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Kim

Are You Paying Too Much To Your Broker?

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Options Trading is a business. As in any business, there are costs. One of the major costs is commissions that we pay to our broker (other costs are slippage, market data etc.)

While commissions is a cost of doing business, we have to do everything we can to minimize that cost. This is especially true if you are an active trader. The impact of commissions on your results can be astonishing.

This excellent article by Business Insider is asking the right questions (and also answering some of them):

Click here to view the article

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Not sure if this is the right forum, but thought I'd ask anyway.  This question involves the more granular pricing of options.  
I currently use eTrade just because I get 2 months of commission free trading when I funded my account. I'll probably switch to IB when this promo period expires.

For example, on a particular trade, I see other members getting prices like $1.71, $1.73, etc. but when I put in my limit orders it only allows me to input prices at $1.70 or $1.75.

 

Here is what eTrade says when I ask why:

Thank you for your message regarding placing a trade.

Per the Securities and Exchange Commission (SEC) rules governing the trading of options contracts, standard options quoting and trading guidelines, premiums over $3 trade in dime(0.10) increments and options with premiums under $3 trade in nickel (0.05) increments. Most brokerage firms should be following this rule. There are some options that have been approved to trade in penny increments, most tend to be large companies AAPL, AMZN, etc. You can always check the SEC website to get a list. What is the option you were attempting to place a trade for?

If you have any other questions please contact us at 1-800-503-9260. 

Sincerely,


Why can't I put my price limits in for variances of .01-.04? It only allows limit prices at .05 increments?

 

 Am I missing something or are these just market orders that are getting filled at this price? Are other firms offering more specific prices?  These are usually spreads.

I'm not fond of market orders since pricing getting in and out of these trades is key.

thanks

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First of all, you should never use market orders.

Some options have penny increments, some don't. For example, OVTI doesn't - however, you can trade the spreads with penny increments. So I got filled at 1.71 bug I could not trade penny increments on the individual legs.

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Penny options on OVTI (and others) were not available on the spreads via eTrade.  See their explanation in prior post and below:

Here is what eTrade says when I ask why:

Thank you for your message regarding placing a trade.

Per the Securities and Exchange Commission (SEC) rules governing the trading of options contracts, standard options quoting and trading guidelines, premiums over $3 trade in dime(0.10) increments and options with premiums under $3 trade in nickel (0.05) increments. Most brokerage firms should be following this rule. There are some options that have been approved to trade in penny increments, most tend to be large companies AAPL, AMZN, etc. You can always check the SEC website to get a list. What is the option you were attempting to place a trade for?

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I had used eTrade prior to moving to IB a few years ago, and I remember the 0.05 increments on spreads being enforced so moving to IB was an added benefit in this regard because I could use 0.01 increments.  Also, the 0.05 limitation never made sense to me on the spreads because many times you would see the individual legs traded in penny increments anyway.

 

Regarding your commission free trading, take a close look at that because when eTrade gave me a few months of that a couple of years ago it only applied to the front-end ticket fee and not the 0.75 per contract fee.  So, if that is your case as well, it merely makes your eTrade commissions roughly the same as IB for as long as your special commissions deal is in effect.

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      I would like to share some parameters of selecting the right broker, based on my personal experience and feedback from our trading community. You can also read our extensive Brokers and commissions discussion on our forum.

      First, lets take a look at excellent Brokers Review published by Barrons. They do it every year, and it's worth to review the results and to read the brokers description.

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      Some brokers also charge a fee per ticket. This is an account killer, especially for smaller accounts. If your broker charges a ticket fee, you need to change brokers immediately.

      Here is an example from Etrade:



      Just to be clear, you will be paying $6.95 PER TRADE ($4.95 for more active traders) In addition to per contract fee. So if you trade for example one straddle, it will cost you (as an active trader) $11.90 for a round trip trade, compared to ~$3 with IB.

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      SteadyOptions members might consider Tradier Brokerage Special Offer. Tradier offers a special $40/Month of Flat Price Trading for SteadyOptions Clients. For $40/month the SteadyOptions client can trade unlimited options trades and there will be no per trade commissions. Please review the link for details.

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