Finding the Best Options Broker Online

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Contents

Finding the Best Options Broker Online

When opening an option brokerage account, don’t just go with the cheapest broker. You will find it worthwhile to spend some time evaluating their quality of service first. Read on for tips on how to find the best online options brokerage for your trading needs.

Full-Service Broker vs. Discount Broker

There are two main types of options brokerage firms in the market – the full service brokerage and the self-directed discount brokerage.

Full service or traditional brokerages provide a wide range of services at extra charges. Their services include advice to their clients on where to place their investment money.

Discount brokers are geared towards the self-directed trader. They do not provide any investment advice, leaving their clients to make their own financial decisions. Discount brokerages merely execute your orders and consequently their charges are much less than their full-service counterparts.

There are also brokerage companies that offer both services to their customers, letting them to choose the level of service they require.

Most option traders that I know opt to go with the discount brokerages since anyone who is confident enough to trade complex instruments such as options are usually financially savvy enough not to require trading advice from their brokers, especially when the broker’s renumeration is based upon the frequency of trades rather than the quality of their recommendations.

Quality of Service

When determining which is the best options brokerage, commission charges should not be the only consideration. When it comes to online brokers, site availability, speed of execution and ease of use are just as important, if not more so, than price.

Availability & Speed of Execution

Site availability and responsiveness are perhaps the most crucial aspects to look out for when selecting an online brokerage. No matter how low the commission charges, if the trade does not get through because the brokerage site is overwhelmed by ultra high load and becomes unavailable, the amount of transaction fees you save is not going to be worth it.

Responsiveness of the site affects the timeliness of the real-time price quotes you get. Remember, we are living in the information age. News travel fast, round the globe, 24 hours a day. Markets react to breaking news events faster than ever before. You don’t want to be lagging, even if its just seconds behind, especially when the trading action is fast and furious.

Note: Your own internet connection should also be up to speed. You should upgrade to a broadband connection if you are still using dial-up. If you are using wireless, check that your connectivity is good before connecting to the brokerage site.

Quality of Execution

The National Best Bid or Offer (NBBO) is an SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities. Look for brokers that guarantee trade execution prices that meet or exceed the NBBO.

Ease of Use

With option trades already complicated enough on their own, it sure doesn’t help when you still have to puzzle over how to use the order placement form. An easy to understand user interface helps minimize errors, which can be extremely costly when thousands of dollars are changing hands every trade. Look for option trading brokerages that offer single-screen order entry forms for covered calls, condors, butterflies and other multi-legged option strategies.

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  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
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    Good choice for experienced traders!

Commissions and Fees

To differentiate themselves from their competition, options trading brokerages are very creative when charging commissions. For options trades, if you take a look at their commission and fees page, you should see two charges: 1) a per trade fee and 2) a per contract fee.

Per Trade Fee (or Ticket Charge) – There is usually a minimum fee per transaction, regardless of how many (or rather, how few) contracts are involved in each trade.

Per Contract Fee – This fee is charged for every option contract involved in each trade.

It is important to know how they are used to calculate the total commission costs per transaction. Usually, the following method is used:

Total Commission = $X per Trade + $Y Per Contract

But some brokerages use the following formula:

Total Commission = $X per Trade or $Y per Contract, whichever is higher

Market or Limit Order

Some companies charges different brokerage fees for different types of orders. You should note the fee for limit orders since you almost never place market orders.

Internet or Broker-assisted Trade

Broker assisted trades can cost as much as several times more than internet trades. The only reason to place a broker-assisted trade is when you are cut off from the internet and a very good trading opportunity happen to arise.

Volume Discount

There are options brokerage houses which charge a lower rate if your trading frequency exceeds a certain threshold. So, if you are an active trader making dozens of trades a month, it makes sense to look out for a brokerage firm that offers such a discount scheme.

Hidden Fees

To offset their low commission charges, some discount brokerage firms charges a slew of hidden fees. So if an option brokerage charges an unusually low fee compared to the industry norms, make sure you find out whether there are other fees that you should be aware of. Some common hidden fees include:

  • Account Inactivity Fee – Some brokerages charges a fee if you did not make any trade after a certain period of time.
  • Annual Maintenance Fee – This is a fee levied every year as long as you have an account with the brokerage firm, whether or not you have made any trade.
  • Minimum Balance Fee – This is a fee that is levied peroidically (say monthly or quarterly) when your account balance is below a certain threshold.

