Options brokers offer options trading platforms that enable traders to hedge and speculate on the price of financial markets through buying or selling puts or calls. There are two types of options broker, DMA options brokers which connect their clients directly to exchange to buy and sell options and OTC options brokers, where clients take an options position against the firm. We have compared, ranked and reviewed the options brokers in the UK that are regulated by the FCA.
Options are complex financial instruments and come with a high risk of losing money rapidly due to leverage. Between 65% and 82% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. This article contains affiliate links which may earn us some form of income if you go on to open an account.
Compare options trading platforms
Use our comparison table of what we think are the best options brokers to compare how many options markets are available, minimum deposits and what other types of accounts they offer.
|Options Trading Platform||Options Markets||Minimum Deposit||CFDs||Spread Betting||DMA||More Info||Risk Warning|
|40+||£100||✔️||✔️||❌||See Platform||69% of retail investor accounts lose money when trading CFDs with this provider|
|10,000+||£1||✔️||❌||✔️||See Platform||60% of retail investor accounts lose money when trading CFDs with this provider|
|50+||£250||✔️||✔️||✔️||See Platform||73% of retail investor accounts lose money when trading CFDs with this provider|
|1,200||£500||✔️||❌||✔️||See Platform||70% of retail investor accounts lose money when trading CFDs with this provider|
|5+||£1||✔️||✔️||❌||See Platform||69% of retail investor accounts lose money when trading CFDs with this provider|
Our picks of the best options trading platforms reviewed
We have chosen what we think are the best options trading platforms based on:
- over 7,000 votes in our annual awards
- our own experiences testing the options trading platforms with real money
- an in-depth comparison of the features that make the options broker stand out compared to alternatives.
- interviews with the options trading platform CEOs and senior management
City Index: Best for CFD & spread bet options
City Index offer options trading via spread bets and CFDs, the benefit of the course of trading options as a spread bet for UK customers is that profits are free from capital gains tax. Phone trading is one feature that sets City Index apart from other retail options brokers. They provide personal service and can assist with complex options execution strategies.
- Smart trading signals
- Post-trade analysis
- Simple to use trading platform
- No US customers
- No DMA options
74% of retail investor accounts lose money when trading CFDs with this provider
Interactive Brokers: Best overall options broker 2022
IBKR offers one of the most, if not the most advanced options trading platform for private clients, both for derivatives markets (indices, commodities and forex) and stocks and shares. They provide access to a huge amount of UK and international stock options, but where they really win business is by their execution capabilities.
- Widest range of option to trade
- Online options strategy execution
- Excellent options trading platform
- Not UK based
- No tax-free options spread betting
60% of retail investor accounts lose money when trading CFDs with this provider
Saxo Markets: Best for on-exchange stock options trading
Saxo is one of the better value brokers for larger traders where you can trade stock options from USD 0.85, EUR 1 or GBP 1. Saxo Markets provides access to 1,200+ listed options from 23 exchanges worldwide, across equities, indices, interest rates, energy, and metals.
- Excellent options chain boards
- DMA on-exchange options trading
- Good research and analysis
- No tax-efficient spread bet options
- High minimum deposit
70% of retail investor accounts lose money when trading CFDs with this provider
IG: Widest range of options for CFDs and spread betting
IG offers options trading via financial spread betting or CFDs as daily, weekly, monthly and quarterly markets. If you have a professional account, you can trade short-term limited risk options as well, with time-frames as low as 1 minute.
- Options spread betting
- Wide range of other markets
- Publically listed company
- Limited equity options online
- No DMA options trading
73% of retail investor accounts lose money when trading CFDs with this provider
- Simple platform
- UK based
- Tax free options spread betting
- Limited options on indices
- No equity options
69% of retail investor accounts lose money when trading CFDs with this provider
How to compare options brokers:
If you are looking for a broker to trade options and want to compare options trading brokers in the UK, here are the main things to look out for:
- Types of options offered – does a broker offer DMA and/or OTC options?
- Costs of options trading – how much does it cost to trade options?
- Market access – what stocks, indices, commodities, and currency pairs can you trade?
- Dealer experience – are they capable of helping with strategy creation and execution?
Options Trading Explained
Options are derivative contracts that confer the right but not the obligation (on the purchaser of an option) to buy or sell a fixed amount of an underlying instrument at a set price during the lifetime of the option. In conferring those rights, the contracts provide the buyer with what’s known as optionality. Which we can think of as the right to choose whether to exercise their option and buy or sell the underlying instruments. Be that an index, a bond, a commodity, an individual share or cryptocurrency.
Option Contracts have existed for some time, a type of options contact evolved in the Dutch Tulip mania almost 400 years ago. Like most derivative contracts options are designed to spread risk; however, their misuse can actually concentrate risk instead.
