There are lots of low cost online brokers out there these days, with the broker industry seeing a lot of new competition. There are discount brokers suitable for small investors and there are those that are geared more towards active investors, such as Zecco, OptionsXpress and OptionsHouse. Among these sites, there’s also that subset of brokers that consider options trading as their specialty, although they are careful to note and emphasize that their platforms also support stock, ETF and mutual fund investors.
Today, I’d like to cover one of these online stock brokers with the term “Options” in its name: OptionsHouse. And yes, it’s another brokerage that promises to offer you a ton of features for very low cost. So what makes them stand out in the sea of discount brokers out there? And how different are they from their competition, OptionsXpress?
Don’t let the word “options” scare you though. It’s true that OptionsHouse has its roots in the world of options trading, having been founded by PEAK6 Investments, which is one of the biggest options trading brokerages around. But while their main goal is to help the investor understand how to trade options effectively, they also offer a platform for stock investors who want to own stocks, ETFs or mutual funds for their core portfolio. Here’s a little bit more about them:
Awards
The Barron’s 2009 Online Broker Survey has listed OptionsHouse as the “Best For Options Traders”, with a score of 4 and a half stars. OptionsHouse is rated #1 in Trade Experience, above notable brokers like ETrade and OptionsXpress.
These awards are good, but OptionsHouse still falls a little short of more highly awarded brokers like ETrade, which just won the all around top ranking for SmartMoney’s Broker Survey for three years in a row (from 2007 through 2009), and TradeKing, which has garnered similar awards in previous years.
Pricing
What may catch your eye about OptionsHouse though, is their rates. For ultra-cheap stock trades, you can’t get cheaper than a flat transaction fee of $2.95 a trade (online or broker-assisted). Their commission rates for options is a flat $9.95, which is better than what other discount brokers offer, since rates from OptionsHouse remain the same regardless of how many trades you actually make.
With many other brokers, your trading fees may vary based on the volume of your transactions, and not always for the better. Thus, if you’re looking for the cheapest trading commissions, you may want to check out OptionsHouse. The only brokers that may possibly beat their rates are those that offer limited free stock trades (such as Zecco) that you’ll get if you meet certain conditions (e.g. you make a lot of trades or have a high balance).
My Review of OptionsHouse, A Low Commission Broker
Here were a few more things that stood out for me when I checked out their site.
Virtual Trading. This online discount brokerage offers a Virtual Trading environment, much like its competitor, OptionsXpress. Once you sign up for an account, you’ll get instant access to a virtual account that’s funded with fake money and you can raise your funds anytime without risk.
Products and Accounts. You can open pretty much any type of account and rollover your IRA into this firm. You also have the ability to write checks — first 40 checks are free, reorders are $5.00 for every 100 checks — and you can use a debit card. The debit card has an annual fee though, and you need a minimum of $10,000 to qualify. OptionsHouse allows you to trade and own equities, mutual funds, options, U.S. treasury bonds and listed corporate bonds. But you’ll need to do phone orders for the bonds.
Investment Platform. This broker pitches a trading and investing platform that is simple, and devoid of those extra bells and whistles that may only serve to confuse or distract you from managing your transactions. You can also customize your dashboard and screens, which I suppose adds some points for usability. Now one thing I like about certain top online brokers like TradeKing and Zecco is the fact that they have built in investment communities. OptionsHouse, like most other brokerages, hasn’t incorporated this feature into their site just yet.
Tools and Education. My take is that OptionsHouse’s tool chest is geared for more sophisticated and professional traders who are dealing with options trading. Their broker’s education resources section is also heavily focused on the subject of options, with books, guides, papers as well as learning tools, calculators, simulators and screeners available to support traders. They’ve got regular webinars on more advanced investing and trading topics that you can register for.
Conclusion
My opinion? If you’re a new investor who’s still learning the ropes, this is not the place for you: you’ll be much better served by a broker like Scottrade, whose focus is the average retail investor. I believe that the ideal customer for OptionsHouse is someone who already has some background with investing and trading, who’s fairly comfortable with the markets and who’s really looking for the cheapest trading fees and lowest commissions and transaction rates. But if you fit this profile and you’re watching your trading costs carefully, then this discount brokerage is one I’d consider signing up with. For more details, you can visit them here.
