Sign up to download this FREE Ebook
Plus a ton of other resources in the Nine to FI Vault!
Whether you are a new investor or a seasoned pro, it’s important to stay current on the rapidly changing landscape of online brokers. Every year, new contenders enter the landscape of online investment brokers, and with increased competition comes lower prices and greater access to features, data and technology.
The selection becomes even harder if you want to do more than simply purchase mutual funds and stocks. The competition thins out when you begin to look for the best broker that supports options trading.
Over the last several years, I have performed countless hours of research into the entire field of options trading platforms, and have selected 3 that I consider strong contenders worth considering.
In this post, I will break down each one of these platforms and give you an honest opinion on which one may be right for you.
As a quick disclaimer – I have placed real options trades with each of the platforms discussed in this article, but I am not a professional trader.
Alright, let’s dive in!
Investing is full of risk as we all know, and there isn’t much we can do about all that risk. But one aspect that is within our control is our selection of broker.
So in this post, we are going to compare the 3 brokers that I consider the “finalists” from my initial search of dozens of brokers.
We will dive deep into each platform and compare:
The 3 companies we will be reviewing today are:
These are very unique and different companies, each one targeting a slightly different crowd and using unique tactics to serve them.
We have a lot of ground to cover, so let's get started!
First up for our deep dive comparison is Tastyworks - one of the newest brokerage platforms out there. Launched in January 2017, Tastyworks dared to be different in their entire approach to online brokerages. From edgy marketing, to quality content, to aggressive and unique commissions, Tastyworks brings a lot to the table and is a strong contender to much larger brokerages.
One glance at their home page, and you will see that Tastyworks takes a different approach to trading. Unlike "traditional" brokerages that appeal to white-haird board room executives, Tastyworks prominently features an excited millennial who has decided to take his finances into his own hands.
Tastyworks is designed from the ground up for active traders who want to take advantage of trading stocks, ETFs, options, and futures. The problem here is that the millennial generation is generally hesitant when it comes to the stock market. Tastyworks faces this problem head on with their marketing and education (which we will cover later).
Unlike Tastyworks, TD Ameritrade has a 40 year track record of being a strong, stable, and standard brokerage firm. And their website presents itself with a very familiar image of investing.
TD Ameritrade has a very broad appeal as they have a huge arsenal of investable securities, and have many commission-free ETFs. They also have a great technology platform in Think or Swim that has been the unchallenged industry leader for many years until Tastyworks came along.
Similar to Tastyworks, Robinhood throws away some of the common assumptions about brokerage firms. Like trading commissions!
Prominently on their home page, Robinhood brings a new style and new opportunity for "Investing. Now for the Rest of Us."
Whereas Tastyworks seeks to bring millennials into the world of options trading, Robinhood takes a more basic approach and simply wants to get the younger generation engaged in the market in general. They have recently added an options trading component, but their original core offering was simply an iPhone app and free stock trading.
Incredibly attractive, but can it back up its claim?
TD Ameritrade definitely wins in this category with a wide range of account types available. But investors should think about what account types they really need before knocking the competitors too much.
Tastyworks has a respectable number of account types available, and follow the 80/20 principle by getting the most common account types supported up front. They are also planning on releasing UGMA/UTMA account types and Coverdell accounts before the end of 2018. You can sign up for notifications for these account types by signing up here.
Robinhood keeps their mission clear - they offer pure simplicity by avoiding retirement accounts entirely. This streamlining likely contributes to their low costs to enable their free commissions, but it does call into question the message they are sending to their millennial target audience. One would hope they support retirement accounts in the near future since their audience has such a long investment horizon to take advantage of the preferable tax treatment.
Opening Stock Trade
Closing Stock Trade
Opening Stock Option Contract
$1 per contract
Max $10 per leg!
$6.95 + $.75 per contract
$6.95 + $.75 per contract
Closing Stock Option Contract
$0.10 per contract
$6.95 + $.75 per contract with free buy backs for shorts less than $0.05
Opening Futures Contract
$1.25 per contract + exchange fees
$2.25 per contract + exchange fees
Closing Futures Contract
$1.25 per contract+ exchange fees
$2.25 per contract + exchange fees
Opening Futures Options Contract
$2.50 per contract + exchange fees
$2.25 per contract + exchange fees
Closing Futures Options Contract
$2.50 per contract + exchange fees
$2.25 per contract + exchange fees
"Trade Small, Trade Often," is the motto you will hear often when discussing the Tastytrade philosophy. Unfortunately, most brokerages charge simply too much to justify trading small contract sizes. Commission rates before Tastyworks cut deeply into profit margins. This created a headwind against traders.
