Brokers and commissions

[Kim]

I want to talk today about commissions.

Lets assume that you buy a straddle for $2 ($1 each option). I have an account with IB (Interactive Brokers) and pay 0.70 per contract. So for me to do a round trip trade is 2.80. This is 1.4% of the cost of the trade. So if my gain is 10%, then I keep 8.6% after commissions.

If you pay $1.5 per contract, then your total cost is $6. That's 3%. You need 3% gain just to break even.

Some brokers charge you per ticket fee plus per contract fee. This might be a good deal if you do a lot of contracts. For example, if you do 20 contracts and pay $5 per ticket plus 0.30 per contract, then you pay 0.55 per contract. But if you do just 2 contracts, then it's 2.80 per contract.

Also some brokers charge a fee per ticket per leg, others per ticket for the whole spread. For RIC which is 4 leg trade, it's a huge difference. Since you make it as one trade, you might pay one per ticket fee with some brokers or four fees with others.

Commissions is one of the reasons why I don't like cheap stocks. A straddle on a $100 stock might cost around $5.00-6.00. Paying $2.80 commissions is only 0.5% of the trade. But straddle on $15 stock can be only $0.70, so $2.80 is 4% of the trade. A huge difference.

When choosing a broker for those strategies, remember that commissions can make a huge difference. Check the fine print and do the math which broker is better for you based on the number of contracts you are going to trade.

 

Update: For those who don't want to read the whole thread, it seems like most members really like IB. Barrons's agrees:

 

Based on Barron's numerical calculations, Interactive Brokers (interactivebrokers.com) claims the No. 1 spot overall for the third-straight year. 

http://online.barrons.com/articles/SB50001424053111904628504579433251867361162

[Kim]

Here is some comparison - thanks to Gary:

TradeKing has a ticket fee of $8.95 for more than 8 contracts, then 15 cents per contract. The ticket fee is only charged once per spread. So it doesn't take many contracts for TradeKing to be cheaper than IB.

For a four legged trade of 5 positions, IB would cost $14.00. Same trade on TradeKing is 11.95. So TradeKing is actually cheaper once you start trading bigger lots. For smaller lots, it's $4.95 + .65.

TradeMonster is .50 per contract, which is cheaper than IB, but there is a $12.50 or $15.00 minimum. Once you get into bigger lots and exceed the minimum, TradeMonster is clearly cheaper than IB.

eOption is the cheapest at $3.00 + .10, but their platform is pretty bad, they don't do complex orders, and they $3. ticket charge is for each leg.

The point is that those strategies are very sensitive to good commissions structure and you should check very carefully which broker

is the best for your specific needs.

[Marco]

wasn't sure where to post that, but here seems appropriate:

That question comes up once in a while....

I finally understand the 'liquidity fees' (and rebates) that IB charges on top of their $0.70/lot. As per their (resp. the exchanges) definition non marketable limit orders (buys below the ask, sells above the bid) ADD liquidity and qualify for a rebate. Well 95% of the time I place limit orders that should qualify but I often end up with liquidity FEES (can be up to 0.45$ a lot). So I finally bothered to ask them about it.

The explanation is that they rest the order in the order book of one exchange (say you are buying and place a buy limit below the ask they will place your bid on the exchange with the best offer) so at this moment you ADD liquidity. Say the bid/offer is 2.05/2.10 and you place a buy limit at 2.07. Now on ANOTHER exchange the offer comes down to 2.07. Now your order is re-routed to that exchange basically lifting the offer there and REMOVING liquidity. Hence the charge.

They take liquidity fees into account so they only re-route if you get a better fill including the fees.

hope that makes sense.

Marco.

[notesg]

Kim,

With IB, what is the exchange you select(BEST, AMEX, CBOE, etc) ? I use Option House and default is BEST. I feel it's difficult to get filled.

[Marco]

I use smart order routing, so it puts it to the exchange with the best price (including fees) I think it still gets you better fills but annoyingly it increases the fees they (IB) charge you. But to be fair they just pass on the exchange fees.

[Kim]

I use Smart. Those fees are annoying, but overall, I don't pay significantly higher than the "official" 70 cents. Sometimes there are credits as well, and the average might be just few cents higher.

[Marco]

Well, the example that made me check with them the avg. fee per lot was 1.09 - quite a bit above 0.70

Was with LVS seem that stock also has some special market making status so there were higher liquidity fees. As you say usually it's not the fees that make it a winning or losing trade - however makes me hesitate to trade even $20 stocks.

