Top Options Brokers in the UK

Top Options Brokers in the UK

Top Options Brokers in the UK

Updated 9 June 2021

Written by Beth Mahoney
Beth Mahoney

While options trading can seem somewhat overwhelming when first starting out, the fact is that once you have an insight into how the process works, it becomes far simpler and easier to understand.

Usually, investor portfolios utilise a range of asset classes, including stocks, bonds and mutual funds. Options act as another form of asset type, and when utilised correctly, they can offer a wide range of investment benefits.

What Are Options?

Options are a form of contract that allow the buyer of the contract to buy or sell an item at a set price.

An option buyer is charged an amount known as a ‘premium’ by the seller for the right to purchase the product at a set price. If market prices are seen as being unfavourable for options holders, they will allow the option to expire, which ensures that any losses are not higher than the premium for the product.

In comparison, it is the option sellers who take on the greatest level of risk compared to those buying the options, which is why a premium is always set.

Options tend to be split into two different options types known as ‘call’ and ‘put’ options.

When it comes to a call option, the person buying the option contract purchases the right – but not the obligation – to buy the item in the future at a set price, known as the ‘exercise price’ or the ‘strike price’ on or before the contract expires.

Whereas, when it comes to a put option, the buyer is guaranteed the right – but again, not the obligation – to sell the asset at some point in the future, on or before the end date, at the agreed price.

There are four ways that you can trade options, these are:

  • Buying calls
  • Selling calls
  • Buying puts
  • Selling puts

People who buy options are known as ‘holders’ and people who sell options are referred to as ‘writers of options’.

When it comes to options, call holders and put holders are under no obligation to buy or sell; they have the choice to use their rights how they see fit. This helps to limit the risk for buyers.

Whereas, call writers and put writers are in a position where they are obligated to sell if the option expires. This means that the risks for call and put writers tends to be higher than for call and put holders.

Key Facts:

  • An option is simply a contract that gives the buyer the right to buy or sell the asset at a set price on or before a certain date.
  • People tend to use options for income trading, to hedge risk or to speculate.
  • Options are called derivatives as their value comes from the underlying asset being traded.

Options are part of a set of securities called derivatives.

What it’s important to understand about derivatives is the fact that the price of the derivative is derived – or dependent on – something else.

When it comes to options, these are derivatives of something known as ‘financial securities’ – the price of an option depends on the value of another asset. Some examples of this kind of derivative include Futures Investments, for instance.

Options are able to be purchased in the same way as most other asset types, through brokerage investment accounts.

Of course, it’s also important to bear in mind the fact that, like all trading, options investing involves a certain level of risk. It’s essential that the investor is aware of these risks before choosing to make their investment.

What Are the Advantages of Options Trading?

There are a range of advantages of choosing to trade options.

Options are known as being a powerful asset as they offer a fantastic route to enhancing and diversifying a person’s portfolio, this is done through increased income, protection and also leverage.

Depending on what the goal of the options trader is, there is normally a suitable options scenario that’s an appropriate fit for the trader’s goal.

For instance, in the example of needing to hedge against a stock market that is declining, options can be used as a means of limiting downside losses.

Options trading can also be used as a means of creating a regular income. In addition to this, options can also be utilised for speculative reasons, such as to wager on the direction in which a stock will go.

Key advantages of options trading include:

  • Options are extremely cheap to trade
  • You can get options on and off an exchange
  • The risk of options is limited to the premium amount agreed
  • There are high potential returns in relation to the level of risk
  • There are various strategies to utilise and speculate on the volatility of the investment and movement of price
Top Options Brokers in the UK

What Are the Disadvantages of Options?

As noted above, there are a wide range of advantages of options trading, with a range of financial rewards available, but it is important to understand that there are still a number of drawbacks.

Options trading offers less liquidity which can make it tricky for a trader to enter or leave the trade.

It’s also important to be aware that options trading can be more expensive than some other forms of trading, such as when compared to futures or stock trading, for instance. However, that being said, there are discount brokers who are able to offer lower rates, but for the most part, it can be a little pricey to trade options.

