It is important to understand the basics of trading options before entering the market. Speculating on this type of derivative is popular with traders in the UK, offering access to stocks, indices and commodities, among other assets. In this guide to trading options, we look at strategies for beginners, how to find and capitalise on live opportunities, plus tips for getting started. We also list the best brokers and platforms for trading options in 2023.
Brokers with Options Trading
AvaTrade is a leading forex and CFD broker, established in 2006 and regulated across 9 jurisdictions. Over 400,000 users have signed up with the broker which processes over 2 million trades each month. The firm offers multiple trading platforms, including MT4, MT5, and a proprietary WebTrader. 1250+ financial instruments are available for trading, alongside a comprehensive education center and multilingual customer support.
Demo Account Regulated By MT4 Integration Yes ASIC, CySEC, FSCA, ISA, CBol, FSA, FRSA Yes Min. Deposit Min. Trade Leverage $100 0.01 Lots 1:30 (Retail) 1:400 (Pro)
Spreadex is an FCA-regulated broker that offers spread betting opportunities on an impressive 10,000+ instruments including 60 forex pairs as well as shares, indices, bonds, interest rates, ETFs, commodities and cryptocurrencies. Traders can also speculate on financial markets with CFDs and options, and take positions on sporting events. The brand has been around for over 20 years and won multiple awards.
Demo Account Regulated By MT4 Integration No FCA No Min. Deposit Min. Trade Leverage £0 £0.01 1:30
Interactive Brokers is a leading global brokerage that provides access to a comprehensive offering of stocks as well as forex, futures, metals, bonds and cryptos. The firm has over 40 years experience in the online trading industry and is heavily regulated by SEC, FCA, IIROC, and SFC. Day traders can use the proprietary Trader Workstation and can access powerful tools and data feeds as well as comprehensive educational resources.
Demo Account Regulated By MT4 Integration Yes SEC, FCA, IIROC, SFC No Min. Deposit Min. Trade Leverage $0 $100 1:50
Forex.com boasts a global reputation with multiple awards and 20+ years experience. Regulated in the US, EU, UK and Canada they provide a huge range of trading markets, not just forex, and offer competitive fees on a cutting-edge platform. The brand also provides a suite of additional tools, from performance analytics and SMART Signals to advanced charts and strategy builders.
Demo Account Regulated By MT4 Integration Yes FCA, CySEC, NFA, CFTC, CIMA, CIRO, SFC Yes Min. Deposit Min. Trade Leverage $100 0.01 Lots 1:30 (Retail), 1:500 (Pro)
IG is an award-winning broker that has an excellent reputation globally. The brand offers spread betting, CFD and forex trading across a comprehensive suite of markets. IG is also multi-regulated, provides a great trading app and has 50 years experience.
Demo Account Regulated By MT4 Integration Yes FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA Yes Min. Deposit Min. Trade Leverage $0 0.01 Lots 1:30 (Retail), 1:222 (Pro)
City Index is an established and award-winning forex, CFD and spread betting broker with top-tier global regulation, including in the UK (FCA) and Australia (ASIC). With 30+ years in the industry, 13,500+ instruments and 24/5 customer support, City Index is a solid pick for aspiring traders.
Demo Account Regulated By MT4 Integration Yes ASIC, FCA, MAS Yes Min. Deposit Min. Trade Leverage $0 0.01 Lots 1:30 (Retail), 1:50 (Accredited Investor), 1:200 (Sophisticated Investor), 1:300 (Wholesale Investor), 1:400 (Professional Trader). Varies with jurisdiction.
Plus500 is a leading brokerage, listed on the London Stock Exchange with 25+ million registered traders. The firm specializes in CFD trading on its intuitive, in-house platform and mobile app. Spreads are low and there are no deposit or withdrawal fees. Plus500 also has a high trust score with licenses from reputable regulators, including the FCA, ASIC and CySEC.
