Options Brokers Reviews: How To Choose The Best Options Broker
There are several things an option trader needs to look for in an options broker.
However, whilst most traders will need most, if not all, of the following factors, exactly how much of each, and therefore the best broker for them, will depend on their experience and trading style.
Therefore in addition to listing the characteristic to look out for, I’ll also indicate exactly who its most important for.
Here goes:
Key Options Broker Selection Criteria
Options Specialist
Some brokers are simply the options part of a much larger general stockbroker. In general these are not as good as the specialist options brokers who can concetrate and fully invest in their platform. They tend to be run by options people too, making them more aligned to the option trader mindset.
Cost
This one will be on the top of most people’s list. However, it’s often not an easy task to work out wich service is the most cost effective, due to the different pricing models trbrokers use.
Some charge per contract traded; others a fixed fee per trade; with most having combination of the two. A rule of thumb, however, is that you should be able to find a deal whereby you pay $1 per contract per trade.
Anything more and there’ll be a better deal out there. This is especially the caser for large volume traders: it’s always worth contacting the broker directly as they will usually be able to put you on to a good deal.
Range Of Products
Most options brokers trade most of the key products (SPY, RUT, AAPL etc) but if you’re into more esoteric trading products – international markets for example – then check that the broker offers these.
Customer service
A key part of a broker’s appeal, or otherwise, is its customer service. Whether it’s assisting in setting up the system, sorting out technical issues or just being around when things go wrong, the quality of customer service is a vital consideration.
User Interface and experience
How easy is it to use the platform and actually trade? If the platform’s clunky and hard to use, then it will distract from the trading experience and may even force you to make costly mistakes.
Tools & Education
This is probably the main point of differentiation between the major brokers. Providing excellent education – traing course, informative artciles, even ttade recommnedations – or great analysis tools has been the main weapon of choice for many of the big options brokers.
For some, such as TradeKing, the educational content for customers is the main concentration; for others, such as tradestation, providing a sophisticated suite of programmable analysis tools for the experienced trader is the approach.
Anyway, in the next couple of sections we’ll look at the key options brokers and profile their strengths and weaknesses based on the above criteria.
Interactive Brokers Review
Interactive Brokers (or ‘IB’ as it is often known) is probably the largest of the options brokers. It has a partciular strength in international markets: whilst many broker concentrate on the US market, IB allows US traders to trade many other markets such as Hong Kong and germany. Let’s look at the other factors:
Options Specialist
As we said, IB is a specialist options broker.
Cost
One of IB’s key selling points is its price competitiveness. It currently charges a $0.70 fee per options contract, one of the best in the industry. One thing though: they have a minimum $10,000 funding requirement which may be a problem for some.
Customer Service
This is IB’s weak point. The company has the reputation for long call handling time, poorly trained overseas call operators and sometime non existent email support. Here are a few of these complaints: http://www.investimonials.com/brokers/reviews-interactive-brokers.aspx?sortby=3&trust=0#reviews However, if you think you can handle the platform with minimal support then this is probably not important. However a new trader may think twice.
Range Of Products
As we’ve said already, this is an IB strength: particularly access to international markets.
User Interface and experience
The IB user experience is quite a polarising topic. The main trading console, TWS, is loved and hated in equal measure. On the one hand it manages to handle the massive range of trading vehicles IB offers via a spreadsheet like input screen. On the other the system looks ugly and can be quite hard to operate. Thankfully, for new traders, there’s a pared down browser based console, Mosaic, which is much more usable, but at the cost of functionality. However if you’re just trading SPY calendar spreads, rather than Korean Wan currency options, this shouldn’t be a problem.
Tools & Education
Interactive Brokers offers an impressive full suite of analysis tools and charts. If you’re into trade scanners, analysis tools and pricing charts – with data available to populate these tools – then IB may be for you. However, these tools often suffer from being integrated into the TWS console and can therefore be sometime hard to find and a little difficult to configure. IB doesn’t offer research and its education is not a key focus. hence if you want this, other brokers may be better.
OptionsXpress (by Charles Schwabb)
Options Specialist
Optionsxpress is, as the name suggests, and options specialist. It’s been around for over a decade and has an excellent reputation in the industry. It is, however, now part of the Charles Schwab broking group, and is in the process of being fully integrated into the full group. It’s a little early to say what this will mean for service.
Cost
OptionsXpress is one of the more expensive brokers. Its standard $1.50 per contract charge ($1.25 for higher volume clients), with a $14.95 minimum, is higher than most of its rivals, and also higher than the $1 benchmark we mentioned above. However, many traders are prepared to pay for the premium service (see below).
Customer Service
Customer service is a key selling point for Optionsxpress. Knowledgeable customer service representatives are available (and can be reached) via phone, email and live chat. Plus broker assisted trading is also available (for a fee).
Range Of Products
Optionsxpress has the full range of US options products but isn’t suitable for those wishing to trade international markets. User Interface and experience Probably the main strength of Optionsxpress. Of all the brokers, their website user interface is the most useable and, well, beautiful. Here’s an example:
However, the desktop trading platform Xtend is disappointing and if you’re interested in this functionality, there are better options out there.
Tools & Education
Again, a key differentiator. The following tools are available for free:
Virtual Trade: Paper trading to test out strategies
Walk Limit: Algorithmic ordering to assist with getting the best price
Idea Hub: Trade ideas
Trading Patterns: Shows popular trades in real time
Charts: Streaming charts of all major securities
Trade and profitability calculation: User friendly strategy analyser.
There also free research and a whole education centre for new and experienced traders alike.
Conclusion
Optionsxpress is a fantastic premium product for those wanting a fuller service experience, rather than just the cheapest trade.
OptionsHouse
Options Specialist
OptionsHouse is a specialist discount broker, now owned by etrade a large options trading house.
Cost
This is OptionHouse’s key differentiator: it aims to be the cheapest in the market (for larger traders anyway) It’s default fee is $8.50 per trade ($12.50 for a multi leg options spread) plus $0.15 per contract and hence is significantly cheaper for any reasonably sized options trade than most of its competitors.
Customer Service
Although a no-frill offering, basic customer service, for sorting out problems etc is still pretty good.
Range Of Products
You can trade most of the offerings on the US options market.
User Interface and experience
A reasonably intuitive browser based experience which ‘gets the job done’.
Tools & Education
By design, OptionsHouse doesn’t offer many the research and tools of its competitors.
Conclusion
OptionsHouse offers great value for active traders who just want a clean, efficient, trading service rather than the bells and whistles of many of its competitors.