One of the worst things about trading options is ‘time decay’; which is where the value of an option premium begins to decrease over time.

Key disadvantages of options include:

  • Options can lack liquidity
  • Options can become worthless in a short time frame, quickly losing their value
  • The risk is unlimited

One of the most essential factors when it comes to whether you will see options success is time; time decay can be a real issue when it comes to options trading. It’s also crucial to take the cost of trading into account when it comes to options.

How to Compare Option Brokers

Options trading has become exceedingly popular over the past few years, with more people than ever before interested in options trading.

The good news is that with the right options broker in place to help and support you, your options trading journey is sure to go smoothly.

However, determining which options trader is right for you and your needs can be difficult, which is why it’s important to know how best to compare options brokers.

There are some key factors to think about when it comes to comparing options brokers. Here are some of the key things to think about:

Are They Properly Regulated and Monitored by the FCA?

An accredited broker will usually display their FCA accreditation on their website and in any correspondence, so keep an eye out for this on broker websites.

Accreditation is important as it means that the broker adheres to a certain set of key regulations, ensuring that all trading is done fairly and legally and meets all national requirements.

Buying and Selling

It’s also important to determine whether a platform will allow you to both buy and sell options, rather than simply offering you one or the other. If you want to have the option of selling and buying then you need to source a broker who is able to offer that.

Rate of Commission

Another key factor to determine when it comes to options trading is the rate of commission that the platform charges. While some platforms charge higher rates of commission, others have lower and more affordable rates in place.

Option Strategies

It’s also important to determine if option strategies are allowed. Option strategies not only define how a trade deal will be entered and exited, but it can also help to make managing risk and the associated volatility a little easier.

There are a wide range of option strategies to choose from, and every trader has their own trading strategy.

For instance, some traders prefer to use a covered call options strategy, while other traders prefer to use a credit spread options strategy.

Some brokers don’t allow the use of certain approaches and strategies, so this is something worth looking into before selecting a broker to work with.

Extra Features

It is also important to determine what features and tools the platform has on offer for its users, such as what specific features there are in place to aid trading strategies.

What Are Paper Options?

When it comes to seeing success as an options trader, you need to be able to work quickly and effectively, never deliberating for too long on an investment opportunity.

An easy way to hone and improve your options trading skills is via paper options trading; this is a form of practice trading, which simulates a real training situation, allowing options traders to gain an insight into the process and improve and enhance their skills by doing so.

For any trader wanting to learn more about options trading – or plot out a new options strategy – paper options is a great resource to utilise.

Who Are the Top Options Brokers in the UK?

There are a wide range of choices when it comes to options brokers in the UK. However, not all brokers and platforms are born equal, so it’s worth taking the time to determine which option is the best fit for you and your trading style and requirements.

1. Tastyworks

Best for: Options trading

Fees: The platform has a unique fee system in place which charges $1 per contract to open a position, whereas closing trades is completely free.

Tastyworks is a platform that has been designed with active traders in mind. All of the tools available on the platform are designed to make focusing on liquidity, probability and volatility easier.

Pros:

  • Fantastic set of tools designed for frequent traders
  • Key analytics built into software so it’s easier to see the probability of success when trading
  • Customisable platform with real-time quotes

Cons:

  • The platform can seem a little overwhelming at first, especially for newer traders
  • Bonds and CFDs aren’t available
  • Portfolio analysis needs to be done on a separate website

Visit Tastyworks

2. IG

Best for: All round trading

Fees: On a global scale, IG’s costs for spreads, fees and commissions are extremely competitive. IG also charges a premium for the benefit of guaranteed stop loss orders, there are also a number of other extra charges when using the IG platform. However, these are all clearly mentioned on the IG website.

IG Group was the world’s first options firm designed to offer opportunities in various financial markets.

With 178,000 customers spread across five global continents, it’s easy to see why IG is a leader in online trading.

The website is designed to be well organised and easy to navigate, offering fully disclosed services and fees.