Demo Account Regulated By MT4 Integration Yes FCA, ASIC, CySEC, DFSA, MAS, FSA, FSCA, FMA, EFSA No Min. Deposit Min. Trade Leverage $100 0.01 Lots 1:30
NinjaTrader is a US-headquartered and regulated brokerage that specializes in futures trading. There are three pricing plans to suit different needs and budgets, as well as ultra-low margins on popular contracts. The brand's award-winning charting software and trading platform also offers a high-degree of customization and superb technical analysis features.
Demo Account Regulated By MT4 Integration Yes NFA, CFTC No Min. Deposit Min. Trade Leverage $50 0.01 Lots 1:50
Trade.com is a trustworthy online broker with a global presence. The broker offers 2,100+ CFDs in major markets, as well as futures, options and more. The broker offers best-in-class platforms and superior analysis tools for experienced traders. The broker is also regulated by top-tier authorities including the FCA and CySEC.
Demo Account Regulated By MT4 Integration Yes FCA, CySEC, FSC, FSCA, FINRA Yes Min. Deposit Min. Trade Leverage $100 0.01 Lots 1:30 (EU), 1:300 (Global)
RockGlobal is a New Zealand based and regulated CFD broker. They offer competitive spreads from 0.1 pips and a large range of trading assets, trading platforms and educational services, with up to 1:500 leverage. Operating in a Tier 1 regulated environment, RockGlobal offers peace of mind and excellent customer support.
Demo Account Regulated By MT4 Integration Yes FSP, FMA Yes Min. Deposit Min. Trade Leverage $200 0.01 Lots 1:500
Firstrade is a US-headquartered discount broker-dealer with authorization from the SEC. The company is also a member of FINRA/SIPC. With welcome bonuses, powerful tools and apps, plus commission-free trading, Firstrade Securities is a popular online brokerage. It is also quick and easy to open a new account.
Demo Account Regulated By MT4 Integration No SEC, FINRA No Min. Deposit Min. Trade Leverage $0 $1 None
Swissquote is a Switzerland-based bank and broker that offers online trading and investing. The company has a high safety score and is listed on the Swiss stock exchange. The firm offers a huge range of products, from stocks, ETFs, bonds and futures to 400+ forex and CFD assets. Hundreds of thousands of traders have opened an account with the multi-regulated brokerage. Clients can get started in three easy steps while 24/7 customer support is available to assist new users.
Demo Account Regulated By MT4 Integration Yes FCA, FINMA, DFSA, SFC Yes Min. Deposit Min. Trade Leverage $1000 0.01 Lots 1:30
FXPrimus is an award-winning CySEC-regulated brokerage offering CFD trading on 200+ instruments via the MetaTrader 4, MetaTrader 5 and cTrader platforms. The choice between a competitive commission-free account and two affordable raw spread options make this an accessible broker for anyone seeking forex, stocks, indices and commodities with high leverage.
Demo Account Regulated By MT4 Integration Yes CYSEC, MIFID, ICF, FCA, BaFin, VFSC Yes Min. Deposit Min. Trade Leverage $15 0.01 Lots 1:1000
StormGain is a comprehensive crypto platform that allows clients to trade digital currencies via an exchange, store them in a wallet, mine new tokens and access DeFi capabilities such as staking. Trading takes place through proprietary software, and clients can access trading signals and a suite of educational software. The platform also supports trading on 'tokenized assets' – smart contracts based on gold and silver price movements – and crypto options.
Demo Account Regulated By MT4 Integration Yes No Min. Deposit Min. Trade Leverage $50 $10 None
Libertex is a well-known broker, established in 2012. The regulated brand has served numerous clients and is regulated by the Cyprus Securities and Exchange Commission with license number 164/12. Libertex offers CFD trading on 250+ underlying assets, including through an innovative and user-friendly proprietary web trader platform. Choose between CFDs on forex, cryptocurrencies, commodities, stocks, indices and ETFs, which are available with tight spreads and low commissions.
Demo Account Regulated By MT4 Integration Yes CySEC Yes Min. Deposit Min. Trade Leverage €100 €20 Up to 1:30 (Retail)
Infinox is a UK-based and FCA-regulated broker that offers diverse trading products thanks to its STP and ECN account types and support for MetaTrader 4, MetaTrader 5 and a proprietary platform. Clients can also benefit from a free VPS that can support automated strategies and a social trading platform, catering to both beginner and seasoned traders.
