Trading listed options in the UK: some helpful tips
If you are a trader based in the UK and are looking to trade listed options, there are a few things you need to be aware of. This article will outline some of the critical things you need to consider […]
If you are a trader based in the UK and are looking to trade listed options, there are a few things you need to be aware of. This article will outline some of the critical things you need to consider when trading options in the UK market, and we will also provide some valuable tips to help you get started.
If you would like to get started right away, you can create a live account with Saxo.
The basics of options trading
Options trading is done through the exchange of contracts between two parties that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specific timeframe.
The underlying asset can be anything from shares to commodities. Options are traded on exchanges and over the counter (OTC). In the UK, options trading takes place on the London Stock Exchange (LSE) and the Borsa Italiana (BIT), as well as on some other smaller exchanges. When trading options, there are two main types of orders you can place:
Limit order: It is an order to buy or sell an option at a specified price or better. It means that you will only trade the option if the market price is at or below the limit price you have set.
Market order: It is an order to buy or sell an option at the best price, and you will trade the option immediately at the current market price.
When placing an order, you must specify the expiration date. The expiration date is when the option contract expires and can no longer be traded. In most cases, options expire on the third Friday of every month.
Things you need to consider when trading options in the UK
Now that you have a basic understanding of what options are and how they work let’s take a look at some of the things you need to consider when trading options in the UK.
You will need to use a UK-based broker when trading options in the UK. A number of brokers offer options trading in the UK, so it is essential to compare their fees and services before selecting one.
If you are a UK resident, you must open a sterling account with your broker. It is because options traded on the LSE are priced in pounds sterling.
When trading options, you will be required to post margin. Margin is a good faith deposit that is used to secure your position in a trade. The amount of margin you need to post will depend on the broker you use and the contract size of the option you are trading.
UK stamp duty
Stamp duty is a tax levied on purchasing shares and other securities in the UK. When trading options, stamp duty is payable on the premium paid for the options contract. The current rate of the stamp duty in the UK is 0.5%.
Now that you know some of the critical things to consider when trading options in the UK, let’s look at some valuable tips to help you get started.
Valuable tips for trading options in the UK
Here are some valuable tips to help you trade options in the UK:
Start with small contracts: When you first start, trading small option contracts is a good idea. It will help you to get a feel for how the market works and how to place orders. As you become more comfortable with trading, you can start to trade larger contracts.
Trade with a demo account: Most brokers offer demo accounts that allow you to practice trading with virtual money. It is a great way to learn how to trade without risking any real money.
Choose an experienced broker: When you are ready to start trading with real money, it is vital to choose an experienced and regulated broker. It will help to protect your money and ensure that you have a positive trading experience.
Keep your risk low: Options trading is risky, so it is vital to keep your risk as low as possible. One way to do this is to trade small contracts. Another way to limit your risk is to use stop-loss orders. A stop-loss order is an order that automatically closes your position if the market price moves against you by a certain amount.
Now that you know some of the things to consider when trading options in the UK and some valuable tips to help you get started, you are ready to start trading. Remember to keep your risk low and trade with a regulated broker.