Pros:

  • Large range of offerings
  • Regulated by the FCA
  • Puts a strong emphasis on the importance of learning and education
  • Offers practice accounts for clients to test out and utilise their trading skills

Cons:

  • Fairly high fees
  • Lack of account protection
  • No guaranteed stop losses
  • No copy trading integration on the IG platform

Visit IG

3. Saxo

Best for: Advanced and online traders

Fees: These are either incorporated into the spread or added on as commission that meets industry standards. Overnight holding costs are average, and the inactivity fee is £25 per quarter. There are a number of other general charges which you can find more information about on the Saxo website.

Flagship platform, SaxoTraderPRO is a downloadable platform that has been designed with advanced traders in mind, while the web-based version of the platform is SaxoTraderGO.

The web-based platform comes with a number of trading features and a user-friendly setup, it also offers a highly functional smartphone app for trading on the go.

Pros:

  • Diverse range of offerings available
  • Regulated by the FCA
  • Offers industry best research
  • Incorporates a unique user interface
  • Offers client account protection

Cons:

  • Customer service lacks quality
  • Fee structure may be confusing
  • No NT4

Visit Saxo

4. Hargreaves Lansdown

Best for: Research

Fees: In order to open a live account, a minimum deposit of £200 is required. However, Hargreaves Lansdown also offers a demo account that comes without this cost and can be used as a learning aid to improve and enhance trading knowledge and experience. Hargreaves Lansdown also takes a fee from the spread.

Hargreaves Lansdown offers a range of financial services, advice and tools for traders to utilise.

Pros:

  • Regulated by the FCA
  • Established 30 years ago and been running since
  • Minimum deposit of just £200
  • Segregates client funds
  • Demo accounts available

Cons:

  • Inactivity fees utilised
  • Limited range of tools

Visit Hargreaves Lansdown

5. Interactive Brokers

Best for: Low margin rates and professional traders

Fees: While Interactive Brokers were known for being a low-cost broker, following most larger brokers reducing or scraping their fees altogether, they have become a somewhat expensive option when it comes to trading. The fee structure is rather complex, however there is a clear guide on their website that helps to make understanding the process a little easier.

Interactive Brokers offers a combination of high-quality tools, various asset classes and low costs. Boasting a wealth of tools for investors to utilise, there’s also an impact dashboard which can be utilised to help make tracking simpler and easier for users.

Pros:

  • Smart order router
  • Diverse range of options around the world and across asset types
  • Keeps costs low where possible

Cons:

  • Data runs on a single device at any one time
  • Small and inactive accounts are hit with large fees

Visit Interactive Brokers

6. Degiro

Best for: Low costs

Fees: Trading fees for users are classed as being low. There’s no inactivity fee charged, there’s no withdrawal fee, and there’s no minimum deposit.

The Dutch privately owned discount broker Degiro is known for offering a cost-efficient broker platform.

The platform is regulated and authorised by the FCA in the UK and is renowned for offering one of the lowest fees within the market.

Pros:

  • One of the platforms offering the very lowest fees on the market
  • Regulated by the FCA
  • Easy to use and navigate platform

Cons:

  • Limited amount of research and educational tools
  • No credit or debit card deposit option

Visit Degiro

7. Fineco

Best for: Low costs

Fees: Fineco is known for having low fees. It has no fee for inactivity or withdrawal, and there’s no minimum deposit amount.

Regulated by the FCA in the UK, Fineco is one of the best low cost options brokers available making it popular with traders.

Pros:

  • Low fees for non-traders
  • Fantastic platform for mobile trading
  • Great background

Cons:

  • Only bank transfer can be used for deposits
  • Lack of educational tools
  • Low quality charting tools

Visit Fineco

Final Thoughts

When it comes to options trading, there are a number of trading platforms available to choose from, each of which is designed to meet the needs of a different type of trader.

While some platforms offer a fantastic range of educational tools and demo platforms, others are renowned for having low fees, making trading more affordable.

WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal capital.