In the stock trading world, speculators buy stocks at a lower price in the hope of selling them at a higher price later in order to make a profit. Sadly, a buyer cannot know what the market price of a stock will be when the time comes to dumb it.
This is why many investors prefer trading options to protect themselves from losses that are likely to be caused by unfavorable changes in stock prices. In this post, you will get to know the ins and outs of options trading as well as a list of the best options trading platforms.
What are stock options?
An option is a contract that gives an investor the right (but not the obligation) to buy or sell an underlying stock at a pre-agreed price and date.
In other words, the contract gives the investor the ability to sell or buy shares at a fixed price before or on the expiration date irrespective of the market price of those shares.
There are two types of options, namely, call option and put option.
- A stock call option gives the holder the right (but not the obligation) to buy a stock. The value of a call option goes up when the price of the underlying stock price increases.
- A stock put option gives the holder the right to sell a stock. The value of a put goes down when the price of the underlying stock price falls.
What to look for in a platform for options trading
Now that you understand what options trading is, let us take a look at some of the key things you should consider when looking for a brokerage platform for this kind of trading.
- Trading commissions: Look for a broker whose trading commissions and margin rates won’t weigh on your overall returns.
- Account minimums: Some brokerage firms require clients to deposit several thousand dollars when opening an account while others allow you to open with no minimum deposit.
- Research and trading tools: A good options trading platform ought to offer you access to a wide range of research and trading tools to help investors make the most of their trades.
- Customer service: As a client, the options trading platform that a broker is offering you should have well trained customer service representatives that are willing and ready to respond to your call or emails.
Best online brokers for trading options
Founded nearly four decades ago under the name Omega Research, TradeStation has grown to become one of the best brokerage firms for traders and investors of all types.
This platform is particularly popular with investors that frequently trade stocks, forex, futures, and options in high volume. TradeStation offers the following:
- Powerful mobile, web and desktop platforms offering real-time data for charts and watchlists
- Zero options trading commissions through its new service called TSgo.
- High-speed execution
- Comprehensive research
- Large amount of historical data that facility back-test trading strategies
- Phone and online chat support on weekdays between 8 a.m. to 8 p.m. ET
The minimum balance requirement for options traders on TradeStation is $2000. Options traders using TSgo are required to pay $0.50 per contract, but they don’t incur a commission charge.
Interactive Brokers was established in 1978 by Thomas Peterffy. It is one of the largest brokerage firms in the world, averaging a million client trades daily.
IB offers its clients an incredibly wide array of products to trade such as stocks, futures, forex, ETFs, mutual funds, bonds, and of course options. It also has a stellar reputation in providing access to large amount of international financial markets.
Highlighted features of this platform include:
- An extremely customizable workstation that includes integrated tools like IB Risk Navigator, Model Navigator, and Options Analytics.
- Real-time data for charts and watchlists
- Powerful analytical tools
- An AI-powered assistant bot that helps options traders find features easily
- Allows investors to trade options in over 30 countries, using 23 currencies
A lack of educational resources, high balance requirements, and inactivity fees may turn off new investors seeking to use IB for options trading.
Nonetheless, this platform is still a strong choice for active traders, particularly those seeking to explore international markets.
IB charges $0.70 per share for the standard platform and that can drop to $0.15 per contract for high volume traders with 100,000+ contracts per month.
TD Ameritrade was founded in 1975 and boasts $1 trillion in total client assets. This platform is considered a great choice for options trading because of its fantastic features, which include;
- Commission-free options trades
- Zero account minimum Advanced trading mobile and web platforms
- Free research tools
- 24/7 customer service over the phone
Trades at TD Ameritrade cost $0 per trade plus $0.65 cents per contract. New clients receive up to $600 bonus cash (for deposits over $250,000) and 60 days of free trades after opening up a new account. You are also likely to receive up to $1,000 bonus cash when you refer a friend.
Options trading remains of one of the most popular types of investing. The allure is obvious, an opportunity to bet on moves in stock prices to earn higher returns on your investment and generate income from covered calls.
But despite this, beginner and expert investors still need to look for brokerage firms offering an abundance of high-quality research, low trading fees, good customer service, and solid trading tools necessary to support options trading.
As you can see in our list of the best platforms for options trading, all are great choices and are designed to enhance your overall performance.