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Best Option Brokers: IB, ToS and TastyWorks

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by Gavin in Blog
February 29, 2020 0 comments

Today, we will be reviewing the three best option brokers – Interactive Brokers, Thinkorswim and TastyWorks.

Find out which one is the best.

Best Option Brokers

Let’s dive in and compare the three best option brokers.

Interactive Brokers Review

Interactive brokers is a world renown broker that was founded in 1977.

They use a variable commission structure that is quite a bit different than many other Options brokers.

Based on their fee schedule, a client’s commission rate is calculated based on their trade size and value of each option.

As an example of this, the commission to buy a single call or put option priced between $.05 to $.10 would be $0.50 per contract with a minimum $1.00 fee.

The same minimum would apply for options priced below $.05 and those priced above $.10, however the per contract pricing for options priced over $0.10 would be $0.70, while the per contract fee would $0.25 for those under $0.05.

Commissions

This variable commission schedule can be quite attractive for those that are trading multiple contracts and frequently utilizing far out of the money options.

One notable feature of IB’s pricing structure is that is does not charge a fee when options are exercised or assigned.

One of the biggest obstacles for many traders that wish to trade with Interactive brokers is their relatively high $10,000 minimum opening deposit.

best option brokers

Recently, however, they have lowered that amount to $3,000 for individual clients who are under the age of 25.

Additionally, if you are planning to trade using your IRA account, you will be able to do so with a minimum account of $5,000.

For the most part, Interactive Brokers has traditionally tried to cater to more experienced traders that have at least a few years of experience under their belt.

If you are an active options trader, that doesn’t require too much hand holding, and have a reasonable sized stake to fund an account, then Interactive Brokers should be at the top of your list of option brokers to consider.

ThinkorSwim Review

Thinkorswim is a free trading platform offered by TD Ameritrade.

It is a robust, professional grade platform for Options traders. It has a rich set of features that is second to none.

Serious traders and investors will enjoy advanced charting, real time data streaming, a wide range of technical indicators, and of course a full set of option trading tools.

Sample Iron Condor Trading Plan

For those that are interested in trying out the platform, they offer a paper trading program for users as a way to demo the platform.

They are an excellent choice for active traders who need to keep their transaction costs down.

Commissions

Currently, TD Ameritrade does not charge commissions to trade stocks, ETFs or Options.

The current option trading fees is based on a fixed $0.65 / contract basis. Additionally, there is no account minimum to open an account.

Here are a two key advantages of using thinkorswim:

Advanced trading tools – If you like to use technical indicators, or advanced charting tools such as Fibonacci or Regression channels, you will find these types of visual tools in abundance on the platform.

Additionally, as a thinkorswim user, you will have access to thousands of economic data points for both domestic and international markets.

Systematic traders can create their very own trading algorithms using thinkscript.

Low Trading Costs –  Thinkorswim is a low cost leader in the options trading industry. They offer $0 per trade pricing on all stock and options trades.

You will only pay a small per contract fee for trading options. That fee currently is $0.65 / contract.

While there are many reasons to trade with thinkorswim, one might wonder if there are any downsides. The main drawback that users experience when trading with thinkorswim is the following:

Steep Learning Curve

Learning the Platform –  There is a steep learning curve for beginning traders who want to start using the thinkorswim platform.

With all the advanced tools and bells and whistles that come with the platform, it can sometimes overwhelm newer traders at times.

Having said that, there is a very helpful learning center dashboard, where those new to the platform, can watch videos and review training manuals to help get up to speed with the platform.

TastyWorks Review

Tastyworks is a fairly new broker within the industry.

They are affiliated with Tastytrade, a very popular online trading community, which was founded by Tom Sosnoff.

He was a key figure in the development of the Thinkorswim platform which he eventually sold to TD Ameritrade.

Commissions

Regarding the fee structure for option trades, Tastyworks is quite competitive.

They offer a price of $ 1 per contract on equity options which is charged on the open side only.

Essentially that would equate to $0.50 per contract, if you were comparing their fee to other completing brokers.

In addition to this, multi leg option traders will be glad to hear that they offer a commission cap of $10 per leg.

The opening account minimum at Tastyworks depends on the type of account that a client opens.

For a Cash account, there is no minimum deposit required for opening an account.

On the other hand, if you would like to open a margin account, then you will need to deposit $2,000 to open an account.

One of the biggest advantages of trading options through Tastyworks is their user friendly trading platform.

The platform is very intuitive and visually appealing.

It has a rich set of features including a proprietary liquidity rating, and volatility rankings.

You will also find a list of notable stocks to watch based on various pre-defined parameters.

Their advanced platform technologies extends to their mobile app as well.

You can quickly and easily navigate through the mobile app without having to fumble around looking for what you need.

Tastyworks is an excellent choice for both novice and experienced option traders alike.

The platform has a relatively short learning curve, and is well suited for active options traders.

Conclusion

Each of the brokers on our list above are very reputable and most traders would do fine trading with either three.

However, generally speaking if you are new to the Options market, then you may find that Tastyworks suits you a bit better.

You may do well to start with them, and possibly move your way up to Thinkorswim or Interactive Brokers after gaining some experience.

These are the main choices I would recommend for US investors.

Australians main choice was always Interactive Brokers but they can now open a TastyWorks account also.

Investors in the UK might want to check out this post on how to choose a stockbroker.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Options Trading 101 - The Ultimate Beginners Guide To Options

Download The 12,000 Word Guide

Get It Now