I have provided impartial reviews of three best brokers that are good for selling options.
Among them, two brokers enable you to access both the UK and US markets. While one is based in the US and do not provide UK options.
Please be aware that I am not endorsing or promoting any of these brokers. The information in this review is subject to potential modifications in their services.
If you come across any differences kindly inform me so that I can update these assessments.
Table of Contents
Saxo Capital Markets
Saxo is a well-established financial company operating globally. It has a strong presence in 15 financial centers, including the UK, Singapore, Hong Kong, and Denmark.
Saxo’s trading platform is called SaxoTraderGO. It provides investors with access to forex, CFDs, futures, shares, and options.
Opening an Account with Saxo
You will be required to fill in some online forms about your personal and financial health. You will also be asked to answer questions about your investment experience and risk tolerance.
There are specific questions related to options and futures that need to be answered so you can open an account. Assistance is available if needed.
Account Types and Upgrades
Once your account is opened users are given a “basic profile” that allows trading shares.
To sell options the profile needs to upgrading to “expert profile”. This requires contacting Saxo and signing a disclaimer stating the ability to trade options.
The minimum needed to open an account is £500, but a deposit of at least £5,000 is necessary to sell options. This gives you access to a “Classic” account.
A larger deposit gives users extra benefits such as lower commissions, tighter spreads and priority customer service.
Exploring SaxoTraderGO: A User-Friendly Trading Platform
SaxoTraderGO is easy to navigate and accessible through laptops, phones, and tablets.
Limitations and Criticisms of Saxo
Saxo has received some criticism for not offering options on all stocks. While mainstream offerings are available, some lesser-known issues may lack options availability.
Also, Saxo’s handling of adjusted contract sizes, resulting from corporate actions, can be problematic.
The platform may display errors when attempting to sell calls on shares affected by non-standard puts.
Saxo’s support may not provide clear explanations for these issues.
To overcome this users are advised to avoid options without standard multipliers and consult the ICE exchange website for more information on non-standard contract sizes.
I used Saxo for a short while but it lacked a few things. Mostly, there were several UK companies that I could not sell cash secured puts and covered calls on.
Costs and Commissions with Saxo
Saxo charges £2.50 per UK options contract for the Classic account. This reduces to £1.50 for Platinum account holders. There is an extra 40p exchange fee.
Commissions apply when buying and selling shares, with a maximum rate of 0.1% (subject to an £8 minimum) depending on the account type.
Monthly fees are also charged for live UK market data. You are able to trade with delayed data using limit orders. I always use limit orders to enter trades and it’s good practice to do this.
For US options the charges are $3.00 per contract with a $10 fee for live US data.
Fund Transfers and Currency Options with Saxo
Transferring funds into a Saxo account is easy for UK users. The process involves transferring GBP to a UK bank account avoiding any overseas transfers.
Saxo allows base currency options, such as GBP and USD, to control foreign exchange risk.
A single currency account can be used, with Saxo handling conversions for a 1% charge.
Important Considerations: Margin Accounts and Overnight Charges
It’s important to mention that Saxo accounts are margin accounts.
They need sufficient cash to cover cash secured put sales. This ensures funds are available to buy shares if puts are exercised.
While this prevents potential issues, Saxo charges interest for holding positions overnight. Whilst the overnight margin charge is small, it may offset the premium received from your options.
For Example: When selling a 49 day 220p LGEN cash secured put for 4p per share, the estimated overnight carry cost is approximately 90p.
Comparing Saxo to Interactive Brokers
Saxo is considered a reliable UK-based broker. It has excellent customer service, a user-friendly platform, dual currency accounts, and a simple account opening process.
While Saxo may not be the cheapest broker compared to Interactive Brokers, Saxo can be a suitable choice for beginners.
Having used Saxo it does have a lovely user interface. But for me, I wanted to use a platform that my mentors have used and recommended.
So for this reason I decided not to use Saxo for very long but I do know some fellow traders that use it and recommend it.
Demo Account and Trading Strategy
If you are interested in trying Saxo a demo account is available, although the default time limit is 20 days.
If you contact Saxo you can ask for an extension to 50 days.
For folks new to options trading I recommend using a demo account to get started.
This allows you to gain a practical understanding of placing trades before jumping in with your hard earned cash.
Interactive Brokers are a huge player in the market and the broker I use for all my options trading. I also have an ISA held with them too.
They were formed 40+ years ago and now have over $7 billion in equity capital. They also have offices in the US, Switzerland, Canada, Hong Kong and several other countries including here in the UK.
Why Choose Interactive Brokers for Options Trading?
Interactive Brokers are often regarded as the most cost-effective platform for trading options. They provide a wide range of features, products, and platform choices. It caters to experienced investors or professionals rather than beginners.
