Best online brokers for options July 2024
“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
BLUEPRINT
Updated 7:01 a.m. UTC July 1, 2024
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Depending on the type of option and strategy, you can achieve advantageous objectives, such as capital efficiency, leveraged long exposure, risk management, hedging, shorting or income. But options trading comes with a fair degree of complexity and risk.
To help you make the right choice, we ranked the best online brokers for options trading in 2024. Our scoring methodology assessed nearly 20 firms based on a variety of factors, including their educational and research resources, features, fees, customer service, and trading costs.
Best online brokers for options
E*TRADE from Morgan Stanley
Fidelity
Charles Schwab
eToro
Merrill Edge
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 from Morgan Stanley
| ✔
| $0.65
| ✔ $0.50 for traders who place more than 30 stock, ETF or options trades per quarter
|
Fidelity
| ✔
| $0.65
| ✘
|
Charles Schwab
| ✔
| $0.65
| ✘
|
eToro
| ✔
| $0
| ✘
|
Merrill Edge
| ✔
| $0.65
| ✘
|
Methodology
We reviewed and researched some of the largest online brokerages in the U.S. to rank the best ones on the market today.
For our rankings, we sent a digital survey with more than 70 queries to each company we reviewed. Our researchers verified the survey data and confirmed any missing data points by contacting each company directly and via online research.
Among all the brokerages considered, the seven that made our list excelled in areas across the 10 major categories (with weightings): 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 considered several subcategories, combining them to give an overall score for that category which we then weighted to calculate an overall ranking of the exchanges.
- Data points were scored on a 0.00 to 1.00 scale. The top raw score was 0.70, curved to a 5-star rating as the highest possible score.
Trading costs on options commissions were scored on a comparative scale. For the account minimum and fees category, the following variables were assessed:
- New account bonuses.
- Free ACH deposits/withdrawals.
- Inactivity fee.
- Account closure fee.
- Transfer account fee.
- Domestic wire fee.
- International wire fee.
- Deposit with a bank card.
The insurance category reviewed whether the brokerage has Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SIPC) protections, additional asset protections, and additional insurance.
Why other online brokers for options didn’t make the cut
The online brokerage platforms excluded from this ranking usually need to catch up in terms of value-added features, such as paper trading simulators, trading idea generators and options strategy builders. Because options trading can be fairly complex, having a wide selection of these tools can help you better visualize the risk and return of your strategy and make more informed trades.
For newbies, firms that offer a ‘paper money’ feature can be valuable to test out strategies before implementing them. Firms that offer simulated trading or the ability to visualize trades — showing max loss, max gain and breakeven — can be very helpful as well.
Whether you’re a beginner or an advanced trader, these features can also significantly enhance the user experience by automating rote tasks. Therefore, our scoring methodology assigns a higher weight to this category, with brokers that offer a wide selection of these features receiving better scores.
Our ranking criteria also place a high weight on low trading costs, especially in terms of options commissions and per-contract fees.
“Pricing for options trading has come down significantly in recent years, but if you’re paying higher per contract charges and not getting quality fills, you should be looking at different trading platforms,” said Jason Steeno, president of CoreCap Investments and CoreCap Advisors.
For options traders, especially those churning a high volume, excessive options commissions and fees per contract can potentially eat into returns. Therefore, firms that eliminated commissions and kept fees minimal received higher rankings. Like with ETFs and mutual funds, keeping expenses low is critical to successful options trading.
Final verdict
The best online brokerage platform for options trading in 2023 is IBKR based on our methodology.
IBKR’s value lies in its comprehensiveness. Options traders can spend an entire career on the platform, starting with the GlobalTrader mobile app or the web-based Client Portal, before graduating to the more advanced Trader Workstation desktop platform.
If you’re looking to make options trading a serious and permanent part of your strategy, IBKR Pro’s tiered pricing allows for significant savings based on volume, with fees per contract falling to as low as $0.15 if you make sufficient monthly trades.
IBKR’s functionality is also notable. With Trader Workstation, you can access institutional-level tools to help you visualize, build and execute complicated, multilegged options strategies.
Finally, the firm places a high emphasis on education for its customers and ensures their success by offering resources like Traders’ Academy. This program provides over 75 free online courses covering every aspect of general and options trading.
In short, IBKR’s combination of competitive fees, versatile platforms and educational resources makes it a strong, well-rounded options trading platform.
If you’re thinking of using a brokerage for a purpose other than options trading, here are other lists you may want to review and consider:
What is options trading?
Options trading refers to the practice of buying and selling options contracts. An option contract represents the right to buy or sell an asset at an agreed-upon price for a specific period.
