Want to know the easiest way to increase your trading profits by hundreds to thousands of dollars a year? Reduce costs. Specifically, commissions – those pesky few bucks you shell out each time you buy and sell a stock, option, or futures contract.
You may be wondering how your rate compares to others. When playing commission limbo, how low can you go? The answer varies from broker to broker, but remember, competitition is fierce, margins have been sliced razor thin and traders are in an extremely powerful position. Never forget you are doing your broker a favor by parking your capital there, not the other way around. If they’re unwilling to play ball, to reduce your commissions to a competitive level, then don’t be afraid to thank them for the memories and kick ’em to the curb.
While I can’t speak for every broker, let’s take a look at three of the cheapest I’m aware of: Interactive Brokers (IB), ThinkorSwim (TOS), and TastyWorks (TW).
Stock
If you’re paying more than $1.00 to $2.50 per stock trade then savings await! IB charges as little as $1 per stock trade. TW is the equivalent of $2.50 per trade ($5 roundtrip). I’ve been able to negotiate TOS down to $4.95 which isn’t great but since I primarily trade options it hasn’t been an issue.
Options
On the options front, if you’re paying more than 65 cents to $1.00 per contract, then you’re probably overpaying.
IB is at 70 cents per contract (with a $1 minimum). TW is around 65 cents ($1.30 roundtrip). I’ve seen TOS go as low as 85 cents per contract.
I first started with OptionsXpress back in 2006. If memory serves correct I wa paying around $5 to $7 for an options trade. These days that would be highway robbery!
Let’s think about how these fees translate with a spread trade. I’m going to use the TOS rate of 85 cents to illustrate. For a two-legged spread like a bull put I would be paying $1.70 to enter. And if I exit early that’s another $1.70, so $3.40 roundtrip. If it’s a $5-wide put spread sold for 50 cents, then the commission represents 6.8% of the max gain. Better yet, if I simply let the spread expire worthless then I’m only paying $1.70 for $50 of profit which is a scant 3.4%.
Obviously, the lower your commission as a percentage of profits the better. Anything below 10% is fine. Below 5% is better.
Now, how about the cost for a four-legged spread like the mighty Iron Condor? To enter I’m paying $3.40 (85 cents x 4). If the potential reward is $100 and I ride to expiration then the commission cost as percentage of gain is 3.4%. If I exit early, then I’m up to 6.8%. Either way, the impact of commission is negligible.
If you’re using TastyWorks or Interactive Brokers then there’s no negotiating needed. They start you out at their basement level rates. It’s ThinkorSwim that requires you to turn on the charm and work some magic. I suggest logging into your thinkdesktop platform and using the support/chat feature to create a support request with the trade desk asking for your commission rate to be lowered to a flat rate of X per contract with no ticket charge. $1.50 is a gimme. I’d shoot for $1.00 or less.
The only way the ticket charge structure is beneficial (i.e., $4.95 plus 65 cents a contract) is if you’re doing ten contract trades or higher. It obviously varies depending on what the actual rate is. The lion’s share of traders I’ve taught are better off by dodging the ticket charge and going the flat rate route.
We live in a golden age of trading. From a cost perspective, no generation has had it better. Are you taking advantage of these low rates?
10 Replies to “Tales of a Technician: How to Play Commissions Limbo”
Hi Tyler,
Thank you for bringing this subject to everyone’s awareness. I have always meant to ask you this question. My TOS commission is now $6.95 + $.75/contract for option trading. Orginally, it was $6.95 + $.95 / contract. They won’t go down more unless I put substantial amount of money before they re-negotiate. I really want to leave TOS and use TW instead. Unfortunately, TW doesn’t have advanced trading where I can set a trigger to exit. I feel it’s unjustifiably expensive to trade at TOS. I don’t know if IB has advanced trading. I will definitely leave TOS if there’s alternative.
Can you be so kind to advise newbies like me what to do! I do not have access to my computer at all times and that is the reason I need to have advanced trading settings just in case I can exit without loosing too much.
By the way, just for you to be proud that I pocketed some money today after a successful Iron Condor trade with two contracts. Thank you so much for your time. I love all your courses in Tackle Trading. I viewed them and review them from time to time and understand them better after that.
Warmest regards to all Coaches at Tackle Trading!
Victor
Hi Victor. First off, congrats on successfully trading the Condor! Are you in the U.S. or Canada? I know for traders in the U.S. you should have no problem getting the commission changed to a flat rate with no ticket charge. I’ve done it with dozens of U.S.-based mentor students this year and never had a problem. I can’t speak for Canada tho. If you are in the U.S. I would send a support/chat request to the trade desk and request once again to change to a flat rate of maybe $1.00 per contract or so with no ticket charge. If they say no, tell them you have hundreds of trading friends that were all able to do so. Many of whom have small accounts and don’t even trade that much. Sometimes it’s just a matter of getting the right person.
Thanks for the info Tyler! I just submitted my request for flat commissions. I, too, originally asked for cheaper commissions, and they said I had to have more money in my account. Having spent $700+ just this year on commissions, I felt like asking again was justifiable. I love my iron condors, but to get 2 in for 12.95 and an early cash out for 12.95 more is killing my profit margins! We’ll see what they say . . . 🙂
Hi Tyler,
I am in Los Angeles, CA. I will continue to make attempt again. They made notes of my previous conversations everytime I chatted or talked to them. Thank you and I will keep you posted.
Hello Tyler,
I had successfully asked TOS to lower the commission by doing what you said earlier today. I just told them that other platforms have offered me significant lower rates, and suggested them gave me $1.00 per contract with no ticket charge. They gave it to me immediately. It took about an hour to see it adjusted on the platform.Thank you for your post.
Thank you for the tips. Would you recommend waiting to do this for only the live account or is it good to do it in the paper account too?
just got off phone to TOS. in “limbo” awaiting approval of 4.95/ticket from 6.95! refused to budge on .75/contract however. thanks Coach Tyler.
Hi Tyler–I chatted with TOS Reps last night about commission change. I asked for flat rate $0.90 commissions hoping to negotiate to $1.50. They came back with reduction to $4.95 and $0.65 per contract. It was my first attempt. My husband sent the same message and was told he needed to fund the account and trade for 2 months with a certain number of trades before they would look at it. Any suggestions or next steps? I love your Options picks, videos and labs (with Elite). Thank you for sharing your knowledge and humor.
Success. $1.00 option trades in TOS. Thank you again Tyler for all your help and encouragement.
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