[Hannes Kury]

Yesterday I got just 1 option contract executed on an order to buy 10 contracts (I will try to get the rest today). However, I am wondering if there is a way to specify "all or nothing" (I am using IB) and if yes, do you guys use it all the time or sometimes? If sometimes, when?

Thanks

Hannes

[Marco]

I never used it but seem they have that order type:

http://www.interactivebrokers.com/en/trading/orders/aon.php?ib_entity=llc

[Hannes Kury]

Thanks Marco. Now I found it. It is a field you can add in the Trade section in OptionTrader.

[MichaelJ8]

I use option house. 8.50 per trade +15 cents per contract. I am starting to think this is too much. Lets say 10 bucks per trade each way. That's 20 for the whole trade. If I do 73 trades, that's 1460$. If I followed the performance of the "theoretical" portfolio, which is at 12,788, this is more than twice the profit. I really do not like the fact that commission took half my profit. It seems that if someone wants to do well in trading, they have to be risking a lot more than 1000 per trade. Perhaps I should find another broker?

[notesg]

I'm an option house user too and believe me the commission is the least of your concern. The biggest problem of OH is you can't get filled. At first, I thought I'm the only one who have this issue but apparently there are quite a few people experienced the same thing. You can check AMZN trade as an example.

http://steadyoptions.com/forum/topic/34-discussion-amzn-april-trade/page__st__60

Why am I still using them? It's because they have competitive prices and option isn't the only thing I trade( I do have accounts with other brokers as well). If I were only focus on Kim's strategy, I would have changed the broker.

[MichaelJ8]

hmm... maybe its time to consider alternatives..

[Kim]

I use option house. 8.50 per trade +15 cents per contract. I am starting to think this is too much. Lets say 10 bucks per trade each way. That's 20 for the whole trade. If I do 73 trades, that's 1460$. If I followed the performance of the "theoretical" portfolio, which is at 12,788, this is more than twice the profit. I really do not like the fact that commission took half my profit. It seems that if someone wants to do well in trading, they have to be risking a lot more than 1000 per trade. Perhaps I should find another broker?

This commissions structure might be good for someone who trades at least 20-30 contracts, so the fee per contract is small. For just 2-3 contracts, it is not worth it.

[Kim]

I can see a lot of posts where people mention their gains including commissions, and I can see that many are paying unnecessary high commissions. Depending on the number of contracts you are trading, you need to evaluate which broker is the best for you. As a rule of thumb, if you are paying more than 1.0-1.2% for straddle/strangle and more than 2.0-2.5% for an RIC (as percentage of the trade value), it's time to change brokers.

[ashk33]

Is anybody using Tradestation? they charge $1 per contract. the option analysis tool is also pretty decent.

[Hany]

Hi everyone,

I am among those of you using OptionsHouse (OH) and having a problem with very bad fills (or no fills at all!).

I did some searching this weekend and I found a table by Barrons that makes comparisons of online brokers: http://online.barrons.com/article/SB50001424052748704759704577265722419871332.html

One of the column headings of the table is "Smart Order Routing". I was very surprised to see that OH has a similar smart routing system as Interactive Brokers. I find this hard to believe.

I've tried OptionsMonster and OptionsExpress, but their platforms are simply not as good as OH. Has anyone using OH switched to another broker? If so, can you share your experience with us?

thanks,

Hany

[mdamdaol]

What do folks like to use to keep track of the transactions for completing schedule D at tax time. Do any of the inexpensive brokers have a good system for that?

[ashk33]

has anybody tried eOptions? apparently they are the cheapest brokers - $3 + 10c per contract.

[Rogers]

What do folks like to use to keep track of the transactions for completing schedule D at tax time. Do any of the inexpensive brokers have a good system for that?

Ameritrade allows the download of a .TXF file that will import into tax software. If you can export a file (excel, txt) from your broker there are programs available that will covert that into a .TXF file.

[Hany]

has anybody tried eOptions? apparently they are the cheapest brokers - $3 + 10c per contract.

eOptions doesn't permit multi-leg spreads, so you have to place each leg one at a time, and you need to pay $3 each time.

[Kim]

eOptions doesn't permit multi-leg spreads, so you have to place each leg one at a time, and you need to pay $3 each time.

This is hilarious. How they are even staying in business lacking such basic functionality?