Commissions can have a significant impact to an option trader’s overall profit or loss, especially if your trading capital limits you to prudently buy/sell only 1 or 2 contracts per trade or if you are just starting out and your win/loss ratio is 6:4 or lower. Finding a low-commissions options broker can boost trading profits by as much as 50%.

If you are new to option trading, we recommend you sign up with OptionsHouse . They provide quality trade execution, intuitive, user-friendly interface while maintaining low commission charges. optionshouse also provides a Virtual Trading Tool where beginners can try out options trading in real market conditions without risking real money.

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Best Options Trading Platforms

The best options brokers have a wealth of tools that help you manage risk

Investopedia is committed to rigorous editorial standards to provide our readers with the best advice and recommendations. We may receive compensation when you click on links to products we reviewed. Learn more about our methodology and review process.

We recognize that we all are living through a particularly volatile time as we deal with this global crisis, and financial markets have also seen unprecedented change, impacting all investors. Our mission has always been to help people make the most informed decisions about how, when and where to invest. Given recent market volatility, and the changes in the online brokerage industry, we are more committed than ever to providing our readers with unbiased and expert reviews of the top investing platforms for investors of all levels, for every kind of market.

Options trading has become extremely popular with retail investors since the turn of the 21st century. Our best options brokers have a wealth of tools that help you measure and manage risk as you determine which trades to place. They also include valuable education that helps you grow in sophistication as an options trader.

Best Online Brokers for Options Trading in April 2020:

  • tastyworks: Best Options Trading Platform
  • tastyworks: Best Broker for Advanced Options Traders
  • tastyworks: Best Broker for Mobile Options Traders
  • E*TRADE: Best Broker for Beginning Options Traders
  • eOption: Best Broker for Low-Cost Options Trading

Best Options Trading Platform, Best for Advanced Options Trades, and Best for Mobile Options Traders: tastyworks

  • AccountMinimum: $0
  • Fees: $0.00 stock trades, $1.00 to open options trades $0.00 to close

Tastyworks says that more than 90% of the trades placed by its customers are derivatives, so they naturally spend their time designing a lot of tools specifically for options and futures traders. Everything is designed to help traders evaluate volatility and the probability of profit. Tastyworks’ entire platform is geared towards making decisions and taking action. Tastyworks opened its virtual doors in 2020, so it isn’t saddled with legacy systems that bog down many of the older online brokers. This has helped it tremendously in keeping the options trading experience to the essentials. Tastyworks’ executions are fast and the costs are low, with commissions capped for opening orders for options on equities and futures at $10 per leg.

Watchlists are a key component of the tastyworks platform, and they are the same on mobile, web, and download. The look and feel of the mobile platform is very similar to the desktop versions, though you’ll find price wheels and ways to define trades that minimize the possibility of making a mistake. As you build a position from a chart or from a volatility screener, a trade ticket is built for you. There’s also a video viewer embedded so you can keep an eye on the tastytrade network. Though a newcomer to options trading might be initially uncomfortable, those who understand the basic concepts will appreciate the content, features, and focus apparent throughout tastyworks’ platforms.

All of the tools you’ll need for analyzing and trading derivatives are built into the platforms.

The charting capabilities are uniquely tuned for the options trader. If you have multiple positions on a particular underlying, you can analyze the risk profiles of the combined position.

There are hours of original video from tastytrade every weekday, offering up-to-the-minute trading ideas, plus a huge library of pre-recorded videos and shows.

Newcomers to trading and investing may be overwhelmed by tastyworks at first.

There is no fixed income trading (outside of ETFs that contain bonds) for those who want to allocate some of their assets to a more conservative asset class.

Any additional portfolio analysis beyond profit and loss requires setting up a login on a separate site, The Quiet Foundation, which is also part of the tastytrade empire.

Best for Beginning Options Traders: E*TRADE

  • AccountMinimum: $0
  • Fees: No commission for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume.

