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Which Options Brokers Are Best?

If you are new to trading, the best broker to choose might seem at first glance to be the one that offers lowest commissions costs. After all, any active trader worth his or her salt wants to keep transactional costs to a minimum. And any experienced trader knows that paying hefty commissions can eat up a large chunk of trading profits at the end of the year. You hardly notice them on any given trade but sum them up and it’s a different story altogether.

The problem with choosing an options broker based on commissions costs alone is you could easily overlook brokers who offer a wide variety of tools, research, chart studies, and virtual trading platforms.

An options trading platform that has historically won high marks among experienced options traders is thinkorswim, which features one of the most comprehensive offerings – you can even use an embedded programming language to customize charts to your own preferences beyond what is available most everywhere else. The platform has the added benefit of supporting forex, futures, and even bond trading for traders looking beyond stock and options trading.

In recent years a broker that has stepped up to the plate to rival TD Ameritrade’s thinkorswim platform is tastyworks. Many of the team members who built thinkorswim went on to join tastyworks, so it’s no surprise to see it caters to serious options traders too. Plus, the tastyworks trading platform has the added benefit of charging no commissions on closing trades. While this may not affect credit spreads heavily, which often expire worthless, any call or put options purchased can be closed out at no cost – other than applicable exchange fees.

In any options broker or trading platform you consider, you will want fast and accurate order execution. Plus, you will want to know that you can call up a customer support expert who is knowledgeable in trading, so you don’t end up teaching them the ropes.

A broker who has consistently excelled in this area is Schwab, who purchased OptionsXpress – a serious rival to thinkorswim for many years, though not as advanced when it comes to charting and back-testing simulators.

Schwab has fully integrated OptionsXpress and admirably it kept commissions costs low, and made some of its own best features available to OptionsXpress customers, including extensive research, which is especially valuable to covered call traders, who may wish to study the longer term prospects of a company while selling calls regularly against shareholdings.

For experienced options traders, it’s best to evaluate ahead of time the extent of strategies available. These days most options trading platforms are sufficiently well-versed in the nuances of options trading to support just about any strategy, no matter how exotic. But it doesn’t hurt to double check that beyond collar trades, covered calls, and married puts, other strategies are supported too, including ratio backspreads, iron condors, straddles and strangles.

As an options trader, you can vary the number of contracts you trade, the type of contract you buy or sell – call or put – and the timeline to expiration in so many ways that you can create all sorts of complex strategies, and sometimes it’s hard to visualize them without the use of a risk graph.

So, if you fall into the category of experienced or creative trader looking to fine tune a strategy or get adventurous with a new one, then look to an options broker who specializes in helping you to visualize risk graphs easily, make changes and modify graphs quickly, and accelerate your learning curve with a virtual trading platform too – so you don’t risk a penny while testing new strategies.

The bottom line as an options trader is you should evaluate your broker on factors beyond cost. Where a stock investor may prioritize research over cost, an options trader should consider the value of risk graphs, tools, back-testing simulators, and virtual trading platforms, as well as how knowledgeable customer support staff are and the range of options strategies supported.

Of course, if trading actively seems like an uphill struggle, there is a new option available to long-term oriented investors who wish to be hands-off and invest passively. Robo-advisors, such as Betterment, have taken off in recent years and offer investors a lower cost way to gain exposure to markets than was historically possible via traditional human advisors, and an automated approach that doesn’t require you to make investing decisions. Keep in mind however that while you probably won’t underperform the market, equally you probably won’t outperform it.

Avatar George Windsor is an author at Investormint, a financial website dedicated to helping consumers make smarter financial decisions.


1 response to “Which Options Brokers Are Best?”

  1. JJ Lotku says:

    LOL did you just photoshop Brad Pitt for your profile photo?

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