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An options broker or options trading broker refers to a brokerage firm which provide a software or web-based interface (also called options trading platform) that allows investors and traders to execute trades on options contracts.
Options are financial derivatives that give the holder the right, but not the obligation, to buy or sell an underlying asset, such as a stock, at a specified price on or before a certain date.
In this article, we have grouped the best brokers for trading options.
- The overall quality of the broker
- The commissions charged on the brokers’ options
- The options investment methods offered
|Interactive Brokers||Vanilla, Knock-out|
|IG Markets||Vanilla, Knock-out, Digital 100|
What are the best options trading brokers?
Below our curated list of the best brokers and platforms for options trading, with details of features and characteristics.
How much money does it take to trade options?
The recommended amount of money to trade options is around $1,000.
The options market is one of the most expensive markets to invest in, as it is like leveraged trading.
Each option contract has a minimum that generally ranges between 100 and 1,000 lots.
Let’s assume that investing in an option of a stock listed at US$5 that requires 100 lots of investment, then the trader should have at least $500 available in the account.
This is why it is important to have enough margin in one’s trading account to cover the initial investment, not just the bare minimum.
How much do you pay in commissions for options trading?
Brokers typically charge commissions of $1.50 per lot on options trading.
Commissions, however, can vary depending on the trading platform used, the type of account used, and the volumes generated by the account.
In addition, some brokers charge variable commissions that depend on the market value of the option and market volatility.
What types of options are available?
The options that are offered by brokers are of three types:
- Call-Put Options (Vanilla)
- Barrier Options (Knock-out)
- Binary Options
Call-put options, also called vanilla options, are among the most common in online trading. This type of options allows the trader to go long or short as if they were trading CFDs.
Barrier options work similarly to vanilla options, but they are distinguished by the fact that the position will be closed automatically if the option reaches the trader’s predetermined knock-out value. This is also why they are called knock-out options.
Binary options are the riskiest type of option on the market, and they are prohibited in dozens of countries. These options work like a bet. If the option reaches a certain goal (such as closing the day in the positive), then the trader will earn on average between 70 and 85 percent of what he invested in the trade, while on the contrary, will lose 100 percent, or everything if it does not hit.
Why is binary options trading often prohibited?
Binary options trading is banned in many countries because the mode of investment resembles gambling, and is extremely risky.
In fact, on binary options, it is not possible to manage risk, and as a result, the trader can only lose everything they bet, or earn 70-85% of what they bet.
However, if a trader has enough experience and manages to classify as a professional trader according to the requirements imposed by their country of residence, the broker might make binary options available.
On the other hand, traders who are classified as non-professionals (i.e., retail traders) will often not be able to access these types of options unless they are residents of countries that allow them (such as the United States).
Binary options are banned in several countries including:
- EU member countries
- United Kingdom
Where are options listed?
Options are listed on dedicated derivatives indices or equity exchanges depending on the country.
|Country||Options exchange||Complete Name|
|European Union||EUREX||European Derivatives Exchange|
|USA||CBOE||Chicago Board Options Exchange|
|Japan||OSE||Osaka Securities Exchange|
|USA||NYMEX||New York Mercantile Exchange|
|Hong Kong||HKEX||Hong Kong Exchanges and Clearing Limited|
|Australia||ASX||Australian Stock Exchange|
|USA||CME||Chicago Mercantile Exchange|
|USA||CBOT||Chicago Board of Trade|
|India||NSE||National Stock Exchange of India|
|China||ZCE||Zhengzhou Commodity Exchange|
|China||DCE||Dalian Commodity Exchange|
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