- Stock trades: Free stock trades from Zecco, Cheap stock trades from TradeKing, Stock news and Investment info at INO TV Free, No cost Trend Analysis for stocks
- Earn top returns: FNBO Direct [1.90%], HSBC Direct [1.65%], WTDirect [1.76%], E*Trade Bank [0.95%], ING Direct [.25% to 1.65%]
- Cash bonus: Discover More [$50], American Express [$25], Lending Club [$25]
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{ 7 comments… read them below or add one }
great article, options trading is becoming very popular lately
Their ‘flat fee’ of 2.95 is not all-inclusive. Read the fine print.
They tack on exchange fees, liquidity fees, and you have to guess at which rate they will apply them, it also varies based on the dollar amount of your trade.
Bottom line, you are looking at least 4.25 to trade with Option House.
@Steve,
I use Optionshouse as my stock broker and you are right that it is a bit more the 2.95 but in truth it is usually about 3-5 cents above 3.00 not the 4.25 that you are suggesting.
i’ve read quite a bit of mis-information when searching for a trading broker which leads me to believe that shills for other brokers might be posting here and elsewhere.
first of all, none of the brokers who post commissions can include the exchange fees which add up to pennies for a trade. the reason is that the amount (usually pennies) is based on the dollar amount of the trade, not the number of shares. next, the commissions ranging from 2.95 to 9.99 or even higher for stocks only are, or should be irrelevant to all but high volume traders. the platform for executing the trade is what really matters. in this i would give optionshouse low marks compared to a personal favorite like tdameritrade. optionshouse uses java and has, what i consider, a sloppy interface that must be used with a full-sized window. they would really help themselves if at least an order ticket and review/change window could be detached and resized.
but if anyone is looking for an option trade broker, there is no close comparison to what optionshouse offers. note that beginning december 15th 2009, the options rates will increase to a selectable 2-commission system which you choose. the one that would apply to anyone who trades more than 10 contracts will become 8.95 + 0.15 per contract. up until now, there where no per contract fees on option trades.
compared to any other broker, optionshouse blows away the others on option trading value. for 1000 contracts tdameritade would charge 759.99 each way (buy/sell). for the equivalent trade with optionshouse’s new commissions, you will pay 158.95. so a two penny premium profit with tdameritrade would net you approximately 480., whereas the same with optionshouse would net about 1680.
so, the bottom line is that unless the platform is at issue, there is no reason to consider active options trading with any other broker than optionshouse.
Number9,
Thanks for giving us the scoop here. I don’t trade options (at least not yet), but I trade stocks. I do appreciate the info that you provide here on pricing comparisons. Should be helpful to those of us starting out as traders.
note: i had some grammar issues in my previous post, but i think that my point was adequately made. also, i used tdameritrade as an example, but i could have likewise used any other broker as an example.
tdameritrade charges 0.75 per contract compared to the 0.15 for optionshouse. others range mostly from 0.50 to 2.95 per contract. for very low cost options, which most active traders probably wouldn’t execute, i have seen interactive brokers quote 0.25 per contract.
whereas i think stock traders have a wide selection of brokers because i couldn’t care less about a $3 or $10 commission on trades valued over $10,000., i don’t think an active options trader has any other choice that makes sense. i would love to hear from others who do justify their broker for options trading.
number9 – good post. There is a lot of bad information out there regarding brokers. When I left my job at a bank 1.5 years ago and I was finally able to have an independent brokerage account, I got so fed up that I just opened up a bunch of accounts and tried them all out. When I tried out the services myself I had some interesting findings.
So anyway, here is my take after trying out 15+ brokers over the past 1.5 years…
Regarding trading platform quality… There are brokers whose commissions may be a bit more than what you would like to pay but if you want the best tech you gotta pay for it. Note that for some brokers, you will get the best experience with their desktop application, while with others, you’ll get a better experience via trading through the web.
You mention TD Ameritrade. I have a problem with how they handle limit orders and also they have screwed their customers in several instances which leads me to not recommend the service.
I see what you are saying in that the cost per contract is very important to you. After OptionsHouse, the cheapest per contract fee I have seen is Zecco at 50 cents. For me, I mostly use options for writing covered calls so I rarely trade more than a few contracts. This makes the commissions at some other brokers competitive with OptionsHouse. The typical retail trader is not trading 1000 contracts at a time. For those that are, OptionsHouse is obviously the best choice. Don’t forget about option exercise and assignment fees, which can vary greatly. Zecco is at $4.50 while OptionsHouse is at $5. TD will run you $19.95!
Best discount brokers for stock and options trader is TradeKing and OptionsHouse. If you just trade stocks, add Zecco to that list.