An option is a contract that is linked to an underlying asset, such as stocks and ETFs. Options are sometimes known as derivates because the value of the contract is derived from the underlying asset.
Generally, options contracts don’t obligate you to buy the underlying asset — hence the name option. If you decide to purchase the asset, this is known as exercising the option. Conversely, selling an options contract gives you the obligation to fulfill the contract.
Options trading lets you implement advanced trading strategies that can help you protect your portfolio from future price declines or generate income from your portfolio. However, losses can be significant when trading options, so options trading is usually reserved for experienced traders.
How to find the best trading platform for options
To find the best trading platform for opinions, you must carefully consider your specific trading goals and needs. Although we identified several high-quality trading platforms earlier, here are some things to consider as you evaluate each platform:
- Your trading needs. Some trading platforms are better for beginners, while some are more advanced. Also, consider your investment goals, such as whether you aim for growth or investment income.
- Platform features. Each trading platform has its own feature set, some being more intuitive and easier to navigate. Some platforms have abundant educational tools and analysis, while others focus on advanced trading tools and charts.
- Fees and commissions. While some trading platforms have reduced or eliminated various fees, these can still exist. It’s important to compare these, especially when trading often.
- Read reviews. While each trading platform might claim to be the best, the reality might differ. Read reviews of each platform to learn about their strengths and where they might fall short.
- Try before you buy. Many trading platforms have free trials or demos available. Use these to try each platform before you commit.
Trading options can be complex, and so can finding the best trading platform for options. However, by carefully considering each platform’s features and your goals, you can find the platform that works best for you.
Expert tips for trading options
Options trading can be complex, but the rewards can be great with the right strategy and approach. Here are some expert tips that can help you successfully trade options:
- Educate yourself. Before you start options trading, you should have a deep understanding of how options trading works. Learn about tactics like call options, strike prices, and expiration dates before you get started.
- Know the risks. The potential risk of options trading cannot be overstated. It’s possible to lose your entire investment, and you must understand this before you start trading.
- Develop the right strategy. You should develop a clear strategy that aligns with your risk tolerance, investment goals, and market conditions. For example, common strategies include covered calls for income generation and protective puts to limit your downside risk.
- Manage risks. Because options trading can have significant risk, consider using strategies to limit risk. These might include stop-loss orders or only investing a small amount in each trade.
- Stay up to date. The market moves at a lightning pace. Keep up to date on factors like stock price movements and volatility, which can greatly impact your trading.
- Diversify. Diversifying your portfolio with several options trades can help reduce risk somewhat. However, remember that options trading is a risky strategy in general, and it’s best to limit how much of your overall portfolio you allocate to it.
- Adjust as needed. Given how fast the market can change, you must be adaptable. You must be willing to change your strategy as the market moves.
Remember that there can be considerable risk when trading options; it isn’t for everyone. Be sure you fully understand these risks before getting started.
Frequently asked questions (FAQs)
Options trading can incur several types of fees. Some brokerage platforms charge a commission for the trade.
Most brokerage platforms charge a fee per contract, typically around $0.65. Some brokerages also charge a fee when a contract is exercised or assigned, which can differ depending on the platform. Finally, exchanges may charge small regulatory fees. As you shop around for the right brokerage for options trading, read the fine print and look for these conditions.
Most brokerages in 2023 will offer some sort of options trading, but the breadth and sophistication of offerings can vary.
Some beginner-friendly brokerages may offer only elementary options strategies and tools, while more advanced offerings may include professional-grade data, strategy builders and analytics. Some brokers focus more on buy-and-hold strategies for stocks, ETFs and mutual funds and may not offer options trading.
Like all forms of investment, options trading can carry significant risk. The SIPC often insures brokerage accounts. This may also apply to options contracts.
However, SIPC insurance generally does not protect against a loss in value of securities. In other words, you will generally have little recourse in the event of a bad trade. This is why it’s important to manage risk when options trading and only trade with money you can afford to lose.
Options trading can be highly profitable, but remember that greater reward generally comes with greater risk. Options trading is no exception to this rule.
To make options trading profitable, you must develop a solid strategy, know the market, and properly manage your risk. You should also learn from your experiences, including both successes and failures. Use strategies like stop-loss orders to limit risk, as losses from options trading can be significant.
Options trading can have significant risks, so practicing before you start trading is generally a good idea. Many trading platforms have paper trading, which lets you place real trades with fake money. Try paper trading before trading with real money to perfect your options trading strategy before you start trading with real money.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.
