are put and calls. You buy puts if you think the market will go down. You buy calls if you think the market will go up.
To trade or hedge with currency options follow these steps.
- Choose a currency options broker based on whether you are speculating (Interactive Brokers) or hedging (Corpay).
- Buy calls if you want the market to go up.
- Buy puts if you want the market to go down
- You will need to deposit funds to pay for the premium
- You then need to decide if you want the option to go to expiry (where you take delivery of the currency) or sell it early (for either a profit or a loss).
Yes, currency options are one of the simplest and cheapest ways to hedge currency exposure as you only pay for the premium (value of the options) and your risk is limited to that if you are buying options.
The two costs involved when buying currency options are the option premium and your broker’s commission. Sometimes with OTX fx options, a broker’s commission will be worked into the premium (but they still charge for their services).