Who is the Best Option Broker?
Cheapest Options Broker
Best Options Trading Platform
- How to Turn $4,000 into $20,000 with Options Trading
Finding the "cheapest options broker" and finding the "best options broker" are two totally different searches. Every major online discount stock broker that I know now allows you to trade stock options, but don't think for a minute that all option brokers are the same. Based on my 20+ years of trading stocks and call and put options, here are a few of the things you should consider before you fill out your first online option broker application and write a check to fund it.
Option Broker Reputation
Believe it or not, brokerage firms DO go out of business and they WILL take your money with them. Recently there have been several brokerages (especially forex brokers such as MF Global) that have suddenly closed and hundreds of millions of dollars in customer accounts are missing.
As with anything you hear, if it sounds too good to be true, it probably is. Before you open a stock and option brokerage account, make sure the broker has been in business for a few years and that you have talked to people that really have an account there. If you think you have found the cheapest options broker but you have never heard of them before and you don't know anyone that uses them, then stay away!
Once you are comfortable that the brokerage firm that you are considering is a credible, then take a look at their commission structure. Finding the cheapest option broker is not that easy. Here are a few tricks that the brokers play when you are looking at their stock and options commission structures:
- Brokers often have several different commission structures depending on the size of your account and the number of trades you will make per month or per quarter. So please make sure you are looking at the commission structure that matches your account size or trading frequency.
- Brokers commission changes based on the number of contacts you will be trading with each order so consider the size of your trade. Will you be trading 2 contracts, 20 contracts or 200 contracts with each trade?
- Make sure you are looking at their standard commissions and not just the "introductory" commission rates as there are lots of special broker offers out there and sometimes the offers are only good for the first 30 or 60 days.
- Finally, what other fees are there? Statement fees? Fees to get your money out? Check writing fees? Make sure you know the whole fee structure!
ETRADE's Option Commissions
While these are the full commission rates ETrade quotes on their website, they are negotiable. The more money you have, the longer you have had the account, and the more trading history you have the more likely you can get a reduction. I called ETrade recently and asked them to match another brokerage firms commissions and they did within 24 hours. These brokerages know that it is very expensive to acquire a customer and it is much easier to maintain a customer.
Scottrade Option Commissions
Ease of Use of the Best Option Brokers Platform
You might think that buying options on one platform is the same as buying options on another platform. Therefore, why should you pay someone $12 to make the trade when someone else will do it for $7? There are many other factors to consider when opening that option brokers account besides just the commission.
I am pretty web savvy and I have used many different platforms and trust me -- all options broker platforms are NOT the same. I have been burned so many times because I can't submit an order quickly, or I waste precious seconds trying to find the exact ticker symbol or the number of contracts I own. Option prices often move so quickly that seconds can mean a difference of a dime or more in price. And since each option contract covers 100 shares each dime costs you $10. And since you often trade 5 or 10 contracts at a time, a few seconds can easily cost you $50 or $100! So trying to save a few dollars in commission can be penny wise and pound foolish!
What I see happening with option brokers platforms now is that some are designed for the beginner option trader and some are designed for the experienced option trader. Since you are reading this article, you probably don't have an option brokerage account, so please keep reading and open the best option brokerage account for you.
Option Order Execution
One think I know for sure is that all brokers are not the same. Each brokerage firm has a different platform and so the ease of placing orders is different. And trust me, when you are just getting started it is very frustrating to see an option price that you want and when you place your trade you get filled at 10 or 20 cents away from where you thought you were getting filled. Or sometimes your order doesn't get filled at all. The speed of the order execution is very important since option prices often move quickly. Some brokers now offer a guaranteed order fill time or your trade is commission free. I like it when a firm backs up their promises like this--it usually means they believe in their product!
Current Marketing Promotion
Finally, beyond price and ease of use, the other thing to consider before you open an option brokerage account is their current marketing promotion. How would you like to get your first 20 trades free? Would you like a $500 cash bonus just for opening an account and placing a few trades? Of course you would!
Here are the most popular option brokers and their most recent promotional offers:
- Etrade--$2,000 minimum--Trade free for 60 days and get up to $500 CASH!
- Scottrade--$500 minimum--$7 trades -- No account fees
- TD Ameritrade--$2,000 minimum--Trade free for 60 days and get up to $600 CASH
- Get 100 Commission-Free Trades at OptionsHouse.com
- Think or Swim--$2,000 minimum--Trade free for 60 days and get up $600 CASH
My Review of these option brokers:
- ETRADE or TradeKing are good starter platforms. The commissions are reasonable and the order executions are excellent. TradeKing has Zecco's special option trading tools, so it's a great entry level platform for the beginning option trader. ETRADE has a downloadable app for your desktop computer which makes the HTML site look antiquated. Try ETRADE PowerTrader; I highly recommend it.
- Scottrade might have slightly lower commissions than ETRADE, but I find its platform outdated, slow, and just plain unattractive. If saving $2 on a trade is important to you, or if you want your platform available in Chinese, then you might be OK with Scottrade. The commission is lower than ETRADE's and other larger platforms, but that is about all that I see going for it.
- The TD Ameritrade brokerage platform is simple and easy to use and has excellent research tools. However, I just prefer ETRADE's navigation and reporting more. Maybe it's because I have used ETRADE's platform longer but something just seems off with the TDA platform. The commissions are similar, but ETRADE seems to be ahead of the curve by also offering access to 6 global equities markets in case you want to trade a Canadian, European, or Asian stock.
- The ThinkorSwim platform is by far the best platform if you want to do the complicated option spreads or other multi-legged trades. HOWEVER, if you are a beginner and are buying a few calls and puts, then ThinkorSwim is NOT for you as you will be totally confused by the order types and all of the information that is presented to you.
Here are the top 10 option concepts you should understand before making your first real trade: