Even though options trading can be complicated, picking the right broker doesn’t need to be.
In most instances, after you’ve chosen your broker, there is a period where you will get acclimated to each one’s toolset.
This advice is being offered to my readers who either haven’t picked their broker, are unhappy with their broker, or generally want to know what is out there.
Here are my 5 tips for picking your options broker.
1. First and more importantly, look at their educational material
Whether you are brand new to options, somewhere in the middle, or way advanced, there will always be something new to learn. Education comes in many different forms, but here is what you should be on the lookout for:
- Online trading courses
- Both live and recorded webinars
- Additional guidance, and potentially one-to-one education services
If you are new to options, you should leave the training wheels on just a little longer than stocks. That being said, some brokers even offer simulated trading environments. If you are a paper trader, look for those.
2. Customer service needs to be a key part of your decision
You know the old saying companies spend 5 times more to get a new customer than to keep an existing one. Well if you have ever had the privilege of dealing with your cable provider or your cell phone company, you get what I am saying.
Companies who have a customer first approach are out there and you need to find them.
In today’s society, what type of customer support are you looking for?
Personally, I prefer live chat, but you might be a phone person. Look around and find what you are looking for because when you need customer service, you will be happy you did your due diligence.
3. How simple is the trading platform to use?
Time and time again I hear from traders about how much they love and/or hate their platform. You can tell the difference between who designed a platform by software engineers and who used beta groups to refine their User Interface.
If you plan on trading, make sure you can fire up your account and simply enter and exit the trades, quickly and without making mistakes.
Latency is a huge deal, don’t let your trading platform play any part in missing entry prices.
4. Know the depth and the costs of your tools and data
Understand your data and research fees are a huge deal because they are the lifeblood of a traders world.
Does your broker offer updated quotes, basic charting and the ability to analyze a trade’s risk and reward scenario?
Do they offer extensive screening tools?
As you enter into more advanced strategies you will need better analytical tools, customizable screeners, and real-time market data.
Check with the brokers to see if they are all included.
5 . Know your costs, but don’t let the cost being your only deciding factor
Trading options is a lot different than trading stocks for many reasons, but the fee structures are totally different.
There are two components of trading commissions when you move into options.
There is the base rate which is similar to stocks, but then there is usually a per contract fee as well.
The base rate ranges between 3.99 and 9.99 whereas the per contract fees are much lower, around .15 to $1.25.
If you are new to options trading, pick a broker that either charge a flat fee for options trading or one who offers a per contract, but not both.
When you do decide on your broker, do not use commissions as the only determination because in most cases, rock-bottom prices usually come with little else. This gets into value vs cost.
I hope this helps you choose the right broker for your situation.
— The Option Specialist
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