Options became increasingly popular with the launch of Financial Futures in the 1970s and 1980s, as mathematical models were developed that allowed traders to price and model options structures accurately and to make predictions about their future price movements rather than just trading them on intuition and experience.
Puts & Calls
There are two principal types of options:
- Put options: Put options are the right to sell the underlying instrument,
- Call options: Call options are the right to buy the underlying instrument.
Advantages of using an options broker:
- Options are very cheap to trade
- You can trade on or off-exchange
- Risk is limited to premium (if you are a buyer)
- High potential returns versus risk when buying out of the money calls
- Lots of strategies to speculate on volatility and price movement
- Can be used to protect your long term investments
The benefits of options trading include having a fixed and known downside or maximum loss, if you are just long puts or calls then your maximum loss will always be the premiums you pay plus any commissions or fees.
Options allow you to take a geared or leveraged position when compared to trading in the underlying. That is you can gain greater exposure for a smaller initial outlay. Strategies such as covered call writing can be used to create income streams to boost a portfolio’s returns.
Disadvantages of using an options broker:
- Options can quickly become illiquid and or worthless
- Risk is potentially unlimited if you write options
- Options are traded in fixed lots so exact exposure is hard
- You have to pay tax on options trading profits (unless spread betting)
The biggest risk in options trading is that they have a finite life or fixed expiry date, unlike a CFD which could theoretically run forever.
The time value of options steadily decays over their lifetime and is one of the reasons why the majority of options expire worthless. That time decay is not linear in that time value decays very quickly at the end of an options lifetime.
That means that short-dated options have very little or any time value within their price and therefore they are entirely composed of intrinsic value and short term volatility and in those circumstances the risk of losing all of the premium paid for the options is significant.
However, there are also significant risks in selling options for example by selling or going short of call options you have an open-ended risk because there is no limit to how high the price of the underlying instrument. This risk can be ameliorated by selling call options against an equal holding in the underlying instruments. However, traders should be very clear about the risk profiles of their options strategies because this is an area where a little knowledge can be very dangerous indeed.
Protecting your portfolio with options trading
Options can be used for outright speculation but as we noted earlier in the article they are primarily designed to diversify or mitigate risk for example if you have a portfolio of FTSE 100 stocks and are feeling bearish of the market short term you might be reluctant to sell your stock holdings in case you are wrong.
However, you can take out an” insurance policy” by buying some put options that is the right to sell an underlying instrument for example buying put options on the FTSE 100 index with a notional value equivalent to that of your stock holdings. If done correctly any move lower in the value of the FTSE 100 and therefore your share portfolio should be offset by a corresponding rise in the intrinsic value of your FTSE 100 put options of course to crystallize those running profits on the put options, you will either need to sell or exercise them before they expire and before the FTSE 100 recovers.
Buying versus writing (selling naked) options
The positions or obligations of the buyer or seller of an option are completely different.
- Buying: The buyer of an option can choose whether they exercise their rights to buy or sell the underlying instrument.
- Writing: The seller of an option is obligated to take or make delivery of the underlying instrument, if they are exercised against, during the options lifetime.
That leaves you with a choice to make based on your appetite for risk. On the face of it being long (a buyer) of options is far less risky a proposition than being short (a seller) of options.
One thing to consider though is that thanks to the time decay chart and the probabilities of an option not being in the money at the end of its life, the majority of options will expire worthless. Or will have been sold to close for a loss. In fact, as much as 70% of all options will expire out of the money that is with no intrinsic value, and because of expiry (limited lifetime) and no time value either.
Options trading versus futures trading
The principal differences between options and futures trading revolve around the obligations that the respective contracts confer. Futures traders are obligated to make or take delivery of the underlying commodity they are trading at the end of the contact lifetime whereas in options trading only the seller of options has obligations buyer of options have the right to take action but not the obligation to do so.
Options can be used to create positions that resemble futures contracts. So for example being long calls and short puts in the same instrument is a synthetic long in the underlying whilst being long puts and short calls in the same instrument create a synthetic short in the underlying instrument being traded.
All futures contracts have a value throughout their lifetime which is the current price times the size of the contract and any changes in the price of the underlying price are reflected in the PnL’s of the buyer and seller.
Conversely, the values of options prices will change even if there is no change in the price of the underlying instrument, because of time decay and reductions in implied volatility. In those circumstances the value of out of the money puts and calls can quickly be eroded and only in the money options will have any value at all at the end of a contract’s lifetime.
DMA versus OTC options trading
The two different types of options broker in the UK are DMA and OTC (over the counter).