This UK-based brokerage allows you to trade UK and US options along with other securities and derivatives.
They offer multiple account types, including cash accounts and two types of margin accounts.
You can also operate a cash account within their Self Invested Personal Pension (SIPP) for trading stock options.
I don’t trade options within a SIPP but I know many traders that do to avoid having to pay tax on their trades.
Having said all of that. Interactive Brokers does cater to the professional and experienced retail traders. This can make it quite intimidating for beginners.
I have come across traders who have expressed frustration with the account opening process and its complexity. The options chain when using Trader Workstation is difficult to navigate at first glance. But with some customisation and with a bit of time spent on the platform it really is excellent.
The Cost-Effective Choice: Interactive Brokers
The main attraction is that they tend to be the cheapest. A single UK options contract can be sold for £1.70 with no minimum charge and a US contract can be sold for $0.65.
Also, unlike some other brokers, there are no charges for an order ticket or when an option is exercised.
And they do not charge you commissions on the shares that you buy and sell when your short options are exercised.
It was for this main reason that I went with Interactive Brokers.
I knew I would be trading options most days and I wanted to keep my commission charges low. Over many months and years of trading options these charges would stack up and eat in to my profits.
Note There is a cost associated with accessing US market data. The expenses for retail users vary on the package chosen and the trading frequency.
Understanding the specific data requirements can sometimes be confusing. To assist with this, Interactive Brokers offers a Market Data Assistant that helps users determine their data needs.
Interactive Brokers does charge a significant amount for live UK market data, as this cost is passed on by the ICE Europe exchange.
In light of this, I would suggest considering the use of free delayed data and using limit orders. Limit orders guarantee that you will never enter a trade at a price that you are not happy with.
I always (ALWAYS) use limit orders for selling cash secured puts and covered calls on.
Exploring Interactive Brokers’ Account Types
Beginners have the option to open a cash account which enables them to engage in trading cash-secured puts and covered calls.
By having enough cash available in the account there is no need to worry about margin calculations.
I only have a cash account with Interactive Brokers. I did dabble with a portfolio margin account but – if I am honest – I didn’t like having it.
I do not want to be over leveraged especially if the market turns volatile. This can result in a margin call and brokers can increase their margin requirement at any time.
Cash Account vs. Margin Account: Pros and Cons
If you opt for a margin account it is important to note that you will be required to pay interest on borrowed funds.
While you earn interest on the funds you deposit the interest rate for borrowing is generally higher.
As an illustration, they currently charge slightly above 2% per year for borrowing amounts up to £100,000.
If you choose the margin account route, you will encounter two types:
- Rule-based (Reg-T)
- Risk-based portfolio margin.
Reg-T, or Regulation T, is a rule-based system established by the Federal Reserve Board.
It governs the credit extension by brokers to their clients. This determines the margin requirements for different trades. It doesn’t consider the overall portfolio composition.
Portfolio margin, in contrast, considers your entire portfolio. It stress-tests it with simulated market movements and volatility changes.
Margin requirements are based on worst-case scenarios. This often results in lower requirements than the rule-based approach.
A minimum account balance of $110,000 is typically required.
Multi-Currency Cash Accounts: Flexibility in Currency Management
Interactive Brokers offers multi-currency cash accounts. This enables you to hold both GBP and USD so you can manage your exchange rate risk with greater ease.
Requirements and Eligibility for Opening an Options Account
One difficulty with Interactive Brokers is their website application process. It requires two years of trading experience to open an options account. If you lack experience you can do an online multiple-choice “Options Teaching Exam”. Once you pass this you are then proficient enough to trade options.
Interactive Brokers’ Application Process
Interactive Brokers also require a few other things. These include your minimum annual net income and liquid net worth. These are dependent on your age as follows:
Annual net income must be: > $40k (age 21-30) > $45k (age 31-40) > $50k (age 41-50) or Any (age >50) Liquid Net Worth must be: > $20k (age 21-30) > $50k (age 31-40) > $75k (age 41-50) > $100k (age > 50)
Interactive Brokers also mandates a minimum of 100 trades per year and 100 lifetime option trades.
While this may seem daunting, you can fulfil these requirements by engaging in demo trades. Any paper trades in options count towards your options knowledge and experience.
It’s worth noting that opening a demo account does not need such a rigorous processes.
Trader Workstation (TWS): The Ultimate Trading Platform
When you finally open an account the primary trading platform offered is Trader Workstation (TWS).
Trader Workstation boasts an abundance of features that surpass most traders typical requirements.
I like using this platform but I know many that use the app instead to make their option trades.
The app is called Global Trader. It resembles the Robinhood app that is popular in the United States.