Lucky for traders, Tastyworks puts its money where it's mouth is, and only charges $1 per option contract, with $0 closing commissions (you are only responsible for a small clearing house fee of a few pennies).
These rates make it possible to profit with even a small account of $2,000. You are no longer penalized for trading a single contract. In fact, that is the exact method that Tastytrade promotes: trading small, single contracts more frequently to create a more statistical probability of success over time.
Commissions are equally attractive for stock trading and Futures. The free closing commissions is a great move by the company to take away the friction that exists when a trader is trying to decide whether to keep or close a position.
I have seen my own trading improve simply because I never have to hesitate to take profits, and am able to adjust and manage positions much more easily and profitably.
Tastyworks smartly makes their commission schedule easy to compare against the big dogs on their website.
As I mentioned before, this is the first company that makes 1 lot trading easily profitable:
This chart shows the price of a "round-trip," or the total commission cost to open and close a position. Tastyworks beats the competition in a single contract. Only Interactive Brokers comes close here.
And the advantage extends to larger contract sizes as well:
A clear driving factor for Tastyworks is their competitive commission schedule.
Clearly, Robinhood's pricing is its most attractive feature. Free to open and close for both stock and option trades? Incredible.
At a surface, it would appear that Robinhood is the clear winner in this category, but there's a catch. Commissions are how these companies keep the lights on, and there is some fear about the longevity of Robinhood's ability to keep it free forever.
In fact, Robinhood has raised over a half a billion dollars in venture capital funding to develop it to this point, but eventually the company will need to make profit on its own. But at least for now, you just can't beat free!
Commissions are obviously not the only way brokerages make their money. Let's quickly compare their margin rates and other fees:
Tastyworks offers solid margin pricing between 8% and 5%. As you fund your account further, the margin rates drop, which will making trading profitably easier over time.
TD Ameritrade forces you to do a bit more math to determine your margin pricing. At a base rate of 8.75%, the total margin rates fluctuate between 10% and 7.25%, making it the priciest of options.
Unlike Tastyworks and TD Ameritrade's standard margin set up, Robinhood takes things a different direction. They have introduced Robinhood Gold, which is a flat rate service that enables a limited amount of borrowing on margin, up to 2x your account cash balance.
The pricing follows these tiers:
The big benefit here is definitely the simplicity of the pricing model. Additionally, once you are above the $50,000 mark, the 5% is more affordable than both Tastyworks and TD Ameritrade. A very interesting option.
To make things simple, I'll compare a few example portfolio sizes and compare the 3 broker's effective margin rates
8% or $160/yr
10% or $200/yr
6% or $120/yr
8% or $800/yr
9.75% or $975/yr
6% or $600/yr
7% or $3,500/yr
8.5% or $4,250
5% or $2,500/yr
6% or $6,000/yr
8.25% or $8,250/yr
5% or $5,000/yr
Now these prices are assuming that you are actually USING all the margin you have at your disposal. In most cases, that is simply not a good idea as you are heavily leveraging yourself to do so.
So while Robinhood's margin rates look good in this form of a side by side comparison, remember that until you reach $50,000 in your account, you are paying the full fee for the ability to trade on margin even if you choose to do so or not.
Tastyworks and TD Ameritrade follow a more traditional model where you only pay the margin rate on the amount of buying power you choose to use. Especially as a new trader with a small account size, I think charging the flat rate that Robinhood has will cost more over time than a pay-as-you-go model, and as such, the winner of this category is...
Commissions are not the only fees you will pay when you sign up with a new brokerage. Below is a list of fees from each of the broker's websites. Take a quick look through the documents and look specifically for fees for Assignment and Exercising options and paying for market data. We will recap the fees in just a minute!
Exercise and assignment fees have can cut deeply into your profits. Pay attention to these rates:
In the end, there are always a lot of fees associate with brokerages, but most of them are easily avoidable. Both Tastyworks and Robinhood have dropped the assignment fees significantly, which make them very attractive options, as these fees cannot always be managed by the trader.