[MichaelJ8]

options house can not fill my order period. today for one of my trades, the bid is 2.63, the ask is 2.73. Its been a couple hours now, my limit is 2.61... and it still hasn't gotten filled. It has been almost 2 hours...

now the bid is 2.64...still no fill

[Hany]

options house can not fill my order period. today for one of my trades, the bid is 2.63, the ask is 2.73. Its been a couple hours now, my limit is 2.61... and it still hasn't gotten filled. It has been almost 2 hours...

now the bid is 2.64...still no fill

options house can not fill my order period. today for one of my trades, the bid is 2.63, the ask is 2.73. Its been a couple hours now, my limit is 2.61... and it still hasn't gotten filled. It has been almost 2 hours...

now the bid is 2.64...still no fill

Michael,

What are the details of the trade? I presume it is a credit spread. What are the strike prices and what is the underlying security?

[Marco]

looks like the platforms/brokers to be with are TOS and IB even though they are not the absolutely cheapest. I'm with IB and although they are not the cheapest and certainly can improve a few things, they are priced very competitively (I think esp. for small orders as they don't have a per trade fee) and their execution is very good (they have smart order routing to all exchanges etc.)

I have never been with TOS and they might be as good or better but IB works well for me and I would recommend them.

[MichaelJ8]

yeah its a strangle. SINa 55/50 held only for one day, hoping the market would move(lesson learned) opt int is defiantly greater than vol too....

Jesus, now the bid is 2.58, ask is 2.73. Still at 2.61... When I first looked at my account this morning it was only a 5% loss...and was not upset about the risk I took. But now 2 hours later, i am starting to regret this trade...

bid is 2.56 ask is 2.61, have reduced my limit to 2.53....(12:10 cst)

[Hany]

yeah its a strangle. SINa 55/50 held only for one day, hoping the market would move(lesson learned) opt int is defiantly greater than vol too....

I use OptionsHouse too, and I just took a look. My values are different than yours for the 55 (call) and 50 (put) strangle. The current bid/ask is 2.57/2.64. Since you are buying the strangle, I wouldn't expect that you would be able to get filled close to the bid price. Based on this spread and my experience, I would expect a fill around 2.62 or 2.63 (just below the ask).

[MichaelJ8]

I use OptionsHouse too, and I just took a look. My values are different than yours for the 55 (call) and 50 (put) strangle. The current bid/ask is 2.57/2.64. Since you are buying the strangle, I wouldn't expect that you would be able to get filled close to the bid price. Based on this spread and my experience, I would expect a fill around 2.62 or 2.63 (just below the ask).

Yeah these values are jumping around. I was just below the ask before for a long time and there was no fill. Maybe it is because the prices are jumping around a lot? Current ask is 2.67, I put my limit as 2.65\

Decided to leg out. I am done with options house and not trading any more until I move to a different broker.

initially a 5% loss (approximate) when I woke up this morning if I had legged out earlier when prices were higher probably would have been not much higher than a 5% loss. Now I experienced approximately 14% loss.... Didn't think I would need to leg out.

Is legging out typical, or should a spread ticket be filled as easily as a regular ticket?

[Hany]

Yeah these values are jumping around. I was just below the ask before for a long time and there was no fill. Maybe it is because the prices are jumping around a lot? Current ask is 2.67, I put my limit as 2.65\

Decided to leg out. I am done with options house and not trading any more until I move to a different broker.

initially a 5% loss (approximate) when I woke up this morning if I had legged out earlier when prices were higher probably would have been not much higher than a 5% loss. Now I experienced approximately 14% loss.... Didn't think I would need to leg out.

Is legging out typical, or should a spread ticket be filled as easily as a regular ticket?

Sometimes I have an easier time with legging out when I'm in an iron condor and one of the legs is really far OTM and not worth anything. I'm not sure about legging out of a strangle. If you try different brokers, please share your experience with us. I've tried TOS, ETrade, Fidelity, TradeMonster, and TradeKing. I'm don't like any of the platforms with these brokers, so I'm sticking with OptionsHouse until I find one I like. OptionsHouse is not bad when you open a position and keep till expiration (such as RUT iron condor); OH sucks for IV trades when profits depend on getting in and out with good fills. Is this your experience as well?

[Kim]

Spread typically should be filled as easily as a single option.

