I have been interested in exchange traded derivatives for quite some time. However, they haven’t really been accessible to retail customers until recent years. At some point an options broker charged a commission of $8 per contract adding up to $16 for a round trip. Thankfully things have changed now so I decided to finally start trading.
I came across a minor problem, which brokerage do I use? As any other millennial I went to the play store but all I found were CFD apps. It turned out that options are not very popular in the UK. In the end I found 3 contenders: Interactive Brokers, Saxo Markets and Tastyworks.
Initially I wanted to use a UK broker. It is easier to transfer money, there’s no time difference and I’d have access to both American and European products. Let’s see what I found.
UK Options Brokers
Interactive Brokers (IBKR)
IBKR offer competitive fees, comprehensive software and a wide range of products. They also have a paper trading mode so you can check it out before you commit to open an account.
The charge for an options contract is $0.65 excluding clearing and regulatory fees. However, the minimum charge is $1 per trade, so you have to trade at least 2 contracts to take advantage of the lower fees.
However, the fees don’t stop there, you have a minimum activity fee, real-time data fee and all sorts of other fees. The pricing structure is very complicated. Nevertheless, the result is simple: I’d have to generate about $60 in fees per month or pay a similar amount for data and account maintenance.
Overall, it should be pretty good if you have around £50-100K to play around with and trade often.
The IBKR software, trader workstation, is very comprehensive but it looks like it came from the 1990s. It took me about 2-3 hours to set it up after I watched a video tutorial. I have to admit that it has everything you need, maybe too much.
Whatever you may think of, technical indicators, company data, analyst ratings, scanners, it’s all there. Here is a screenshot of the options chain:
The ordering process with IBKR is very confusing. And that’s not the only difficult to get used to element so I’d suggest to try the paper trading mode before you trade.
I did not chose IBKR due to the fees. There is only one certain thing in the trading world, there will be fees so I want them to be low. Next is Saxo Markets.
Saxo Markets offer a wide variety of products, they are praised for quality research and have a desktop platform. However, I have to say that the options commissions are obscene.
A single contract is £3 or £6 for a round trip, excluding fees! This means that you’ll pay £24 to open and close an iron condor. The profit target for a $5 wide iron condor with 60ish% probability of profit is around $165 so the commission will be $31 at today’s spot rate. 19% if it is actually profitable, thanks but no thanks!
Similar to IBKR clients are subject to an inactivity fee which is £25 per quarter, custody fee of 0.12% per year and real-time data fee which is around £5-7 per exchange. You can pay hundreds of pounds just for real-time data if you wanted to.
I actually applied for an account. The process was pretty easy and I got approved for level 4 options trading without any hiccups. I have never used the account but I tried the paper trading mode on the desktop and the mobile app. The desktop software looks about the same as the website. This is what you get:
I did not go with Saxo because of the obscene fees.
US Options Brokers
I failed miserably at finding a low cost UK options broker so at this point I started looking at US firms. There are plenty of them, many are low cost, however, few offer access to UK clients.
Tastyworks is an execution only options broker but they offer access to futures and stock too. There is no company data and the functionality is limited compared to IBKR’s trader workstation or even Saxo Markets.
They offer research via their TV channel but it is mostly statistical rather than fundamental. Tastyworks also has a mobile app which is easy to use.
However, they don’t offer a paper trading mode and the selection of products is limited. So if you are looking for a broker that offers Russian bonds for example you may want to look at Saxo Markets. On a positive not the software is modern and easy to use.
The account opening process was straightforward and I got approved for level 4 straight away. The commissions and fees are very competitive compared to IBKR and Saxo.
An options contract is $1 to open and free to close, the exchange and clearing fees are $0.29 for a round trip. Commissions are capped at a maximum of $10 per leg so if you trade 20 legs you get a 50% discount.
Tastyworks offer free real-time data and they don’t charge any inactivity or platform fees.
The funding process was easy too, it costs around $25 per transfer, charged by third parties. The biggest cost is the outgoing wire transfer at $45 but you can use a third party service which is cheaper. I have used Tastyworks for a few months now and I have not had any issues.
My main objective was to find a low cost broker and I believe that I succeeded.
This is by no means a comprehensive broker review as the main determining factor was cost.
I hope that one day there will be a UK broker which offers a low cost fee structure but until then I will trade via Tastyworks.