The Advantages to Using an Online Discount Option Broker

Once you decide to begin trading options, one of your first decisions is whether you will use a full-service broker or an online discount option broker, meaning a broker in which self-directed traders can enter their own trades and execute them themselves at a very low commission.

Beyond paying these greatly reduced commissions from those of traditional brokers, there are some advantages and maybe disadvantages to using an online discount option broker. Let’s take a look.

Some investors go the full-service broker route because they get advice at no cost, but really they end up paying for it on the back end. Traditional full-service brokers must support the additional overhead of large research departments. By contrast, most but not all traditional discount brokers offer only limited services such as placing orders and assisting exits.

The typical self-directed online discount option broker does it much differently. By harnessing the power of the Internet, the online broker can put the power, and responsibility, in the hands of the individual trader. And they can do it at the lowest possible commission costs, timely executions, and access to useful research and information. It’s do-it-yourself trading.

No-cost access to charts, news, analysis and real-time price quotes enable the online discount option broker to offer a full range of services and still be very competitive with its commission fees.

An online discount option broker enables traders to make their own decisions instead of relying on so-called “expert” advice. Some brokers earn large incentives for recommending certain investments and trades, even when those plays are not necessarily in your best interest. When deciding on an online discount option broker, look for objectivity and beware of any conflict of interest.

In the end, many brokers don’t beat the market, and in fact some underperform. Though self-directed trading isn’t for everyone, people with an interest in the market and the will to put in the effort to learn to trade can often beat these “pros” and do it while trading at a much lower commission. But you have to put in the effort.

Finding a Broker

Seek out an online discount option broker who has access to the markets you trade, so that when you become more sophisticated and diverse, you'll be able to handle everything under one roof with a single trading platform.

Nearly every online broker offers most of the tools you need to make informed decisions. Regardless of the low commission structure, expect your online discount option broker to offer some research via white papers, online trading tips an email newsletter, or other media.

Also, look for an online discount option broker who offers access to trading tools and charting packages that enable you to test your options trading strategy and review your results.

Finally, an online discount option broker should offer an options trading platform that enables you to learn options trading by placing virtual orders, tracking your account's hypothetical performance without risking real financial loss.

Trader Education