Best Platforms for Trading Options in the UK, Ranked for 2024

Options come in two main varieties: call and put options. These refer to the right of the holder to buy or sell a particular asset at a predetermined price on or before a certain date.

Call options allow holders to purchase an asset, while put options give them the right to sell an asset. Both actions take place at specific prices depending on the contract's terms (more on this later). Traders make money when their position relative to price movements proves correct.

The expiry date marks when the option contract ends and it is determined by the contract's terms – the date could be seconds, minutes or days. If the asset's price moves as predicted, the trader makes a profit; if it doesn't move as expected, they take a loss.

It’s also possible to use leverage when trading options.

Think of leverage as a loan that you take out when you purchase an option. This can be used to potentially increase your profits but also increases the risk of loss if your predictions turn out wrong. The amount of leverage varies depending on your broker and the type of option you buy and is usually expressed as a multiple or ratio — for example, 2:1 or 3x.

Let’s look at an example of how this plays out in practice.

Example of a Call Option

Let's say you're interested in buying options for Amazon, which are currently trading at £10 per contract. You decide to invest £1,000 to purchase 100 options contracts.

The strike price, or the price at which you can buy Amazon stock with your options, is set at £2,000 per share. This means that if Amazon's stock price goes up, you can exercise your options to purchase the share at the lower strike price. Or alternatively, you can sell them on the market at a higher market price, earning a profit.

Fast forward a few weeks and Amazon's stock price has risen to £2,500 per share. Your options are now "in the money" and you can exercise them to purchase shares at the £2,000 strike price. This means that for each option contract, you can purchase shares at £2,000 and sell them on the market for £2,500, earning a profit of £500 per share.

Example of a Put Option

Say the current market price of Tesla stock is $800 per share and the price of one put option is £10. You decide to invest £1,000 to purchase 100 put options contracts.

The strike price for these options is set at £700 per share, which means you have the right to sell the Tesla stock at £700 per share. If the Tesla stock price falls below £700 before your contract expires, you can exercise your right to sell the stock at the higher strike price and earn a profit.

Fast forward a few weeks, and the market price of Tesla's stock has fallen to £500 per share. Your put options are now "in the money" and can be exercised to sell the stock at the higher £700 strike price. This means that for each put option, you can sell the stock at £700 and buy it back from the market at £500, earning a profit of £200 per share.

The effective profit on your options is the difference between the strike price and the market price, multiplied by the number of options contracts. In this case, it is:

£700 (strike price) - £500 (market price) = £200 per share

100 options x £200 = £20,000

After taking into account the £1,000 premium you paid to purchase the put options, you've made a net profit of £19,000.

You can use a variety of assets to trade options, including stocks, currencies, commodities, and indices. Yet, some assets may be considered riskier than others. For example, penny stocks or cryptocurrencies are prone to dramatic price swings. Trading options with these assets, as opposed to large-cap stocks or major currency pairs, also becomes riskier.

Therefore, it's important to do your research before deciding which asset you want to trade options with. It's also advisable to start small and only invest an amount that you are comfortable losing if the trade doesn't go as planned.

Common fees for options trading include commissions, exercise fees and non-trading fees.

1. Contract Fee – It is charged any time you buy or sell an options contract, and varies among brokers. For example, Interactive Brokers charges £0.65 per contract.

2. Exercise Fees – You pay an exercise fee to your broker when you decide to exercise an option (i.e., buy or sell the underlying stock). It can either be in the form of a flat fee or a percentage of your profits.

3. Non-Trading Fees – These usually cover administrative costs such as inactivity or account maintenance fees.

Various factors include options prices, ranging from supply and demand to seasonal factors. Let's look at them in detail:

Supply and Demand

Supply and demand are the two main factors that drive the price of an option. If there are more buyers than sellers, the option’s price will rise. Conversely, if there are more sellers than buyers, prices will fall. This is true for all asset types including stocks, crypto and foreign exchange, though the factors affecting each market vary. For instance, project developments drive supply and demand in the crypto market, while central bank activities and monetary policies affect the forex market.

Volatility

Volatility refers to how much an asset fluctuates in price over a certain amount of time. Options are derivative instruments. This means that they derive their value from the underlying asset. The higher the volatility of the underlying asset, the greater the risk exposure. This ultimately means a higher potential for profits and losses.

