TD Ameritrade has taken the top rating in IBD's 10th annual Best Online Brokers survey for options trading platforms this year. TD Ameritrade's Thinkorswim platform has long been a favorite of options traders due to its excellent analytical tools and ease of use. The Omaha-based brokerage provides trading and investing services for 11 million client accounts, totaling more than $1 trillion in assets.
TD Ameritrade has had a strong focus on mobile trading as the Covid-19 pandemic significantly impacted the retail trading landscape. According to JJ Kinahan, chief market strategist at TD Ameritrade, "Among the many things that made 2021 unique from a trading perspective is the fact that we've reached the mobile-first tipping point."
Schwab, TD Ameritrade Trade Separately
Charles Schwab acquired TD Ameritrade in October 2020, but the firms will continue to operate as two independent brokerages, likely until 2023. Charles Schwab dropped from third to fifth in this year's survey of the best options brokers.
Tastyworks topped the list last year but did not qualify for this year's survey because too few of its customers took part in the survey. Tastytrade, the parent of Tastyworks, was acquired by IG Group for $1 billion in January 2021.
IBD and polling partner TechnoMetrica Market Intelligence surveyed investors to find out which broker characteristics they valued most. They were asked to identify 15 categories that were most important, including brokers' Options Trading Platform. A second phase of the survey asked thousands of investors to rate their primary broker in each performance category. The three with the highest Customer Experience Index rating are recognized as the Best Online Brokers in the category.
Interactive Brokers Takes Second Place
In the Options Trading Platform category, Interactive Brokers jumped from fourth to take second place this year. It earned a rating of 57, just behind TD Ameritrade's 58.
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With its sophisticated platform, Interactive Brokers provides many advanced tools for options traders. These include Algo trading, Options Strategy Lab, Volatility Lab and Risk Navigator. Also Market Scanner, Strategy Builder and Portfolio Builder, to name a few.
While the platform is fantastic for experienced traders, the user interface can often be overwhelming for beginner options traders.
Interactive Brokers has not made many significant updates to its option trading platform for some time. The firm will need to improve its mobile trading app in particular if it wants to bridge the gap with TD Ameritrade.
In December 2021, Interactive Brokers introduced IMPACT, a patent pending mobile application. IMPACT streamlines the sustainable investing process for any investor. According to Will Peterffy, ESG director at Interactive Brokers, "We're leading a new generation of investors making values-based investments by enabling them to develop their own conscious investment plan based on their personal values providing accountability and transparency."
Interactive Brokers reported that it had nearly 1.6 million client accounts on Sept. 30, which was 57% higher than the previous year.
E-Trade Rounds Out 3 Best Options Platforms
E-Trade, which is owned by Morgan Stanley, rose to third in the rankings of best Options Trading Platforms this year with a Customer Experience Index rating of 56, up from 48 last year. In addition to its long track record as an online broker, E-Trade is well known for its intuitive and easy-to-use platforms.
Social media hype has helped fuel the growth in retail options trading, with hot new trading apps such as Robinhood being particularly popular with younger option traders. Robinhood, however, only ranked sixth for its options platform among the eight brokers that qualified for this year's survey analysis, based on its customer ratings.
According to CNBC, in 2021 a record 39 million options contracts traded daily on average, rising 35% from 2020. Retail traders now account for around 25% of this trading activity.
Robinhood is capturing a large portion of the market among new traders due to the mobile app's ease of use. However, its lack of trading tools and research leaves it a step behind the competition, particularly for more advanced option trading strategies.
Options Pricing
The cost of trading options has fallen significantly in the last five years and is rarely a major factor when choosing a broker.
TD Ameritrade, Interactive Brokers, E-Trade and Charles Schwab all charge around $0.65 per option contract.
Robinhood does not charge a fee for options trading and makes money by directing orders to different parties for execution, known as payment for order flow. That doesn't always lead to the best execution. Most of the big option brokers have stayed away from this business model.
Education Is Key For Options Trading Platforms
TD Ameritrade and E-Trade are leaders in terms of options education, particularly for beginners.
With many novice traders engaging in the markets for the first time, TD Ameritrade has had a strong focus on creating an intuitive user experience and providing enhanced education regarding option strategies.
Thinkorswim Mobile now includes redesigned core tools for easier onboarding, interactive in-app help and a new chat interface.
With retail traders now accounting for more than 25% of all option activity, brokers that provide superior education, tools and trade ideas will set themselves apart from the rest.