Demo Account Regulated By MT4 Integration Yes FCA, SCB, FSCA Yes Min. Deposit Min. Trade Leverage £1 0.01 Lots 1:30 (UK), 1:200 (Global)
DEGIRO is a Netherlands-headquartered broker with millions of users and authorization from leading regulators, including the BaFin and FCA. Clients can access global exchanges anytime, anywhere, and on any device. DEGIRO offers stock trading with exceptionally low fees and a huge range of markets. DEGIRO are not CFD brokers and do not offer CFDs.
Demo Account Regulated By MT4 Integration No BaFin, FCA No Min. Deposit Min. Trade Leverage $0 Variable None
Saxo is a multi-award-winning trading brokerage, investment firm and regulated bank. With a huge 72,000+ trading instruments, plus investment products and managed portfolios, clients have no shortage of opportunities. The trusted brand also offers transparent pricing and top-tier regulatory protection from 10+ agencies including FINMA, FCA & ASIC.
Demo Account Regulated By MT4 Integration Yes FCA, DFSA, MAS, SFC No Min. Deposit Min. Trade Leverage £500 Variable 1:30 (Retail), 1:66 (Pro)
Zacks Trade is a FINRA-regulated US broker offering trading on stocks, ETFs, cryptocurrencies, bonds and more through a proprietary terminal. The broker is geared toward active traders and offers very affordable fees on most assets as well as an app and a vast amount of market data.
Demo Account Regulated By MT4 Integration Yes FINRA No Min. Deposit Min. Trade Leverage $2500 $3 None
BinaryCent is an unregulated binary options broker that offers 24/7 trading on forex, cryptos and stocks with payouts up to 95%. Despite its lack of regulation, this broker takes client security seriously and stores client funds in European banks. The broker also offers CFDs with very high leverage up to 1:500.
Demo Account Regulated By MT4 Integration Yes VFSC No Min. Deposit Min. Trade Leverage $250 $0.01 1:500
Just2Trade is a reliable multi-regulated broker registered with FINRA, NFA and CySEC. The company has 155,000 clients from 130 countries and stands out for its huge suite of instruments and additional features, including a social network, robo advisors and a funded trader programme.
Demo Account Regulated By MT4 Integration Yes CySEC, NFA, FINRA, Bank of Russia Yes Min. Deposit Min. Trade Leverage $100 0.01 Lots 1:20
Trading Options Explained
An options trading contract is a legal and binding agreement between a trader and a broker that permits the trader to buy or sell an asset at a pre-agreed time and price. For example, trader X wants the option to buy 10 shares in BP at £450 per share at the end of the month.
The buyer has the right to exercise the options contract but is not compelled to do so (a key difference versus futures). The seller is obligated to meet the transaction terms of the contract if the option is exercised before or on the expiration day.
Importantly, the buyer will pay a premium for the right to exercise the options contract. This cost will depend on the price of the asset and its intrinsic and extrinsic value – the difference between the contract’s strike price and the current price of the asset.
An investor trading options will use calls when buying an asset and puts when selling an asset. Standard options contracts are also known as ‘vanilla options’.
Options trading ultimately allows investors to take positions on:
- A rise or fall in the current value of an asset
- The extent to which an asset’s price will rise or fall
- When these price fluctuations will take place
How Does Trading Options Work?
Options contracts are derivatives which means they derive their value from an underlying asset. Underlying assets can span various markets, from FTSE-listed stocks and precious metals like gold to forex pairs with the GBP.
Both retail and institutional investors trade options with leverage. This means for a small capital outlay, they can take much larger positions than their cash would otherwise allow. This can significantly increase potential returns, making it a popular way to speculate on equities, for example, as opposed to directly buying and selling stocks.