- DMA options trading would generally be more appropriate for sophisticated investors as you can buy and sell options. When you sell an option, losses are potentially unlimited so they are very high risk. DMA options through popular brokers like Saxo Markets and Interactive Brokers also allow their clients to trade on more illiquid assets, which would not be appropriate for inexperienced investors as they may not be able to close their positions.
- OTC options via spread bets and CFDs through popular brokers like IG or CMC Markets are more common for retail private investors as trading platforms will provide a selection of options on the most liquid and less volatile markets such as large-cap stocks and major indices. They may also have higher margin requirements than on exchange options, which reduces the risk for investors but still enables them to buy and sell options online.
Options trading terminology
Here are some of the major terms you will come across when you trade options through an options broker:
- Options time series: Options have a finite life and are traded in what’s known as time series, for example, they may have a quarterly cycle of December, March, June, and September, or a monthly cycle of December, January, February, etc. Or these days even a weekly cycle.
- Options strike price: An options strike price are the prices at which the option owner can buy or sell the underlying instrument during the lifetime of the option.
- Options values: The value of an option will vary depending upon where its strike price is relative to the current price of the underlying instrument. This is known as being in or out of the money, sometimes abbreviated to ITM or OTM. The degree to which an option is ITM or OTM determines its intrinsic value.
- Option depreciation: Other factors that affect option prices are the options lifetime or duration. This is known as an options time value. Note though that this decays over the lifetime of an option, and decays very quickly as the option approaches its expiry date. Options are generally tradeable in their own right and the combination of intrinsic and time value goes a long way to determining the ultimate value of an option. Though, we need to factor volatility into the mix to derive more accurate values for options.
- Options volatility: Volatility is a measure of the propensity for price change and the frequency with which it occurs. It’s the volatility in the underlying instrument that an option is over, that we are interested in. The maths of option modeling can be quite complex; however, we can think about it like this. We can derive an expectation of how volatile an instrument, such as a share or bond, will be in the future, by looking at its historic volatility and the current market conditions. By combining those factors it’s possible to create a forecast or probability about how volatile the price of the underlying instruments will be in future, which is known as the implied volatility. Higher rates of implied volatility mean a higher likelihood of sharp or outsize price changes in the underlying instrument. Which, in turn, means that there is more chance of an option moving into the money and therefore having a higher intrinsic value or being worth more. Note though that the level of volatility says nothing about the direction of future price movements.
- Options Delta: Options delta is the sensitivity of the price of an option to a change in the price of the underlying. Deltas range between 0 and 1, the price of an option with a delta of 1, moves point for point with the price of the underlying.
- Options Gamma: Gamma measures the rate of change in delta, effectively it’s a gauge of how stable the delta is for a given option, and it can be used to forecast the future prices of options and their chances of moving into the money.
- Options Vega: Vega measures the likelihood of changes in implied volatility, which itself is a fundamental component of option pricing. Higher levels of volatility tend to push options prices higher. Lower levels can depress premiums. Tracking Vega can allow us to factor in those potential changes to an options theoretical value.
- Options Theta: Theta measures the rate of time decay in an option under the curve above. For example, the value of out of the money options (which have no intrinsic value) decay at a faster rate towards the end of their lifetime and have a higher theta as a result.
- Options premiums: The option premium is the options price or the premium that you pay for the right to buy or sell the underlying. Or it’s the premium that you receive for selling options and becoming obligated to have make or take delivery of the underlying. Effectively option sellers have a 30% chance of being exercised against whilst option buyers have a 70% percent chance of losing their premium if all options are held to expiry.
Options Trading Platform FAQs:
Saxo Markets is the best options trading platform for beginners based on our matrix and criteria.
It’s important that if you are a complete beginner to investing, you should accept that options may not be for you. Options can be quite simple and quite complex, and in many cases, there is the risk of losing your entire premium. If you do not fully understand the risks involved in options trading an options broker should not allow you to open an options trading account.
So, if you are a beginner options trader and looking for a platform, make sure you have significant experience in trading and investing. And most importantly, make sure your broker understands that you are a beginner to options trading.
Many options brokers can provide advice on strategy and execution (although not on what to buy or sell). Options brokers also understand the market well, so don’t be afraid to trade over the phone to make sure that you explain exactly what you want to do.
For beginners, it may be more appropriate to trade options where you are limited to buying equity options and have your risk limited to the premium you pay for an option.
Interactive Brokers is the best options broker for sophisticated investors as it offers DMA on exchange options, and robust trading platform as well as CFD option products with algo and API trading.
For experienced traders, it would be more appropriate to trade on exchange options with a DMA broker, where you can work bid/offers inside the spread as well as utilise strategies for more complex options trading.
