{"id":37,"date":"2015-01-10T16:42:49","date_gmt":"2015-01-10T21:42:49","guid":{"rendered":"\/?p=37"},"modified":"2016-07-05T15:47:45","modified_gmt":"2016-07-05T19:47:45","slug":"selecting-a-broker","status":"publish","type":"post","link":"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/selecting-a-broker\/","title":{"rendered":"10) Selecting a Broker"},"content":{"rendered":"

If you are new to options trading, you likely have the question, \u201cwhich broker would you recommend for options trading?\u201d<\/p>\n

TD Ameritrade<\/b><\/h2>\n

I would recommend TD Ameritrade as a great place to trade options. \u00a0They offer the trading platform called Think or Swim, which offers an abundance of high quality trading tools for options traders.<\/p>\n

I will be using TD Ameritrade\u2019s Think or Swim platform in many of the video lessons, this should help you to become more familiar with the software. \u00a0Then, as you learn the ins and outs of options trading, you\u2019ll also be gaining experience with a very powerful options trading platform.<\/p>\n

How Much Does it Cost Per Trade?<\/b><\/h2>\n

The commission rates for options trading are commonly stated with 2 parts\u2026<\/p>\n

    \n
  1. Cost per \u201ccontract\u201d<\/li>\n
  2. Cost per \u201cleg\u201d<\/li>\n<\/ol>\n

     <\/p>\n

    A \u201ccontract\u201d <\/b>is to options trading, as \u201cshares\u201d are to stock trading. \u00a0When \u201cbuying\u201d or \u201cselling\u201d options you\u2019ll select how many \u201ccontracts\u201d.<\/p>\n

    A \u201cleg\u201d<\/b> refers to a grouping of an options order.<\/p>\n

    An example of a 1 Leg Order :<\/b> A simple call or put<\/p>\n

      \n
    1. buying 1 call<\/li>\n<\/ol>\n

      An example of a 2 Leg Order: <\/b>\u00a0A more advanced order, such as a bull call spread is 2 legs, because a bull call spread entails 2 groups:<\/p>\n

        \n
      1. buying 1 group of calls<\/li>\n
      2. and selling 1 group of calls.<\/li>\n<\/ol>\n

        TD Ameritrade\u2019s Rates at the time of this article\u00a0are $9.99 per leg + 75 cents per contract.<\/b><\/p>\n

         <\/p>\n

        What are Option Approval Levels?<\/b><\/h2>\n

        Within your brokerage account, you\u2019ll need to be approved to trade options. \u00a0Depending upon which option strategies you wish to use, you\u2019ll need to be approved for different levels. \u00a0While these levels vary between brokerages, they are very similar. \u00a0Here\u2019s a rundown of what is commonly allowed at each approval level.<\/p>\n

         <\/p>\n

        Approval Level 1<\/b><\/h2>\n

        Within the first approval level<\/b>, you\u2019ll be allowed to purchase Covered Calls<\/b>. \u00a0This is a strategy where for every 100 shares of stock you purchase, you sell 1 option call contract. \u00a0It is viewed as a low risk, low return strategy. \u00a0Henceforth, why it\u2019s allowed on the lowest approval level.<\/p>\n

        Approval Level 2<\/b><\/h2>\n

        At level 2 you also be allowed to buy calls and puts<\/b>.<\/p>\n

        For the OptionsElite service this is the minimum <\/b>level needed to follow our alerts.<\/p>\n

         <\/p>\n

        Approval Level 3<\/b><\/h2>\n

        At level 3 you also be allowed to buy spreads. \u00a0<\/b><\/p>\n

         <\/p>\n

        Approval Level 4<\/b><\/h2>\n

        At level 4 you\u2019ll gain the ability to play naked calls and naked puts. \u00a0These can be extremely risky strategies, because they have limited return and UNLIMITED loss potential.<\/p>\n

        Therefore, why you aren\u2019t allowed this type of trade strategy unless you have a very high approval level.<\/p>\n

         <\/p>\n

        TD Ameritrade’s Options Approval Levels<\/b><\/h2>\n\n\n\n\n\n\n
        <\/td>\nCash Accounts<\/b><\/td>\nMargin Accounts<\/b><\/td>\n<\/tr>\n
        Level 1<\/b><\/p>\n

        (Covered)<\/td>\n

        		\n
          \n
        • Covered calls<\/li>\n<\/ul>\n<\/td>\n
        		\n
          \n
        • Covered calls<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
        Level 2 <\/b>(Standard)<\/td>\n\n
          \n
        • Covered calls<\/li>\n
        • Buy calls and puts<\/li>\n<\/ul>\n<\/td>\n
        		\n
          \n
        • Covered calls<\/li>\n
        • Buy calls and puts<\/li>\n
        • Spreads<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
        Level 3 <\/b>(Advanced)<\/td>\n<\/td>\n\n