Regardless of whether you are swing trading or day trading options, investors will often find the same rules and components in the products provided by online brokers. Each option requires details of the following to constitute a contract between the broker and trader:
- The underlying security
- The number of units/shares
- Type of option (put or call)
- Exercise/strike price (the price at which an option can be exercised)
- Expiration time and date (the time in which the trader can exercise the option)
Note, when you buy options, your risk exposure is normally capped to the premium you paid to take the position. However, when you sell options, your risk can be unlimited.
To understand how an options trade works, let’s look at a standard stock purchase versus a leveraged options contract…
A trader has £1,000 to invest. Rolls Royce (RYCEY) stock is currently trading at £50 per share and therefore the trader can buy 20 shares. If the share price increases by 10% then each share increases to £55, taking the total portfolio value to £1,100. Excluding costs/commissions associated with the trade, the total gain from the trade is £100 (£1,100 – £1000).
Now let’s look at the potential returns if the trader buys Rolls Royce stock call options with a strike price of £50 that expires in two weeks. The shares cost £2 per share or £200 per contract (each contract holds 100 shares). With £1,000, the trader can buy five contracts or 500 shares. If the stock price increases 10% to £55 by the expiry, each contract will be worth £5 (£55 from a strike price of £50). Therefore, the total trade will be worth £2,500 on 500 shares, making a profit of £1,500.
In both examples, the amount of capital being risked is the same – £1,000. However, the key difference is that the potential profit is higher with the call options because of the leverage available.
Pros & Cons Of Trading Options
Benefits of trading options include:
- Greater Margins – Investors can make larger returns with the same capital via a margin account
- Cost Effective – The premiums for puts and calls are often cheaper than purchasing the underlying asset, making them popular with beginners
- Broad Market Access – Options contracts are available on a variety of markets, including stocks, indices, forex and commodity. This also means options contracts can be used for hedging
- Reduced Risk – Your risk exposure is often lower than directly trading the underlying asset. This is because the trader only stands to lose the premium paid for the option whereas the value of the asset bought outright could decrease significantly
There are also downsides to trading options:
- Complex – For new traders, options contracts are not the most straightforward instrument to understand. Fortunately, the best brokers offer a selection of beginner-friendly training content and free demo accounts
- Requires Active Trading – Options contracts, by definition, give traders the right to exercise the trade and therefore investors will need to keep a regular eye on their positions
- Fast Paced – Many retail trading platforms offer options contracts with short timeframes. The likelihood of an options contract spanning several months is unlikely, which may deter some retail traders
- Prices – Some brokers charge high commissions for short-term options contracts, for example weekly, versus the fees for buying stocks directly
- Taxes – UK traders may have to pay capital gains on profits
How To Start Trading Options
Options trading is available at many top-rated brokerages. However, there are several elements to consider before opening an account:
Brokers need to remain profitable and therefore can hedge the risk of entering the contract with a trader by writing terms which will be favourable to them. This could be in the form of a high premium to enter the contract or an undesirable expiration time and date.
The best platform for trading options is the one that works for you. For beginners, the platform you choose should make the basics easy to understand and enjoyable. The key things to consider are live charting functionality, technical analysis and the number of indicators available, automated and algorithmic trading opportunities, trend analysis, volume and volatility charts and historical data archives.
Some investors may also wish to trade options on a platform independent from their broker, such as TradingView.
Brokers who offer investors the opportunity to practice trading options under live conditions provide a significant advantage. A demo account will allow investors to enter paper trades in a simulator environment and test how strategies would have played out without risking their own capital.
The top brokerages then make it easy to switch to a real-money account when traders feel ready.
Apps For Trading Options
Nowadays it has become second nature to have access to our online life via our mobile devices. Financial trading is no different, so the top brokers provide a good quality mobile application, including Fidelity.
Investors should be able to speculate on different stocks, options and other financial instruments while on the go. This is particularly important with options contracts as a trader may be debating whether to exercise the option or not based on current market conditions.
Deposit & Withdrawal Methods
Payment methods are also a key factor when choosing an online broker. Most leading sites will provide their customers with many different ways to fund their accounts. This could be via debit/credit cards, wire transfers, e-wallets or even deposits via cryptocurrency.
Traders should be able to find payment method information on their broker’s website before they are asked to create an account.