[MichaelJ8]

Sometimes I have an easier time with legging out when I'm in an iron condor and one of the legs is really far OTM and not worth anything. I'm not sure about legging out of a strangle. If you try different brokers, please share your experience with us. I've tried TOS, ETrade, Fidelity, TradeMonster, and TradeKing. I'm don't like any of the platforms with these brokers, so I'm sticking with OptionsHouse until I find one I like. OptionsHouse is not bad when you open a position and keep till expiration (such as RUT iron condor); OH sucks for IV trades when profits depend on getting in and out with good fills. Is this your experience as well?

options house does have a good platform.... this is really the first time I have had a serious issue closing a position. My DIS spread last week was filled pretty quickly, and I have only done about 3 or 4 other spreads for these volatility plays and they all went okay.

I have never used any other platforms for this type of trading. I have used etrade, ing, schwab, but only for stocks. ING is very basic and has high fees. Options house has one of the best fees for stocks, and seems okay for options if you trade a large amout of contracts... but this SINA experience has really put me off, as options house cost me approx. 10% on my trade....which is inexcusable

[MichaelJ8]

Any one still using options house, try filling your tickets on the "beta" options house. Or I should say, "the new options house" (if you use options house you should know what I am talking about). Supposedly the new options house(beta) is suppose to be faster and better in terms of filling. I am going to give it one more try before I ditch OH, if I have trouble with the GES trade then I'm moving on.

Really bothers me though, becuase their mobile platform is really good and I need this, but if the "beta" site dosen't work I am moving on.

Was also looking at trade king, 4.95 per trade +65 cents per contract. Not bad imo. they also have a good mobile platform from what I hear. Honeslty, a good mobile platform is important to me, hence the hesitation to go to IB at least for now.

[Hany]

I've been using the "New OptionsHouse" platform for several months! There are only two real benefits over the older OH platform: (1) real-time stock price updates in your watchlist, and (2) the order ticket shows the bid/ask spread. That's it. Fills are no better and no faster.

I've decided I'm going to switch to IB at the end of this month. I'm going to keep my OH account active in case I need to access to the platform.

Have you tried OptionsXpress? No base fee and $1.50 per contract. I'm not sure if their mobile app is any good.

[Reyon33]

Hi to all who use IB, I heard that IB charge you around $1 for every time you change or cancel your order. Is that true?

[Kim]

Hi to all who use IB, I heard that IB charge you around $1 for every time you change or cancel your order. Is that true?

Yes, but it applies to single options only, not spreads.

[Marco]

here is Barrons take on the issue (Broker review)

[LSS]

I gave up trying to get good fills on spread/RIC with optionshouse. I started to leg in positions and got much faster fills. It seems to me that OH's so-called "smart-routing" only looks for the best price once and leaves your order at one exchange. Since the best prices for different legs of a spread/IC might appear on different exchanges, it seems to be the reason why they can't get fill together.

Of course, by legging into positions, I am exposed to the risk of underlying price moving against me. But sometimes you get better prices too. So overrall it might be breakeven, and you get much faster fills.

[MichaelJ8]

Okay. I am no longer with option house, they just hurt me way to much between LGF and SINA, I have withdrawn all my money and am never looking back.

I am considering the following:

Trade king: Anyone use them? how are their fills? How is the mobile platform. Only thing is they no longer have the 8.95 + .15 deal, which is a huge loss.Correct me if I am wrong.

IB: Only problem with IB is the trading minimums, which aren't a lot but... I am an amature and the site seems more developed for active professional use.

Light speed: cheaper than IB after 5 contracts.(60C per contract, but 3$ min). I'd go if I knew their fills are good. This seems to be the best price I can find..

Choice Trade: the cheapest after 10 contracts. 5.00 flat fee + 0.15. Although its 5+0.55 if the contract is on a certain index like the vix. It was rated higher than light speed, but light speed is cheaper before 10 contracts. There is a trade minimum of 5 trades per month, or its 14.95 fee(using their basic platform) but that isn't a problem. I am highly considering this.

Anyone use trade king or light speed or choice trade please comment. Thanks,

[RobertB]

Hi Kim,

I've seen you mention in various posts that you prefer straddles to strangles because the commissions are lower for straddles. I use IB as do you. Don't you just pay $0.70 per contract; thus, the commissions should be identical? I don't recall paying lower commissions on straddles compared with strangles.

Or, perhaps you are referring to the fact that since an OTM strangle is always less expensive than an ATM straddle, the percentage of the price of the trade devoted to commissions is higher for a strangle since its price is lower than a straddle. Thus commissions are thereby a larger percentage of a strangle's price compared with a straddle.

After writing that last paragraph, I'm pretty sure that that is probably what you've been saying.

Robert

[Kim]

Yes, exactly. If you trade fixed dollar amount per trade (which I do), you need to buy more contracts when trading strangles.

