Can You Trade Options in the UK?

You can trade options in the UK through Interactive Brokers and a number of other top trading platforms.

Options trading is an advanced investment strategy that allows you to optimize opportunities in market movements or analytic insight. Numerous brokerages cater to clients in the UK ready to start options trading. These platforms are known for their user-friendly interfaces combined with advanced features and technical tools. 

Some also offer sophisticated functionalities or analysis tools for advanced traders. Most come with free paper trading and educational materials to perfect your strategy. Can You Trade Options in the UK? Yes. Read on to build your strategy and find some of the best brokerages. 

How to Trade Options in the UK

Options trading is the act of buying or selling an asset at a predetermined price by a specific date in the future. There are different ways to trade options in the UK, including listed options, spread betting and CFDs. Each requires a slightly different strategy. 

1. Listed Options

You can trade listed options on a brokerage that offers options trading. With listed options, you buy an option contract that has been accepted for trading on an exchange. 

Options are contracts that give the investor the right to buy or sell a financial product at a predetermined price within a specific time frame. They are also known as derivatives because their value is derived from the underlying asset. While you could exercise your option at any time in the U.S., in the UK, you can only exercise the option at the expiration date. 

In the UK, you can buy listed options on various markets, including Forex options, Share options, Stock indexes, and Commodities.

2. Spread Betting

With spread betting, you wager on the outcome of an event, and the payoff is based on the accuracy of the wager. In the case of options, spread betting is a way for traders to bet on the direction of a financial market without actually owning the underlying security.

Spread betting allows investors to speculate in both bull and bear markets. It's banned in the U.S., but sometimes promoted as a tax-free, commission-free activity. However, like stock trades, using stop loss and taking profit orders can help mitigate spread bet risks.

3. CFDs

A contract for differences (CFD) is an agreement between an investor and a CFD broker to exchange the difference in the value of a financial product between the time the contract opens and closes.

Like spread betting, a CFD investor never actually owns the underlying asset. It's a high-risk technique with the possibility for high rewards. You'll receive revenue based on the price change of that asset.

CFDs have weaker industry regulation than other investment types, leading to possible additional risk. However, many investors choose CFDs because they give them access to the underlying asset at a lower cost than buying the asset outright. They also offer ease of execution and the flexibility to go long or short.

What to Consider Before Trading Options in the UK

Before trading options in the UK, consider risk, margin requirements, and available trades. Here is an overview to help you choose the best UK options trading platform for your investment goals.

Your Level of Experience and Knowledge

The importance of experience and knowledge when trading options cannot be overemphasized. Building your knowledge and practicing through paper trading before placing puts or calls is essential. UK options brokers provide educational resources to build your skills. Here's a primer on key terms used in options trading:

• Call Option: A contract that gives you the right to buy stock at a set price at the end of a certain period.
• Put Option: A contract that gives you the right to sell stock at a set price at the end of a certain period.
• Expiration date: The date when you can exercise the options contract or it becomes void. 
• Strike price, or exercise price: The price you can buy or sell the stock if you exercise the option.
• Premium: The per-share price you will pay for an option.

Risk Tolerance and Capital Availability

Risk tolerance is how much you can afford to lose and your psychological resistance to market fluctuations. It also takes into account how much capital you should have when trading options. Options trading allows you to leverage the funds in your account. Your capital availability is directly tied to how much you can lose.

Experienced traders may use options to hedge positions and reduce risk. For example, with a protective put or to minimize risk when making directional bets. However, when choosing UK options trading platforms, consider account minimums and your capital available for investing. 

Margin Requirements

Margin requirements for options trading are the cash or securities that you must deposit into your brokerage account as collateral before buying or selling options. Brokers set these requirements to reduce associated risks, and they can vary depending on the type of option. 

Fees and Commissions

The importance of determining the fees and commissions in options trading is essential for preserving your capital. The average fees and commissions for options trading range from $0.65 to $1 per contract. 

However, the fee may be much higher if you're trading through a traditional brokerage. In some cases, a full-service broker may charge $100 or more to execute trades for your account. 

Market Hours and Liquidity

Many of the best brokerages for options trading in the UK offer options in various markets, allowing you to trade after hours or even at night. Depending on your schedule and desired market, check potential brokerages' market hours and liquidity when trading options.