When deciding on a broker to start trading options through, it’s important to assess the fee structure. Most brokers will be transparent with the costs associated with trading options, meaning they should provide information regarding charges and fees before users are required to sign up. As a result, traders will be able to assess the impact on earnings and the level of margin they should expect to receive.
Options contracts will normally be bound by the trading hours of the underlying asset to which they are pegged. For example, a BT stock options contract will be tradable during the London Stock Exchange’s opening hours of 8:00 AM to 4:30 PM GMT.
Note, options trading is not usually available after hours unless the underlying asset is cryptocurrency.
Security & Regulation
When risking personal funds, it’s important to feel that your capital is relatively safe. Most leading options brokers will be governed by a reputable regulatory body such as the Financial Conduct Authority (FCA).
Beginners should take extra care when registering with a broker who is not FCA regulated as there will be fewer safeguards, for example, no limits on leveraged trading products.
Other key security procedures to look out for are encryption of sensitive data, zero balance protection and policies to protect the trader’s money if the broker goes into liquidation.
It’s also worth looking at what additional features the brokerage has to offer. Some options brokers invest heavily to enhance the trading experience for their users.
Popular additional features include margin calculators, related news stories and market bulletins, and an education centre where the broker provides tips and tutorials on how to make money from trading options.
Research & Strategy
Since trading options is popular amongst investors of all levels, including beginners, there is a range of information available online that can help daily traders gain a better understanding of the assets they’re speculating on. Users can enrol in an online trading course with an independent provider or directly at some brokers.
Traders wanting a more traditional learning path may want to purchase print-based books on the internet or in-store. Popular books include Trading Options For Dummies, which has been touted as the best book on trading options for beginners. The publication looks at the different types of options and whether you can go negative.
UK traders wishing to review tips and educational resources for free can also make use of YouTube and Reddit. Here, experienced investors and market experts provide their opinions on key topics such as how to practice investing and how to be profitable when trading options.
When choosing a strategy, consider the underlying asset’s performance, your risk appetite and how active you plan to be. For example, day or intraday trading options contracts are quite demanding. Fortunately, most strategies can be supported by software or mobile alerts to keep you aware of market updates.
All strategies should also be supported with risk management techniques like stop-loss orders which can help ensure you don’t risk more than you can afford to lose.
Note, options trading is popular amongst beginners as well as professional investors who consider market trading as their full-time jobs. As a result, there is a catalogue of market tips, advice and information on options strategies available online.
Bottom Line On Trading Options
Trading options can be low-risk and high reward. Although a complicated concept to grasp for beginners, investors can make steady returns if used correctly. Make sure to practice options trading using a demo account before risking real money. Also implement risk management tools like stop-loss orders.
Use our list of the top options trading brokers and platforms in 2023 to get started.
What Is Options Trading?
Options traders speculate on the future price of an underlying asset. The trader has the right but is not obliged to buy or sell the security. The underlying asset could be stocks, commodities, indices, cryptocurrencies, and other popular markets – the list of supported assets varies between brokers. Importantly, clients pay a premium for the flexibility to decide whether to exercise the trade.
Is Trading Options Profitable?
Options trading can be profitable with an effective strategy and a sensible approach to risk management. Reliable market insights, competitive puts and calls, plus a tested investing system will be needed to make money in the long run.
Is Trading Options Halal?
Trading options is prohibited under Sharia Law according to some Islamic scholars. This is because of the speculation involved and the opportunities to take positions in haram industries, such as alcohol and tobacco. With that said, some market commentators believe options trading can be halal. Consult a local religious leader for guidance. Alternatively, see our guide to halal trading for more information.
Does Trading Options Count As Day Trading?
Options products can be used to day trade. Day trading is essentially the practice of opening and closing positions in the same trading session. Binary options are also popular with short-term investors, especially beginners.
Can You Make Money Trading Options?
While options traders can make decent returns, beginners should not expect to get rich quick. Discipline and a successful trading strategy will be needed. Fortunately, one benefit of trading options is that traders cannot go negative – the premium is the maximum loss an investor can encounter.