Dealing with the difficulties in the British options market

The British options market is often cited as one of the world’s most miniature, with a handful of significant players dominating turnover.

Although there are no official statistics on market share, it is estimated that both firms control around 50% of turnover daily. “It means any first-time entrant has to compete against these big boys,” said one broker who wished to remain anonymous.


The difficulty for first-timers also comes from the fact that an unregulated over-the-counter (OTC) derivatives market is already well-established in London.

It means that the two banks have existing relationships with both brokers and market makers, all experiencing healthy profit margins thanks to their unrivalled influence on the market.

“A lot of our clients prefer to trade OTC,” said another broker, who also did not wish to be named.

As a result, he claimed that fewer than 5% of his trades take place on derivatives exchanges such as Euronext or Eurex.

High margins and commissions

It is one reason brokers consider high margins and commissions to be among the biggest problems for new entrants. “I don’t think anyone uses low fees as a selling point,” said one London broker at a global bank.

He added that the market’s high minimum fees, which are rarely advertised in promotional material, are also a “perceived barrier to entry.”

“Prices are very high,” said another anonymous broker. The majority of traders come from institutions rather than private investors, he added, who can’t afford to spend big when it comes to commissions.

Make orders in Sterling or US dollars

Another issue is that many buyers do not make their orders in sterling or US dollars – two currencies in which prices are displayed in most dealing screens.

Therefore, they cannot compare rates between different brokers, making it almost impossible for them to complain about charges without incurring further costs.

It does not mean the options market is entirely inaccessible to new entrants.

Although banks such as Barclays and UBS have stalls at all leading investment shows, smaller events like the London Option Show are well-attended. Every June at the Excel Centre in London’s Docklands area.

It attracts many brokers and investors interested in learning about the latest developments in options trading.

It is also worth noting that many meaningful exchanges offer foreign exchange options traded on Eurex or other derivatives exchanges.

In contrast, equity options can find equity options in US markets like NASDAQ OMX PHLX.

According to one broker, this makes it possible for firms to gain experience without dealing with sterling contracts, although he added that most other products will still be priced in dollars.

“There’s not an easy solution,” said another anonymous broker.”It is a very well-served market.” As a result, he believes it will take time for any newcomers to make an impact: “Those areas where there’s enough margin and not enough capacity – can do it,” he said.

Dealing costs

In addition, those under the self-directed brokerage need to be aware of dealing costs as they have risen over the last two years compared to other exchanges.

The premium rate also varies depending on when you make your investment (i.e. how long until the contract expires).

There is no cap, or collared spreads like European exchanges, so controlling risk becomes more complex, especially with less predictable stocks.

Before trading on the UK market, always check the full terms and conditions on Charles Schwab’s website.


Although the options market in Britain is fiercely competitive, brokers agree that new entrants have a chance of gaining a foothold if they put together a plan to establish themselves as one of the players within this niche industry.

However, based on the high barriers to entry and lack of regulation, they must be prepared to spend outstanding amounts of money on promotions over several years before they start seeing the benefits.

“I don’t think anyone uses low fees as a selling point,” said another anonymous broker.

He added that the market’s high minimum fees, which are rarely advertised in promotional material, are also a “perceived barrier to entry.”

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