Available Trading Platforms

It's important to choose the right trading platform for your needs, investment goals, and skill level. Below is an overview of some of the best UK options trading brokers. 

5 Best UK Options Trading Brokers

Choosing the best UK option brokerage is simple with some research. Here's a starting point:

1. Best for Worldwide Investing: Interactive Brokers

Interactive Brokers is a comprehensive trading platform with access to over 150 global markets. Trade a variety of stocks, options, futures, forex, bonds, and fund trading. You won't have to pay a commission on any U.S. stock purchase or sale with the IBKR Lite pricing plan.

While IBKR is geared primarily toward experienced traders, you can use the free paper trading platform to build your options trading skills. 

Why We Picked It: Interactive Brokers' low fees, excellent educational resources, and excellent trading tools make it a strong choice for building a diversified portfolio. Low options fees also make it a favorite.  

2. Best for Fast Options Execution: TradeStation

TradeStation is known for its advanced options trading tools and reliable execution. It aims to give traders the ultimate experience. You can open individual and joint accounts, IRA accounts, or entity accounts. 

TradeStation has a professional trading platform, so you can check spreads, scalping, and perform statistical arbitrage and mean reversion to better analyze opportunities. If you don't know what all that means, it also offers resources to build your options skills.

Get real-time data and charts, and easily manage outstanding orders and market positions. TradeStation charges $0 commission plus $0.60 per contract on options.

Why We Picked It: With no account minimum, competitive options contract fees, and a good trading platform, TradeStation is a solid options trading choice for beginners and experienced investors alike. 

3. Best for Liquidity Ratings: tastytrade

tastytrade is an award-winning options platform designed to empower your trading goals. With low commissions starting at $1.00 per contract to open, and $0 to close, it's not the cheapest option on the list. However, on the plus side, commissions are capped at $10.00 per leg for equity and ETF options.

You can take advantage of tastytrade's liquidity rating indicator to find options markets and fair prices to trade. Tastytrade also allows you to track your equity and ETF options position's progress from open to close without a spreadsheet and use the analysis tab to gauge the profit and loss potential of options before you trade.

Why We Picked It: Compared to a 50 options lot, tastytrade's prices are lower than Fidelity, E*Trade, Interactive Brokers, or Schwab. However, tastytrade stands out for its simplification of professional tools to help build beginner traders’ skill sets. 

4. Best for Day Traders: TradeZero

TradeZero is known for commission-free stock trading, free limit orders, and higher day trading leverage. It offers 24/7 customer support to assist on trades or account issues. More importantly, you get access to four different state-of-the-art trading software programs.

TradeZero also lets you access free limit orders on symbols that trade on NYSE, Amex, or Nasdaq and are greater than $1. However, a limit order must not create an immediate match and must be an order of 200 shares or greater. Paid orders are just $0.005 per share, or $0.99 USD flat fee for orders less than 200 shares. You can open a day trading account for as little as $500.

Why We Picked It: TradeZero lets you access your online stock trading account with ZeroMobile. TradeZero is also one of the best online brokerages for pattern day traders.

5. Best for CFDs: Plus500

Plus500 is known for options and futures trading. The specialized platform allows you to trade options in various markets, including placing call and put options on Germany 40. Oil and Meta are available for trading with leverage. You can also trade volatility with flexible option trading CFDs.

Plus500's platform allows traders to speculate on the price movement of options without owning the actual asset. It is known for its user-friendly interface and has risk management tools to help traders of all levels. You can trade on options with up to 1:5 leverage and start with as little as £100 to gain the effect of £500 capital.

Why We Picked It: Plus500 offers excellent options, low prices, and low account minimums, as well as specialized tools for CFD trading. 

Final Tips on UK Options Trading

Options trading carries risk, but with the right strategy, you can also use options to mitigate risk. Whether you choose to trade options in the UK or build a diversified investment portfolio, the online brokerage firms above give UK investors access to various markets around the world. Remember to diversify your portfolio across asset classes, investment types, and even trading strategies to balance risk and optimize portfolio growth. 

Frequently Asked Questions