Trading options can be an appealing endeavor for investors who seek more than just a basic buy-and-hold strategy. These derivatives offer various advantages, including capital efficiency, leveraged long exposure, risk management, hedging, shorting, and potential income. However, it’s essential to be aware that options trading involves complexity and risk.
One significant challenge in options trading is understanding leverage, which can lead to overextending oneself in a trade. Time decay is another crucial aspect, as the longer an option is held, the more time value it loses nonlinearly. This aspect can be challenging for inexperienced traders to predict accurately.
Before diving into the complexities of options trading, it’s crucial to establish a strong foundation. A vital step is choosing a reputable brokerage platform that can help manage risks, offer educational resources, and execute trades efficiently and accurately.
To assist you in making the right choice, we’ve ranked the best online brokers for options trading. Our evaluation considered nearly 20 firms and assessed various factors such as educational and research resources, features, fees, customer service, and overall trading costs.
Compare the best online brokers for options
|BROKER||COMMISSION-FREE OPTIONS TRADING||PER-CONTRACT OPTIONS FEE||DISCOUNTS FOR OPTIONS TRADING|
|Interactive Brokers||✔||$0.65||✔ Tiered pricing of $0.15 to $0.25 based on volume available for IBKR Pro|
|E-Trade||✔||$0.65||✔ $0.50 for traders who place more than 30 stock, ETF or options trades per quarter|
Brokerage Rankings in the U.S.:
Our team conducted a thorough review of the largest online brokerages in the U.S. to identify the best ones currently available in the market.
Extensive Digital Survey:
To rank these brokerages, we designed a digital survey consisting of over 70 queries, which we sent to each company under consideration.
Research and Verification:
The data collected from the survey was meticulously researched and verified by our team. We also reached out to each company directly and conducted online research to confirm any missing data points.
We evaluated the brokerages based on ten major categories, each with specific weightings. These categories include trading costs, account minimum and fees, features, advisory services, insurance, customer service, education/research, security, margin interest rate and cash interest, and portfolio analysis.
Within each major category, we further considered various subcategories. By combining the data, we calculated an overall score for each category and applied weightings to determine the final ranking of the brokerages.
The data points were scored on a scale from 0.00 to 1.00. The highest raw score achieved was 0.70, which was then converted to a 5-star rating.
Options Commissions Evaluation:
For trading costs on options commissions, we used a comparative scale to assess each brokerage’s performance.
Account Minimum and Fees Assessment:
In the account minimum and fees category, we evaluated several variables, including new account bonuses, free ACH deposits/withdrawals, inactivity fee, account closure fee, transfer account fee, domestic wire fee, international wire fee, and deposit with a bank card.
Insurance Protection Review:
In the insurance category, we examined whether the brokerages offer Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SIPC) protections, additional asset protections, and other insurance options.
By conducting this extensive research and evaluation, we identified the top seven brokerages that excelled in various areas, making it to our list of the best online brokerages in the U.S.
Why other online brokers for options didn’t make the cut
Online brokerage platforms that did not make it to the top of the ranking lacked essential value-added features like paper trading simulators, trading idea generators, and options strategy builders. These tools play a crucial role in options trading, as they help traders visualize the potential risks and returns of their strategies, leading to more informed decision-making.
According to Jason Steeno, president of CoreCap Investments and CoreCap Advisors, these features are particularly valuable for beginners. The ability to test out strategies using a “paper money” feature or simulated trading allows traders to gain confidence before putting real money on the line. Visualizing trades, including maximum loss, maximum gain, and breakeven points, further aids traders in understanding their positions.
Regardless of trading experience, having access to such features can enhance the user experience by automating repetitive tasks. Consequently, our ranking methodology places significant weight on brokers offering a wide array of value-added tools, as this contributes to better overall scores.
Another vital aspect considered in our rankings is the cost of trading, specifically regarding options commissions and per contract fees. Over the years, pricing for options trading has decreased considerably, but it’s essential to pay attention to the overall value provided by a brokerage.
High per contract charges and subpar execution quality can undermine the returns of options traders, especially those engaging in high-volume trading. To prioritize traders’ interests, brokers that offer commission-free trading and keep fees to a minimum are rewarded with higher rankings. As with ETFs and mutual funds, minimizing expenses is crucial for successful options trading.
Best Online Brokerage Platform for Options Trading in 2023: IBKR
IBKR is considered the best online brokerage platform for options trading in 2023, based on our methodology. Its value lies in its comprehensive offerings, catering to options traders at all levels of experience.
Comprehensive Platforms: IBKR provides a range of platforms to suit different needs. Beginners can start with the GlobalTrader mobile app or the web-based Client Portal, while more experienced traders can utilize the advanced Trader Workstation desktop platform.
Tiered Pricing for Savings: For those who want to make options trading a serious part of their strategy, IBKR Pro offers tiered pricing based on trading volume. This means that the more you trade, the lower the fees per contract can go, reaching as low as $0.15 with sufficient monthly trades.
Advanced Functionality: IBKR’s Trader Workstation is equipped with institutional-level tools that enable traders to visualize, build, and execute complex, multilegged options strategies efficiently.
Education and Resources: IBKR places a high emphasis on customer education, offering resources like the Traders’ Academy. With over 75 free online courses covering various aspects of general and options trading, traders can enhance their skills and improve their success.
A Well-Rounded Platform: With its competitive fees, versatile platforms, and educational resources, IBKR stands out as a strong and well-rounded option for traders looking to delve into the world of options trading.
Consider Other Options: If you have different trading needs or strategies beyond options trading, it’s essential to explore other brokerage platforms. Each platform caters to specific requirements, so conducting thorough research is crucial to finding the best fit for your trading goals.