New options traders need some help in understanding how trading derivatives can help improve portfolio returns. E*TRADE’s more advanced platforms are elegantly designed and guide you along the way. When you graduate to options and derivatives, the Power E*TRADE website and mobile app can help you learn. The Power E*TRADE site and app can be set up to put the functions you use most often front and center so you don’t have to dig around for them. The platform has all the features inherited from E*TRADE’s acquisition of OptionsHouse technology, which includes a wealth of helpful educational resources for the developing options trader. Watchlists are integrated across E*TRADE’s platforms, and the full range of tradable assets is accessible on the mobile apps. The workflow is very smooth on the mobile apps. We also found that using Power E*TRADE on a tablet is quite pleasant.

Mobile apps are extremely well laid-out and easy to use and are among the most comprehensive and extensive apps tested.

Spectral Analysis on Power E*TRADE is a visually stunning tool that helps you visualize maximum profit and loss for an options strategy and understand your risk metrics

You can test strategies using the paper trading capabilities of E*TRADE Pro’s desktop platform, which uses delayed data so you won’t think you’re placing real trades.

On all platforms, you’ll find a ubiquitous trade ticket with streaming real-time data.

Tiered commission schedule for options trades, charging $0.65 per contract for less frequent traders and $0.50 for those who place more than 30 options trades per quarter.

Investors who would like direct access to international markets or to trade foreign currencies should look elsewhere.

You cannot consolidate your externally-held accounts to form a complete picture of your net worth on E*TRADE.

Best for Low-Cost Options Trading: eOption

  • Account Minimum: $0
  • Fees: $0 per stock/ETF trade, $1.99 base per leg plus $0.10 per contract for options trades

eOption charges $1.99 per leg for options trades, but the per-contract fee is significantly lower than its competitors, making it great for heavy options traders. eOption also offers commission-free stock and ETF trading so those who are options-oriented traders but also want access to other assets at a low cost will have no issues here. Clearing and exchange fees, typically a fraction of a penny per share, are spelled out on the order confirmation screen and are passed through to customers. eOption also scored highly for its relatively low margin rates.

eOption offers great value for frequent options traders.

The browser-based eOption Trader platform is easy to use.

Newsletter subscribers can auto-trade their alerts.

Limited education offerings.

News feeds are limited.

Any OTCBB (penny stock) trades must be made with a live broker.

Other Options Considerations

The commission structure for options trades tends to be more complicated than its equivalent for stock trades. Until the commission cuts that swept the industry in the fall of 2020, most brokers charged a fee for each leg of an options spread plus a commission per contract being traded. The per-leg fees, which made 2- and 4-legged spreads expensive, have been eliminated industry-wide, for the most part. We are also seeing some brokers place caps on commissions charged for certain trading scenarios.

Investors with fairly large portfolios can also take advantage of portfolio margining at some brokers. This is a practice that assesses the total risk inherent in a portfolio that contains stocks and derivatives. Investors with large portfolios can use portfolio margining to reduce the size of the margin loan.

What Kind of Options Trader Are You?

The first and most important piece of information to consider before selecting an options trading account is what kind of trader you are. What is your trading style and risk appetite? Which tools would you like to have handy?

Options are complex products to understand and trade. All of the brokers listed above allow customers to build complex options positions as a single order. Some brokers, such as Vanguard, only allow one position per order, leaving it to the individual trader to place multiple orders one at a time to create a combination position. Merrill Edge lets you place two-legged spreads, but anything more complex will require an additional order.

If you’re just getting started with options trading, the quality of education and help offered by your broker is important. Frequent traders and those who trade a large number of contracts will be more sensitive to commissions and fees, so check out your prospective broker’s charges and make sure you understand them.

Methodology

Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. Our reviews are the result of months of evaluating all aspects of an online broker’s platform, including the user experience, the quality of trade executions, the products available on its platforms, costs and fees, security, the mobile experience and customer service. We established a rating scale based on our criteria, collecting thousands of data points that we weighed into our star-scoring system.

