Trading options can be fun, profitable, and exciting. But you’ll only be able to take part in this financial trading method if you have the right online platform. Options trading platforms allow you to place orders for options contracts, write options contracts of your own, and participate in many other market activities.
Many options trading platforms are available through brokers, like Fidelity or “thinkorswim” from TD Ameritrade. Regardless, it’s important to pick the right options trading platform for your unique needs and preferences. This article looks at some of the most important factors you should consider when choosing an options trading platform.
Consider Costs and Fees
First, consider the costs and fees a given options trading platform might charge you. Many trading platforms charge commission fees by default; they get a commission for each successful trade you place. So if you make a profit, you have to pay the trading platform an automatic percentage of it for using its services and tools.
Fortunately, many options trading platforms have significantly reduced their commission fees over the last few years. Furthermore, there are plenty of top options brokerage platforms that offer commission-free trading on stocks, ETFs or exchange-traded funds, and even options.
Remember that the fee policy for options trading can vary heavily from platform to platform, so you should do a lot of research before deciding whether to use one platform exclusively. Very high fees can impact your bottom line and the profitability of successful options trades.
Don’t forget to consider origination or sign-up fees, as well. And some options trading platforms have portfolio minimums, meaning you have to have a certain amount of money saved to put in your account before you can start using that platform.
Does a Platform Have Educational Resources?
Next, check whether an options trading platform has any educational resources. These include FAQ pages, knowledge bases, video tutorials, and even online classes.
Many of the best options trading platforms will include a wealth of educational resources you can use to bolster your knowledge regarding options trading and stock market fundamentals. These are fantastic resources that are perfect for newcomers to options trading, but they can also be valuable for experienced traders who need to refresh their memory regarding certain strategies or risk management techniques.
Educational resources are so important because options are inherently complex financial instruments, so they can be tough to learn about and master over time. It’s easy to lose a ton of money if you don’t know what you’re doing or if you make a simple mistake. If you have a platform that offers educational resources, you’ll be less likely to make those mistakes in the first place.
Is the Platform Complex or Simple?
You’ll also want to consider whether an options trading platform is simple or overly complex to use.
Generally, complex platforms are better for experienced traders who want as many tools, tweaks, and settings to use as possible. In contrast, options trading platforms that are simple, intuitive, and easily navigable are better for new traders, especially those who may trade stocks, bonds, and other financial assets in addition to options.
Some platforms, such as TD Ameritrade’s thinkorswim platform, are notorious for being difficult to get into as a new trader. Even with extensive educational resources and guides, these more complex platforms might be too much for comfort, especially if you just want to place a few beginning options trades and learn the ropes before embarking on more complex strategies.
What Tools Does a Platform Have?
You should also consider what tools a platform has before signing up for it and using it as your exclusive platform.
Some platforms allow you to place more advanced options trades or strategies because of their advanced tools. For example, they may allow you to assess options and stocks right from their interfaces and core dashboards.
When you focus on a specific stock, the platform might bring up a bunch of information about it so you can make the right decision for your upcoming financial strategy. Other platforms offer tons of information regarding volatility, market actions, trading alerts, broad trends, etc. They may even include lots of historical data for your analysis purposes.
Generally, more tools are better than fewer, even if it takes time to get the hang of a given platform. After all, you’ll only become more experienced the longer you stick with an options trading platform.
Does a Given Platform Let You Execute Your Chosen Strategy?
If you have an options trading strategy in mind (and you should), consider whether a trading platform will let you execute that strategy.
Here are a few examples. Some traders buy or sell options on particular stocks. They then wait for the market to move in the ideal direction while hoping their options contracts will be profitable.
More experienced traders may purchase or sell combinations of different options contracts simultaneously, hedging their bets and mitigating risk through more involved decisions and buys. Only some platforms are suitable for the latter strategy, as they offer more complex tools and navigable interfaces.
When picking a new platform, you should first think about how you plan to trade options, then research each potential trading platform to see which one will better allow you to achieve your goals.
Portfolio Margining Potential
If you already have a large options portfolio, you might be able to take advantage of portfolio margining at specific platforms or with certain brokerages.
Portfolio margining means assessing the risk of your portfolio with stocks and derivatives. You can then use portfolio margining to reduce the sizes of margin loans, opening up new investment opportunities and strategies. Since only some platforms allow portfolio margining, be sure to sign up for one that enables you to practice it if this is what you have in mind for your trading ambitions.
You May Need To Try a Platform or Two Before Deciding
Since options trading platforms can vary significantly, you may need to try one or two before deciding on your platform of choice. Fortunately, many trading platforms have free trials or allow you to try them for up to 48 hours, two weeks, or some other time frame before spending any money.
These free trials are excellent analysis tools you can and should take advantage of to ensure you pick the right platform for your needs.
As you can see, there are many things to consider before settling on an options trading platform permanently. A given trading platform can make or break your trading career by enabling you to pursue your goals with full flexibility or limiting your options in disastrous ways.
Consider taking advantage of short-term trials for different options platforms, so you know with 100% certainty that a platform is perfect for your needs before using it as your primary trading tool.
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