I have become so comfortable with the Trader Workstation (TWS) on my desktop that I just use this. I only make trades when I am at home in my office and treat trading options much like running a successful business.
TWS Modes: Classic and Mosaic
If you are considering using TWS the interface can be swapped between two different modes, Classic and Mosaic.
Classic displays all your positions in a spreadsheet type way. It has additional windows for extra peripheral information that you want to see.
To access Trader Workstation (TWS), you are required to download and install it on your PC or Mac.
There is a web platform which offers a simpler and more user-friendly interface. This has fewer features, but a cleaner overall appearance.
Once you become familiar with Trader Workstation it’s not likely that you would consider switching to another broker.
The platform offers an extensive range of features that surpass your foreseeable needs. The attractive low commission structure further adds to its appeal. I like TWS so much and became comfortable using it after a handful of trades.
Deposits, Withdrawals, and Fees with Interactive Brokers
Depositing funds into your Interactive Brokers account is a straightforward process. This is because it has a UK branch.
Even though withdrawals are not complicated either, you are only allowed one free withdrawal per month.
This is my only gripe with Interactive Brokers platform. I like to transfer monies from my options account and fund my main ISA that I have with AJ Bell to buy dividend stocks. I do this every week and have to pay a small £5 charge each time I withdraw my money.
There is a way to avoid these charges in the future.
Instead, I will start to fund the ISA I also hold with Interactive Brokers but have yet to start using yet.
I am also doing this to spread risk.
Having built up a decent sized pot with AJ Bell it’s prudent to diversify funds across different brokers.
Utilizing Interactive Brokers in Your Self Invested Personal Pension (SIPP)
Another advantage, you can trade options within a Self Invested Personal Pension (SIPP).
So you can sell cash secured puts and covered calls in your pension fund tax free.
This helps you compound your account size faster or you can use it to generate tax free income.
I don’t have a SIPP with Interactive Brokers but as I approach retirement age I will start to look at this more. I do know several people that trade options within their SIPP for monthly income.
Opening an Account with tastyworks: A Simple and Efficient Process
The process of opening an account proved to be remarkably simple.
I completed a series of online forms and was asked to provide scanned copies of my driver’s license and a water bill.
I received a swift response from them and my account became open within a matter of days.
To my surprise, there were no tests involved. Instead, they inquired about my level of knowledge in trading stocks and options.
I indicated that I had “Limited” experience with options and “Good” experience with stocks.
Account Options: Cash Account vs. ‘The Works’ Margin Account
I chose to open a cash account. This granted me the ability to engage in the sale of cash-secured puts and covered calls.
Additionally, they provide a margin account known as ‘The Works,. This enables traders to explore a wider range of diverse options strategies.
Competitive Commissions: Pricing Structure for Options and Stock Trade
When it comes to commissions, they exhibit remarkable competitiveness.
Opening a trade with options contracts incurs a charge of $1.00 per contract. Closing trades are free of charge, excluding any applicable clearing fees. As for stock transactions, they offer an enticing rate of $0, which is quite impressive.
It’s worth noting that if options are exercised, an additional fee of $5 applies.
Considerations: USD Currency and Transfer Fees
One drawback to note is that the account is limited to USD currency. This requires the transfer of dollars to their US-based account.
While they don’t impose any fees for incoming transfers, a large $45 fee is applied when transferring money out.
This could pose a challenge for those intending to make monthly withdrawals. As I mentioned above, this is something I do. My style is to make income from options, transfer to my ISA, then buy dividend stocks. I do this on a weekly basis.
Quality and Usability of the tastyworks Platform: A Top-Notch Trading Experience
When it comes to the quality and usability of the tastyworks platform, it’s top-notch.
As expected from a contemporary options trading platform, it’s very sleek, and user-friendly.
They provide a desktop version tailored for high-volume traders that seek a comprehensive suite of tools.
Additionally, there’s a browser version accessible from any computer. And a mobile app that keeps you in control of your positions, no matter where you are.
Is tastyworks the Right Choice for You? Factors to Consider
One drawback is that Tastyworks does not provide a paper trading account option.
They do offer a two-session trading challenge. But, this is far from being a suitable alternative.
If you are wanting to trade options I recommend you start with a paper trading account. Go an make all your mistakes with paper money first!
To sum up, Tastyworks is a solid choice. But, it’s important to consider the withdrawal fees and the USD-only account first. It might not fit your option investing needs.
Despite the above, it is still a good platform for options trading and worth considering.
After trying all these platforms, my preferred choice is Interactive Brokers. You get competitive pricing, extensive market access, and advanced trading tools. For me, the best among the three brokers.
However, you need to consider the features and limitations of each platform first. Only then can you make a decision and decide for yourself which is the best 3 options trading platforms in the UK.