These brokers have each taken a different direction with their platform technology.
TD Ameritrade's Think or Swim platform is the power house in this arena, with the most time to develop and expand capabilities.
However, the original creator of Think or Swim, Tom Sosnoff, took his expertise and spearheaded the development of Tastyworks, and you can see an incredibly quick pace of development on this new platform. It is built to be light weight, fast, and very focused on giving the right tools for options trades to "trade small, trade often."
Robinhood goes for a very minimalist platform, providing just enough information to allow you place your trades, but it strips away many of the features of the other platforms. Let's compare the platforms side by side:
Ease to learn
Depth of customzation
Built in Education Platform
Excellent - Follow Page + Tastytrade
Decent - Swim Lessons & News Tickers
Minimal - News snippets
Watch List Managment
Minimal - single watch list
Robinhood's focus on simplicity shows in their platform, which is beautiful but limited. As I tested the platform, I wanted to be able to do more and see more on my screen at any one time. But in order to find the information I needed, I needed to click through several screens to see it.
This is definitely a design choice as they are trying to keep the platform accessible to new investors. Think or Swim and Tastyworks can be absolutely intimidating to an inexperienced user with all the flashing lights and sounds.
But as you learn more about each platform, the additional features become extremely valuable.
Think or Swim currently has the most matured platform, which is to be expected with their time in the market. But Tastyworks is showing extremely quick development, and each new release narrows the gap between them and their competition.
This is an area that must be discussed. For any new traders who are interested in trading options, it is incredibly important to develop a strong education before you start trading with significant money.
This is where I think Tastyworks and Tastytrade truly shine. They produce 8 hours of research-based TV every weekday. They have specific segments for beginning traders, trading in an IRA, learning investing theory, and performing in depth historical back tests.
What they do NOT have is a bunch of talking heads who simply make market predictions about the next 3 months in the market.
Tastyworks believes in the randomness of market direction, and preach the values of not picking a direction and playing the markets "neutral."
This is a liberating idea for many investors who have tried their hand at stock picking in the past and have been unsuccessful.
Think or Swim follows the traditional method of investor education by having CNBC play continuously in the background. Jim Cramer and other analysts make predictions on stocks, and every news report flies to keep you engaged and informed on each ticker.
Another unique feature in Tastyworks is the "Follow" page, where you can see every trade made in real time by the personalities on the network.
They make it clear that these are not stock tips or investment advice. Merely helping to show how they select and manage their positions over time.
It is a very nice feature and I have found myself tracking trades for an individual trader, looking to understand his or her mindset and why he did what he did on individual trades.
Just because the trades are there, doesn’t mean they are necessarily profitable traders.
Take caution when investing.
Although all of these brokers are SIPC protected entities (which means your money is safe if anything goes wrong), it’s important to consider how sustainable the companies are long term.
TD Ameritrade is basically an American institution at this point. It’s never going away, and is a safe bet for the long haul.
Tastyworks is a new player in the space and must be running on lower margins than TD Ameritrade, but they have been on air and in development since 2013 and have been a very active contributor to the community. I can only see them taking more business away from the big players like TD over time.
Robinhood is the head scratcher. Yes, they can make some money with their new margin system, and they earn interest off uninvested cash balances… but is it enough to build a profitable business off of?
I am not forecasting Robinhood to shut their doors, but I would keep a close eye on them over time.
Before I give my conclusion, let's recap the highlights of each company one last time..
35.5 / 45
28 / 45
25.5 / 45
While Tastyworks came out ahead based on points, I encourage you to explore the platforms yourself and find the right fit for YOU.
Maybe the clean look of Robinhood is all you care about. Maybe you need some special account types that only TD Ameritrade offers.
After my extensive testing of each platform, I can strongly recommend Tastyworks for its great commission rates, diverse account offerings, solid education platform, and excellent technology.
If you found this review helpful, please sign up to the platforms using my affiliate links below! Thanks so much!
Which platform did you select? Leave a comment below!
Hey there, I'm Jack - husband, father, and financial independence seeker. I started Nine to FI with the goal of helping a million professionals build a life of purpose and freedom. I'd love to hear from you and where you are at on your own journey!
Please log in again. The login page will open in a new window. After logging in you can close it and return to this page.
Sign up for the Nine to FI Vault below and get my free ebook!