Today October 1st, TD Ameritrade, makers of the thinkorswim platform, announced the end of trading commissions as we’ve always known them. Get ready to enter a new era of retail trading! As the preferred brokerage of Option Alpha, we wanted to give you a rundown of these changes, and give you some insight on what this could mean to you. At a high level, here are the changes:
- Online stock trades move from $6.95 per trade to $0
- Online options trades are now $0 per trade plus $0.65 per contract
- All fees for option exercise and assignment have been eliminated
The Trading World Will Never Be The Same
Since the advent of Robinhood and other no-fee stock brokerages, many have been predicting the end of traditional brokerages. While these initial no fee offerings were no doubt game changers, the extremely basic interfaces, painfully slow execution and slim to no customer service meant they could never truly supplant full-service brokerages. Many advanced traders wished to take advantage of the savings such offerings made possible but were unable to go without the features and service that comes from a more established broker with a comprehensive and polished trading platform such as thinkorswim. Thankfully, today’s announcement means that having to choose between price and features is now a thing of the past.
What Does This Mean For Retail Traders?
For the average retail trader, this represents a seismic shift in terms of potential profitability and strategy options. While the savings that will be realized from the per contract rate dropping from $0.75 per contract to $0.65 will be sizeable for many, arguably the most significant advantage is the removal of the per-trade fee for options trades. This is especially true for the many traders who are trading in small accounts and must place many small orders in order to manage risk appropriately. If you’ve ever felt restricted from trading the way you want to trade because paying $6.95 for each order meant either not trading at all, or trading with too much risk for your account, this will be a welcome breath of fresh air.
How Do I Take Advantage Of This New Fee Structure?
One of the most important tenents of options trading and risk management, in general, is to trade small and trade often. As we talk about in this video on the optimal number of trades to make, the more trades you place, as long as they are sized appropriately for your account, the more closely the performance of your portfolio will track with the estimated probabilities of your trades. In short, with high probability setups like the kind we trade here at Option Alpha, the more you trade, the better results you will see. With the removal of per trade commission fees, you are now free to make small trades more often, without breaking the bank.
This freedom to place more trades has several advantages. We are big proponents of laddering trades; placing multiple similar trades in the same underlying over a period of several days or weeks to allow your strikes to move with the market. With the additional freedom of trading commission-free, you can take laddering to the next level, customizing your portfolio to your exact risk tolerances, and tracking volatile markets with ease.
In addition to multi-day laddering, you may also look to experiment with the fill prices you can get for an order. Since under this new structure you will pay the same for a 5 contract order whether placed as a single order for 5 contracts, or 5 orders for 1 contract, you can take your time! Use micro orders to be aggressive on price, and see just how good you can do when setting your limit prices. Get a fill on one or two contracts? Sit back and watch the market move for a bit, then come back in for another attack. Keep placing orders throughout the day until you get to your intended position size, and take comfort in knowing you’ve paid no additional commission to do so while capturing the most possible premium from the market in the process.
All in all, we here at Option Alpha are incredibly excited about this change and feel it has been a long time coming. If you are not currently using thinkorswim, now is a better time than ever to make the switch. Take a look at this article for some helpful tips on how to make the move as easy as possible. In combination with our soon to be released auto-trading platform, these eliminated and reduced commission options will allow our members to truly take their trading to the next level! Be on the lookout for much more soon from us on exactly how we intend to give you all the tools you need to succeed in this new world and beyond.
Option Alpha LLC is part of a referral sales network and may receive compensation for sending leads to partners. It in no way affects our recommendations or advice. Our partners cannot pay us to guarantee favorable reviews of their products or services. thinkorswim, Division of TD AMERITRADE, Inc. and Option Alpha are separate, unaffiliated companies and are not responsible for each other’s services and products.