Market Sentiment

The sentiment in the market affects investors’ confidence which in turn affects the direction of an asset's prices. A positive sentiment can lead to higher prices while a negative sentiment can lead to lower prices. Options traders should take note of the market sentiment when deciding on which trades to make as it will help them accurately predict the future movements of their underlying assets.

Interest Rates

Interest rates have a direct effect on options pricing, as they affect the cost of buying and selling calls and puts. When interest rates are low, there is less incentive for investors to buy call options because they don't get paid much in terms of returns. On the other hand, if interest rates rise then there is more incentive for investors to purchase calls because they can earn greater yields from their investments. Think of this as similar to how lending money out at a higher interest rate will give you more returns than lending it out at a lower rate.

Sector Performance

The performance of certain sectors can affect options prices as well. For example, if the tech sector is performing particularly well, investors may start buying more call options in tech stocks since they expect those stocks to go up in price. The opposite would be true when the sector starts to underperform – investors will likely shy away from buying call options, and opt for put options instead as they anticipate that the stock prices may begin to decrease.

Seasonal Patterns

Seasonal patterns refer to trends in trading activity around certain times of the year or holidays. This can affect options prices as investors are more likely to buy or sell contracts following these patterns. For instance, investors may be more inclined to buy call options in June since stock prices tend to rise in summer. Conversely, they may choose put options in December as winter is usually a depressed period for stocks.

Now that you have a better understanding of what affects option prices, let's look at the pros and cons of trading options:

Here’s a step-by-step guide on how to start trading options. We will use Interactive Brokers as an example.

Options trading is a complex and high-risk venture, meaning that beginners should prioritise education, ease of use, and functionality above advanced analytical tools and charting abilities, including advanced options trading tools. Besides the basics, beginners may explore the many moving parts of options trading with paper trading accounts, which simulate real market environments and allow trading with virtual money.

Besides low commissions for active trades, advanced options traders typically seek tools with which they can build options trading strategies flexibly and compare and advanced profit & loss charting options with plenty of indicators. The table below lists the platforms that combine low-cost services for high volume and frequent trades with advanced analytical tools.

The following fees are typically involved in options trading;

• Commission fees — how brokers charge for their services

• Contract fees — are charged to execute trades

• Deposit fees — charged when funding investments

• Withdrawal fees — charged when withdrawing funds

Here’s a breakdown of costs from selected brokers.

The ease of use varies widely across different trading platforms, as some are geared towards intermediate and advanced traders whereas some aim to appeal to a broader audience. Provided that the platform has a paper account option, it’s crucial to test out the functionalities and navigation in a simulated environment through a demo account rather than with actual funds to see whether it fits your level of knowledge.

Besides the interface, pay attention to loading times and bugs, as it will be crucial to have a sleek online service when executing orders.

Plenty of UK trading apps offer options trading to offer a rounded experience to their clients. More often than not, these apps include every service broker offers on their website or workstation in a mobile form and allow monitoring portfolios and placing trades on the go.

The Financial Conduct Authority oversees options trading activities across the UK, which are permitted except for binary options trading. Every broker must be registered and regulated by FCA, and they typically display it on their websites.

Besides adherence to regulatory bodies, high trading volume, positive customer feedback, and adherence to governmental regulations and industry-standard security measures are indicators of a safe trading platform. Additionally, you can seek FSCS insurance which safeguards client monies of up to £85,000 in the event of a broker default.

How do I know an options broker is secure and is not a scam?

• Beware of unrealistic promises or services that are not allowed in the UK, like binary options trading,

• Don’t return cold calls or any unsolicited contact from unknown investing advisors or companies,

• Ensure that the platform is registered with the FCA,

• Seek FSCS insurance, and if in doubt, withdraw, close your options trading account, and report.

Clients can usually reach trading platformsusing the following channels within office hours;

• Email

• Phone call

• Online form

Note that if the broker is not UK-based, office hours may vary.

There are a few built options trading bots available, like Option Alpha, that help traders automate processes like opportunity scanning, management, and scheduling. They are usually highly customisable, allow in-depth monitoring with pre-set KPIs, and come with an easy-to-navigate interface, so traders with non-technical backgrounds can easily use them.