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Options trading can be complicated. But if you choose your options broker with care, you’ll quickly master how to conduct research, place trades and track positions.
Here’s our advice on finding a broker that offers the service and the account features that best serve your options trading needs.
1. Look for a free education
If you’re new to options trading or want to expand your trading strategies, finding a broker that has resources for educating customers is a must. That education can come in many forms, including:
- Online options trading courses.
- Live or recorded webinars.
- One-on-one guidance online or by phone
- Face-to-face meetings with a larger broker that has branches across the country.
It’s a good idea to spend a while in student-driver mode and soak up as much education and advice as you can. Even better, if a broker offers a simulated version of its options trading platform, test-drive the process with a paper trading account before putting any real money on the line.
» Learn more: How to open a brokerage account
2. Put your broker’s customer service to the test
Reliable customer service should be a high priority, particularly for newer options traders. It’s also important for those who are switching brokers or conducting complex trades they may need help with.
Consider what kind of contact you prefer. Live online chat? Email? Phone support? Does the broker have a dedicated trading desk on call? What hours is it staffed? Is technical support available 24/7 or only weekdays? What about representatives who can answer questions about your account?
Even before you apply for an account, reach out and ask some questions to see if the answers and response time are satisfactory.
3. Make sure the trading platform is easy to use
Options trading platforms come in all shapes and sizes. They can be web- or software-based, desktop or online only, have separate platforms for basic and advanced trading, offer full or partial mobile functionality, or some combination of the above.
Visit a broker’s website and look for a guided tour of its platform and tools. Screenshots and video tutorials are nice, but trying out a broker’s simulated trading platform, if it has one, will give you the best sense of whether the broker is a good fit.
Some things to consider:
- Is the platform design user-friendly or do you have to hunt and peck to find what you need?
- How easy is it to place a trade?
- Can the platform do the things you need, like creating alerts based on specific criteria or letting you fill out a trade ticket in advance to submit later?
- Will you need mobile access to the full suite of services when you’re on the go, or will a pared-down version of the platform suffice?
- How reliable is the website, and how speedily are orders executed? This is a high priority if your strategy involves quickly entering and exiting positions.
- Does the broker charge a monthly or annual platform fee? If so, are there ways to get the fee waived, such as keeping a minimum account balance or conducting a certain number of trades during a specific period?
4. Assess the breadth, depth and cost of data and tools
Data and research are an options trader’s lifeblood. Some of the basics to look for:
- A frequently updated quotes feed.
- Basic charting to help pick your entry and exit points.
- The ability to analyze a trade’s potential risks and rewards (maximum upside and maximum downside).
- Screening tools.
Those venturing into more advanced trading strategies may need deeper analytical and trade modeling tools, such as customizable screeners; the ability to build, test, track and back-test trading strategies; and real-time market data from multiple providers.
Check to see if the fancy stuff costs extra. For example, most brokers provide free delayed quotes, lagging 20 minutes behind market data, but charge a fee for a real-time feed. Similarly, some pro-level tools may be available only to customers who meet monthly or quarterly trading activity or account balance minimums.
5. Don’t weigh the price of commissions too heavily
There’s a reason commission costs are lower on our list. Price isn’t everything, and it’s certainly not as important as the other items we’ve covered. But because commissions provide a convenient side-by-side comparison, they often are the first things people look at when picking an options broker.
A few things to know about how much brokers charge to trade options:
- The two components of an options trading commission are the base rate — essentially the same as thing as the trading commission that investors pay when they buy a stock — and the per-contract fee. Commissions typically range from $3 to $9.99 per trade; contract fees run from 15 cents to $1.25 or more.
- Some brokers bundle the trading commission and the per-contract fee into a single flat fee.
- Some brokers also offer discounted commissions based on trading frequency, volume or average account balance. The definition of “high volume” or “active trader” varies by brokerage.
If you’re new to options trading or use the strategy only sparingly you’ll be well-served by choosing either a broker that offers a single flat rate to trade or one that charges a commission plus per-contract fee. If you’re a more active trader, you should review your trading cadence to see if a tiered pricing plan would save you money.
Of course, the less you pay in fees the more profit you keep. But let’s put things in perspective: Platform fees, data fees, inactivity fees and fill-in-the-blank fees can easily cancel out the savings you might get from going with a broker that charges a few bucks less for commissions.
There’s another potential problem if you base your decision solely on commissions. Discount brokers can charge rock-bottom prices because they provide only bare-bones platforms or tack on extra fees for data and tools. On the other hand, at some of the larger, more established brokers you’ll pay higher commissions, but in exchange you get free access to all the information you need to perform due diligence.
» MORE: NerdWallet’s top brokers for options trading
Dayana Yochim is a staff writer at NerdWallet, a personal finance website: Email: [email protected]. Twitter: @DayanaYochim.