In the UK Saxo Markets is the best options broker for buying stock options as they provide access to 26 exchanges and fees per options contract are as low as $1.25 on FTSE 250 and NASDAQ stocks. Interactive Brokers, does offer cheaper charges on US option contracts, however, Saxo has more of a base in the UK.
You can trade options on most large-cap shares listed on the London Stock Exchange. The smaller the market cap of a listed company, the less likely there will be liquidity or a market maker making prices for smaller-cap shares.
Saxo Markets is the best options broker for trading index options in the UK as based on our matrix, they offer more index options trading types than any other broker including DMA index options and CFD options on indices.
Saxo Markets is the best forex options broker as they have one of the widest range of currency pairs to trade options on a DMA and CFD basis.
All options brokers regulated by the FCA are listed on the FCA register. We also only include brokers in our options broker comparison table that are regulated by the FCA. Whether a broker is offering OTC or DMA options trading, they need to be regulated by the FCA. Any broker claiming to offer options trading that the FCA does not regulate is breaking the law and may well be a scam.
US traders are not allowed to trade on leverage through products like CFDs of financial spread betting. There is some form of margin trading permitted through margin loans and ETFs. If a US trader wants to increase their leverage on a position, options are one of the only ways to do it. In the UK, margin trading is readily accessible, so options markets are not as liquid and are therefore more expensive.
There are two types of spread when trading options which need to be considered when using an options broker:
- Options spread strategies – this is the name of an options strategy, the most common being straddles, strangles, condors and butterflies. Some of these can be traded online, but the majority need to be traded over the phone with a dealer. The better relationships your dealers have with market makers, the better the price of your spreads will be.
- OTC bid-offer spreads – unlike DMA options trading where you are charged a commission per lot, if you are trading OTC options via a CFD or spread bet, the commission will be built into the premium (also known as the bid-offer spread).
Saxo Markest offers the most types of options trading as you can trade options as a CFD or on-exchange on a huge range of stocks, indices, commodities and forex pairs. However, Saxo Markets does not offer options spread betting. IG, currently offers 50 markets for options trading as a spread bet or CFD.
All options trading except for financial spread betting is subject to capital gains tax. Financial spread betting is unique to the UK and is free of capital gains tax as trades are structured as a bet. However, it is important to speak to an independent financial advisor or tax specialist as tax can be different based on individual circumstances and is subject to change.
US residents are only allowed to trade options with a US-regulated options broker. UK brokers will not open an account for a US resident.
Yes, you can if you call the market right. Options are a tool for investing or trading and there is an opportunity to make a profit and lose money. As with all investing, you can make money trading options if you call the market correctly, but in equal measure, you can lose it. Relative to other forms of investing, options trading should be considered high risk and only suitable for experienced and sophisticated investors.
They offer both, the options contract and exchange are what determine whether an option is classified as American or European. American options can be exercised at any time whereas European options can only be exercised on expiry.
To start trading options you need to have the below:
- An account with an options broker
- Funds to trade with
- An idea of how much risk you want to take
- A full understanding of the risks and rewards of trading options
The first thing you need is a broker that offers access to the type of options you want to trade. You can compare options brokers in our options broker comparison table. All the brokers we feature are regulated by the FCA and offer access to on-exchange and OTC options. It’s important to remember that whilst options trading can be a good way to hedge exposure they can also be a very high risk form of speculation so make sure you fully understand the risks before you start trading options.
The most popular markets for options trading include stock indices and individual stocks, commodities such as gold and oil and trading options over ETFs is becoming more commonplace as well. The volatility seen in the markets during 2020 heightened interest in option trading and strategies and the volumes and values of options trading have picked up significantly because of that. Studies show that traders are increasingly attracted to weekly options and are using these short-term instruments to try and capture the momentum of US markets in particular.
Further reading: These are the most popular markets for online trading.
Yes, you can trade options in the UK. You need an options broker that is regulated by the FCA.
You can trade options through an options broker. Options trade on exchange or OTC for example UK single stock options trade on what was the LIFFE exchange now owned by the ICE or intercontinental exchange. FX Options on the other hand almost exclusively trade off-exchange or OTC. Your choice trading method and venue will be influenced by what you want to achieve with your options trading. Some brokers will offer you the ability to trade on exchange options whilst others will make options process to as either CFD or Spread Betting contracts however these will not be exercisable into the underlying assets the options are over. But if that’s not important to you then you may be better off trading with a margin trading broker who may allow you to trade in fractions of a lot which you couldn’t do on exchange.
Options are considered to be complex products so a retail trader will need to demonstrate their understanding of the risks involved in trading them of course their suitability tests for all derivative trading accounts these days. But live options trading is certainly not for novices or inexperienced investors. Particularly if you are going to be doing anything other than buying puts or calls.