Like many people, I was intimidated by options when I first started investing almost 10 years ago. They seemed complicated, because they are. It soon became obvious, however, that locking in the ability to buy or sell securities at a set price would be a powerful way to tap into good investment ideas I might not otherwise be able to afford.
Each of these brokers caters to a different type of investor, but they all share a focus on low fees, no account minimums, and a user-friendly interface. In all honesty, the only reason I stick with Merrill is because I have multiple accounts and enough money invested with them that they grant me some pretty nice perks to keep my business. The good news is that there are a host of brokers out there that cater almost exclusively to options traders. The best have the following things in common:.
Sign Up Cost Structure. TD Ameritrade also recently acquired Scottrade with the deal expected to close by fall of When I first started dabbling in options, simply learning the lingo was hard enough. What the heck is a bull call spread?
Thankfully, TD Ameritrade cuts out the guesswork with easy-to-understand options trading tabs. TD Ameritrade also has over branches across 33 states for in-person consultation if you need it. As stated, the robust customer service and physical branches are great resources for newbies to options trading. Reading a blog post is one thing, but seeing someone click through a trade is by far the best way to learn the ropes.
But regardless of better tools down the road, one important thing to know about the present is that there will be no change to the existing low-cost structure that has made OptionsHouse so popular. That means you can depend on the low-cost platform that has made OptionsHouse such a hit with experienced traders who might not need the additional educational resources provided by other higher-cost brokerages, like TD Ameritrade. That is the lowest rate I could find anywhere right now.
But the low prices also extend to futures and stock trades as well, allowing you to manage your entire portfolio in a very cost-effective way. A custom trading interface provides real-time market data and speedy execution to make sure you are making the most of what the market gives you. There is a green smiley face besides the statistical probability of making a profit, and a red frowny face showing your probability of a loss — so no need to decipher any weird calculations here.
Figuring out the potential performance of your options over time can be tricky, and OptionsHouse takes a lot of headaches out of the process with tradeLAB. I mentioned the potential of better tools at OptionsHouse down the road because five years ago we saw a case study in how a big broker can really turn up the juice on a smaller options platform.
And the result is the current OptionsXpress platform, which is unrivaled in its tools and research. Since then, the marriage has resulted in the best of both worlds — the slick, professional feel of a big-time firm, along with the agility of an options-native platform.
The icing on the cake for OptionsXpress is the ability to trade stocks, ETFs, and even futures alongside options, giving active traders a one-stop shop to make the most of their investing ideas. From its attractive charting interface and its Idea Hub that helps you browse market trends, to its exclusive automatic execution tool, Walk Limit, which helps you place orders at the best price, Options Xpress has the best toys in the space.
Everything down to the trade tickets are easy to understand at a glance. To help you keep growing as a trader, there are also weekly webinars, an archive of on-demand educational videos, and regular email updates via its daily Options Xpresso email blasts to keep you focused on market risks and opportunities.
Any time you need help, licensed options brokers are available to help you at no-additional cost. That can provide much-needed peace of mind for rookies, or help unwind a complex strategy for seasoned traders who may find themselves in a bind.
You can even get advice on futures and ETFs if you want. That makes it much more cost-effective to bid on way out-of-the-money options. Options are contracts that must be acted on, or they expire worthless. That means making sure you have a good grasp of your specific option expirations, and that may mean finding out how to set reminders or alerts via your broker. It is not uncommon for less vigilant or inexperienced options investors to just throw up their hands and eat a bad trade.
However, you could also sell that options contract to someone else instead of waiting until expiration. Your personal strategy and specific trades are up to you, but all options traders run into scenarios like this eventually and many just throw up their hands and give up.
To this end, I highly recommend emails, text alerts, or calendar reminders to let you know when your options are set to expire. Whatever your broker, spend some time exploring the tools they provide to help, and find a system that works for you. TD Ameritrade, OptionsHouse, and OptionsXpress are the best options brokers currently available, because they all meet the criteria for cost-effectiveness, quality research tools, and having a smooth user interface.
If you are more interested in cost-effectiveness over tools, go with OptionsHouse. Your email address will not be published. Just sign up to The Simple Dollar Daily and start saving today.
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