Interactive Brokers vs. Tastyworks for Options Trading
If you’re an active options trader (or planning to become one), you’ll want to choose an affordable online trading platform that offers outstanding service. For many options traders, that choice comes down to Interactive Brokers Group (IEX: IBKR) versus Tastyworks.
But which one is best?
The answer to that question depends on:
- How often you plan to trade;
- How much cash you have on hand;
- The amount of money you’re willing to spend on commissions; and
- The overall level of service you seek.
In this guide, we’ll explain the pros and cons of both Interactive Brokers and Tastyworks, to help you make an informed decision about which platform is right for you.
Interactive Brokers (IB) is one of the largest and most popular online brokerages in the United States. It started way back in 1978, well before the Internet became a “thing.”
In those days, company founder Thomas Peterffy developed an algorithm to find the best prices when trading options on the floor of the American Stock Exchange.
By 1987, IB had developed the first automated system for submitting market orders. In 1994, its online trading platform went live.
In other words, Interactive Brokers has been around for a while. If you prefer to work with a company that has plenty of experience with financial markets, IB should probably move to the top of your list.
Today, the company offers a variety of trading platforms. The most popular is called Trader Workstation.
You can use Trader Workstation to create alerts, monitor your open positions, and maintain watchlists.
IB offers another platform called WebTrader. One of the biggest differences between Trader Workstation and WebTrader is the underlying technology. Trader Workstation is Java-based whereas WebTrader is HTML-based.
Another important distinction: WebTrader is accessible from behind a firewall and Trader Workstation isn’t.
The learning curve for Trader Workstation also is much steeper. It’s designed for veterans, as this video demonstrates.
There are mobile versions of both trading platforms as well. If you prefer to trade “on the go,” you can do so with a smartphone app.
When it comes to pricing, there’s little doubt that Interactive Brokers is competitive. It’s the main reason that many people choose the platform.
IB charges just 70 cents per contract. There’s no base fee for the whole trade.
There is a minimum, however, of $1.00 per order.
However, Interactive Brokers also uses a tiered system that can reduce your per-contract charge. The more you trade, the less you pay.
The opposite also is true. You’ll have to pay an inactivity fee if you don’t place at least $10 worth of trades in a given month and your balance is below $100,000.
Interactive Brokers also requires a minimum deposit of $10,000. That might be a bit steep if you’re just getting started with trading.
Finally, IB allows you to invest in mutual funds. That’s a great choice if you’re a long-term investor as well as a short-term trader.
Let’s keep it real: Tastyworks doesn’t sound like the name of a trading platform. It comes across as the name of a website that sells cotton candy.
But don’t let the name fool you. Many active traders view Tastyworks as the “go-to” online brokerage for options traders.
That’s for several reasons. First and foremost is the cost in commissions.
That’s because there is no cost to close out a position for stock and options orders. In other words, you pay to open the position, but there’s a $0 commission to close it.
$0 is a good price to pay for just about anything.
For stock options, you’ll pay $1.00 per contract. Again, that’s only when you open the trade, though. You don’t pay anything when you close it.
All trades have a $0.10 per contract clearing fee.
Tastyworks also is a relatively new trading platform. There’s good news and bad news in that.
The good news is that the platform was developed with state-of-the-art technology. So it’s robust.
The bad news is that it hasn’t had a chance to “evolve” over the years like some of the other trading platforms. Simply put, it hasn’t learned from its mistakes.
The trading platform itself is offered as a web app, downloadable desktop application, and mobile app. All three options offer similar features.
The desktop application is available for Max, Linux, and Windows operating systems.
The smartphone app is available for iPhone 6 (or later) and Android devices.
You can use the app to create watchlists, enter trades, get quotes, and check your portfolio. You can also browse through charts and tables that give you plenty of info to make an informed trading decision.
Customer service is offered via email, phone, or live chat.
The Pros & Cons of Each
Here are the pros and cons of each option.
Interactive Brokers Pros:
- Low Commissions – Interactive Brokers has some of the lowest commissions in the industry. Plus, you can get even lower commissions if you’re a very active trader.
- Low Margin Rates – You’ll need some margin if you’re selling stock options that you don’t own. Fortunately, IB offers low rates.
- Investment Options – You’re not limited to just options and stocks with Interactive Brokers. You can also invest in mutual funds, forex, precious metals, bonds, and exchange-traded funds (ETFs).
- Free Trial – Interactive Brokers allows you to get started for free.
- Virtual Trades – Interactive Brokers offers a platform so that you can do some practice-trading. That’s important if you’d like to test-drive your strategies before risking real money.
Interactive Brokers Cons:
- High Minimum Investment – You need $10,000 to get started trading on Interactive Brokers. That might be a bit too much if you’re new to trading.
- Maintenance Fees – If you’re not a very active trader or you let your account sit idle for a month, you could get slapped with a maintenance fee.
- Steep Learning Curve – The Trader Workstation platform is not designed for novice traders. It’s built for people who already understand day-trading.
- No Closing Fees – You literally pay $0 in commissions for closing out positions. That can save you a lot of money, especially if you’re an active trader.
- Maximum Commission – There’s also a maximum commission on the open side. You’ll pay no more than $10 to place the trade.
- State-of-the-Art Tech – The Tastytrade platform was built with modern technology. It’s available on the web, as a desktop application, or as a smartphone app.
- No Minimum Investment – Tastytrade lets you get started with $0 in your account.
- Limited Investment Choices – You can only trade U.S.-listed stocks, options, and futures.
- No Virtual Trading – Tastytrade doesn’t allow practice-trading. If you want to test your strategies, you’ll have to use a spreadsheet or another platform.
- Relatively New – The platform lacks the maturity that comes with some of the older trading platforms. There might still be a few bugs.
Which Broker to Choose?
Which one should you choose? Interactive Brokers or Tastyworks?
While they both offer low commissions, you could save even more money with Tastyworks because it doesn’t charge any commission to close out a position.
Tastyworks also doesn’t require a minimum initial investment of $10,000, unlike IB.
Additionally, you won’t pay an inactivity fee with Tastyworks. You’ll pay a $10 fee if you don’t trade with your Interactive Brokers account for a month.
However, Interactive Brokers offers additional investment choices that you won’t find on Tastyworks, such as mutual funds, forex, and precious metals.
You can also set up some virtual trades with IB. You can’t do that on Tastyworks.
So which firm wins our brokerage face-off? It depends on your profile as an investor.
If you’ve got plenty of cash on hand and you plan to actively trade on days when the market is open, you should probably pick Interactive Brokers. The learning curve is steep, but that’s because the platform is sophisticated.
On the other hand, if you’re just getting started with trading and don’t have a whole lot of cash, pick Tastyworks. You can always move to IB later if necessary.