In addition, every broker we surveyed was required to fill out an extensive survey about all aspects of its platform that we used in our testing. Many of the online brokers we evaluated provided us with in-person demonstrations of its platforms at our offices.

Our best options brokers have a wealth of tools that help you measure and manage risk as you determine which trades to place. These brokers include valuable education that helps you grow in sophistication as an options trader. Investors with fairly large portfolios can take advantage of portfolio margining at certain brokers, a practice that assesses the total risk inherent in a portfolio that contains stocks and derivatives, and can reduce the size of your margin loan.

Our team of industry experts, led by Theresa W. Carey, conducted our reviews and developed this best-in-industry methodology for ranking online investing platforms for users at all levels. Click here to read our full methodology.

11 Best Options Trading Brokers and Platforms of April 2020

At NerdWallet, we strive to help you make financial decisions with confidence. To do this, many or all of the products featured here are from our partners. However, this doesn’t influence our evaluations. Our opinions are our own.

The best options brokers offer low options contract fees, quality trading tools, an abundance of high-quality research and the customer service necessary to support everyone from beginner investors to advanced traders.

While most of the brokers on our list of best brokers for stock trading would be a good pick for options as well, this list highlights brokers that excel in areas that matter most to options traders. Many of the below brokers also appear on our list of best online trading platforms for day trading.

Unsure what you’re looking for? See our post on how to choose an options broker and our options 101 guide for more on what can make or break an options trading experience.

Summary of Best Options Trading Brokers and Platforms of April 2020

Broker NerdWallet Rating
Commissions Promotion Account Minimum Learn More

cash credit with a qualifying deposit or transfer

on E*TRADE’s website

cash credit with qualifying deposit

on TD Ameritrade’s website

Interactive Brokers IBKR Lite

No promotion available at this time

on Interactive Brokers’s website

no promotion available at this time

on Robinhood’s website

cash credit with a qualifying deposit

on TradeStation’s website

on E*TRADE’s website

E*TRADE

cash credit with a qualifying deposit or transfer

on E*TRADE’s website

cash credit with a qualifying deposit or transfer

Large investment selection.

Excellent customer support.

Access to extensive research.

Advanced mobile app.

Commission-free stock, options and ETF trades.

Website can be difficult to navigate.

on TD Ameritrade’s website

TD Ameritrade

cash credit with qualifying deposit

on TD Ameritrade’s website

cash credit with qualifying deposit

Commission-free stock, ETF and options trades.

High-quality trading platforms.

No account minimum.

Good customer support.

Large investment selection.

Costly broker-assisted trades.

on Interactive Brokers’s website

Interactive Brokers IBKR Lite

No promotion available at this time

on Interactive Brokers’s website

No promotion available at this time

Large investment selection.

Strong research and tools.

Over 4,300 no-transaction-fee mutual funds.

NerdWallet users who sign up for IBKR Pro get a 0.25 percentage point discount on margin rates.

Website is difficult to navigate.

Inactivity fees on IBKR Pro.

on Robinhood’s website

Robinhood

no promotion available at this time

on Robinhood’s website

no promotion available at this time

No account minimum.

No retirement accounts.

No mutual funds or bonds.

Limited customer support.

on TradeStation’s website

TradeStation

cash credit with a qualifying deposit

on TradeStation’s website

cash credit with a qualifying deposit

High-quality trading platforms.

Commission-free stock, ETF and options trades.

Active trader community.

Free trading on advanced platform requires TS Select.

No transaction-fee-free mutual funds.

Plans and pricing can be confusing.

Merrill Edge

cash credit with qualifying deposit

cash credit with qualifying deposit

Robust third-party research.

Integrated with Bank of America.

Advanced traders may find fewer securities on offer.

Want to compare more options? Here are our other top picks:

Last updated on April 2, 2020

Methodology

To recap our selections.

NerdWallet’s Best Options Trading Brokers and Platforms of April 2020

About the author

NerdWallet Compare, Inc. NMLS ID# 1617539

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Disclaimer: NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. All financial products, shopping products and services are presented without warranty. When evaluating offers, please review the financial institution’s Terms and Conditions. Pre-qualified offers are not binding. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly.

Best Binary Options Brokers: 2020 Ranking
  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

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