[Guest listolyman]

Has anybody tried lightspeed as a broker? i do not have enough liquidity for IB and TOS is too expensive for the size of my trades.

[cwelsh]

If you don't have enough liquidity for IB and TOS is too expensive for the size of your trades (which means you're most likely trading in 3 contract blocks or less), as kindly as possible, I would suggest saving more before trading these instruments. You just cannot be diversified enough in an account with just $10,000.00.

That said, I started with an account of $10K and just assumed the commissions were part of the educational process. If I made 5% on a trade, but lost 5% on commissions, that was ok.

However, if you do want to stick with it, I'd look at option house -- you can get 100 contracts free to start (which should last you a while at small trade size) and then 5 contracts for $5.00 with each one being an additional $1.00.

Trademonster also offers a straight 0.50 per contract pricing.

[Guest listolyman]

Thanks Chris. I checked with option house and discovered that the 5 for $5 is for single legs only. The multi-leg(straddle, strangle, IC, etc.) strategies are charged at 10 for $10 minimum. Trademonster is .50 per contract but $15 min per trade. I am considering tradestation for $1 per contract w/ no min.

[MichaelJ8]

i see people aren't reading the posts. Options house has a problem filling orders. Stay away, no matter the price. They couldn't fill my order even when I was 0.2 below the bid price. Its a joke. trades that would have been 2-3 even 5 % profit turned out to be -10% or more because they couldn't fill my order and as timed passed by the trades lost money. Only once could I get a spread ticket filled to close, but every other time I had to leg out increasing the commissions.

As for light speed, I was reading that there basic web trading interface is horrible, buggy and slow. Their professional platform I hear is pretty decent, from what I have read. that being said, probably good for people who trade a lot so they can get access to the professional platform, but for people just starting out like myself, probably not good enough...

But I am hoping someone has tried light speed and can give some insight.

[Kim]

Thanks Michael.

There is definitely much more than the price only to consider when choosing the broker. I found that IB is probably offering the best blend of price, execution, reliability, interface etc. Their minimum for opening the account is 10k, but once the account is open, you don't have to maintain that minimum. So you can open with 10k and withdraw some. If you have less than 5k, I'm not sure you should trade options anyway..

[MichaelJ8]

yes. For now Im just trying to find a broker that I can trade on to learn. Im not really risking too much money, and I don't mind paying the comission if I am learning for the long term. Once I get a feel for it, I will put in more. OH has a great platform, horrible execution of spreads though....

I am with Trade king now. Saving about .5-.7% on commission vs. OH. Their platform is slower, not buggy, just slower than OH. But I will see soon enough how quickly these spreads trade with trade king. I will post my experience with the FDX trade soon.

[MichaelJ8]

First trade with trade king... their interface is horrible compared to options house, but its okay to use once you get used to it. I though OH interface was less confusing. But the straddle got filled quickly, which is more important. and commission is less, until you get to 15 or more options in a straddle/strangle, but I could never get those filled so trade king is overall better than options house. to anyone debating, go with trade king. Unless you just trade stocks,

[cwerdna]

How about MB Trading? Thanks to the Barron's article, I discovered their very low commissions of $0.95/contract (http://www.mbtrading.com/commissions.aspx?page=Options)?

I haven't had a chance to dig thru the rest of their fees or look for comparisons but I did find http://www.elitetrader.com/vb/showthread.php?threadid=217517

"In my opinion, switching to another broker from thinkorswim would feel for you like going from a Mercedes to a Nissan. I left thinkorswim a year ago for MB Trading, thought I will save a few pennies On trading fees but pretty fast realized its not wort It.

I think your reasons may be important to you but especially as an options trader I would recommend not moving."

Heh.... I'm no Mercedes fan and used to own two Nissans.

I'm currently grandfathered into Thinkorswim's old commissions (http://web.archive.org/web/20110308111401/https://www.thinkorswim.com/tos/myAccounts/displayRates.tos) which is $2.95/contract. For the small trades I do (usually 1-5 contracts), it's a lot better than TD AM's normal ripoff rates.

[Kim]

2.95 per contract is A LOT. Why not to try IB?

[cwerdna]

2.95 per contract is A LOT. Why not to try IB?

As I mentioned on SeekingAlpha, I'm not a fan of them charging cancel/modify fees. Most of my options trading currently aren't spreads. Also, their fee schedule overall is daunting. Also, there's what I hear about their customer service, or lack of.

Maybe I will get around to trying them.