A reader has asked: I am interested in trading options as I am studying a short course in them based in the USA, though I live in England. To trade some of the smaller American companies they mention, I think I need an American broker, but the one’s I have seen require a US social security number, which obviously I don’t have.
Answer: Interest in options trading certainly seems to be growing judging by the number of questions we receive on them.
A word of caution, however, options are not suitable for everyone they have a finite lifetime and as such can be high-risk products, particularly in smaller cap stocks. They are especially risky when they are used in strategies where options are sold short or are traded in combinations or spreads. So it’s important to make sure you understand the risks involved before you start trading options. A good place to start is our guide on how to trade options.
In terms of choosing an options broker, it sounds to me as though you will be looking for one that trades in on-exchange options. Though without knowing more about the strategy you are learning and what it entails it’s hard to be certain.
But assuming that’s the case and given the instruments, you want to trade options on, I think a specialist US options broker will be the best choice and given that you are based in the UK one that has a UK presence.
The broker that fits the bill is Interactive Brokers UK, they or their US parent can access more than a dozen different US options exchanges many of which trade equity options and they offer specialist options trading software to their customers that covers areas such as option analytics, risk and portfolio management.
To open an account with them online you will need to meet the suitability criteria for leveraged and complex products.
It’s also important to note that when trading online you should only use an FCA regulated broker. If you opt to use a broker based in America or elsewhere you will no longer get the protection of the UK regulator and the FSCS if your broker defaults.
You mention that you are studying a course on trading options. Another word of caution here too. Most trading educators are not worth their salt and simply provide “rainmaking” trading ideas in the hope that some long shots will pay off.
If you are trading based on other people’s recommendations it’s paramount that you completely understand the risks of trading derivatives products such as options and what the underlying companies do.
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Darren is a veteran of the financial markets with almost 36 years of experience under his belt. He has worked in trading, sales, analytical, and research roles, he has been a regular guest & commentator on financial television channels and publications. During his career, Darren has been fortunate to act for and advise major hedge funds and investment banks as well as HNWI. Darren analyses the markets using a blend of technical and fundamental analysis