I'd been interested in investing for a while, but this year I finally decided to get serious about it. One thing I immediately realized is that with my relatively small account size, commissions were a serious problem for me. If you do a $1000 trade and pay $20 in commissions each way, you start with a 4% loss! That might be fine if you are holding for the long term, but I was interested in shorter-term trading, and that looked like a pretty huge penalty. Both my Fidelity and USAA brokerage accounts were too expensive at my account size.

I realized that if I found a broker that had low commissions and let me use options for leverage, I could do OK, even with a relatively small account. I ended up with two companies in mind -- ThinkOrSwim and Interactive Brokers. I eventually decided that Interactive Brokers, while potentially lower-cost and more powerful, were too 'harsh' for a new trader. The complex fee structure (costs for canceling orders, paying for market data, fees for small balances, etc.) and the merciless account liquidation to meet margin really worried me as a relative beginner. So I went with ThinkOrSwim (opened a Roth IRA in May 2007), and I've never looked back. In fact, I just opened a standard margin account so I can invest some savings.

First, let's talk about the basics. There is a $3500 minimum to open an account, which is reasonable considering all their accounts are margin accounts. Most of my stock trades cost a $5 minimum charge using per-share pricing ($0.015/share). They also have a $9.95 flat-fee trading (5,000 share maximum) for larger orders. You can find cheaper, but not by much. More importantly for a beginning options trader, options trades start at $2.95/contract or $9.95 + $1.50/contract (unlimited spread legs), so I can buy one contract or a single calendar or vertical spread for very little. They also have more aggressive pricing for people making bigger trades, and they will match the pricing of all the most popular brokers. Finally, they provide three free mutual fund trades a month from a pretty large menu of funds, and I think that's great for longer-term investors.

Next, the software is simply amazing and, unlike some brokers, you get access to it regardless of account size or trading volume. They have a usable web interface, but the Java-based trading software is incredible. They keep improving it, and it shows. It easily supports complex option spreads, including an analysis page to let you graph the expected profit/loss for changes in time, stock price, or volatility (this is an exceptional tool for those learning complex option spreads). You can tell this is an options-oriented broker by the powerful options tools they provide. If you select multiple positions under one ticker, you can right-click and select "Create Closing Order" which gives you options as to how to close it (for example, a covered call may give you options to sell the stock, buy back the call, or sell it together as a covered call). There is a great charting package, with support for writing your own studies and even strategies, which will draw long entry and short entry points on the graph. With strategies it even will show you the P/L at the time your mouse is pointing to if it blindly followed the strategy, so the platform gives a great way of constantly testing it. For that matter, it supports a "paper trading" account where you can trade in a fake account to test your techniques. There is live CNBC news, a scan tool for finding stocks that meet certain criteria, a watch page that keeps track of things like dividend dates and stock splits, a "spread hacker" to find options spreads that meet certain criteria, etc. I'd highly suggest anyone considering a ThinkOrSwim account go ahead and create a username so you can download the software and try it in paper trading mode. I haven't used many of the other software platforms, but from what I've seen, I suspect the ThinkOrSwim software could keep up with Scottrade Elite or Fidelity ActiveTrader Pro, neither of which is available to customers with small account sizes!

Now let's talk about the company "feel". First, they have free live chats every Wednesday after market close on a variety of investing topics. They are an absolutely great source of information, and they are archived on the website for anyone who wants to check them out (no account required). Their OptionPlanet subsidiary provides free basic classes around the US and some pay classes as well (I went to one free class, and I suggest it for people learning options trading). If you ever go to one of their OptionPlanet classes, you'll hear that they encourage you to try new strategies with the smallest possible order, and their pricing structure reflects that with some of the cheapest rates around on single contracts and small spreads. They also encourage you to close short positions that have no more value as a risk-management technique, and ThinkOrSwim encourages that by allowing you to buy back short options that cost $0.05 or less commission-free! Also, you can call the trade desk at any time and place orders with them for the same cost as online orders. This means if a new trader finds that they are in a position they don't know how to handle, they can call the trade desk and have an expert walk them through what they should do to get out of it. This is a brokerage with a strong focus on education, that encourages traders to practice good risk management and ask for help when they need it. This is the sort of thing I would expect from a high-end broker, yet I'm getting it from a discount broker. Finally, if you find yourself in a margin call situation (say, a short option got assigned to you), they have stated that they will take the time to try to get in touch with you and, if they cannot reach you, they will have someone knowledgeable unwind your positions. That means if you have a calendar or vertical spread, they'll exercise your long options to offset your short stock. Or they'll sell them if it makes more sense. This makes me feel a lot better than the Interactive Brokers approach, where I hear they have software that liquidates random positions until your margin call is met (that can cause some pretty unpleasant results).

Now about promotions. There are four that I've taken advantage of that I'll mention. The first I mentioned above, which is the ability to buy back short options for $0.05 or less commission-free. I've used that a number of times with no problems. Next, they give a $39.95 "Internet rebate" to anyone who makes 40 trades or more a month. I have received that every month. They give $50 for referrals, and I've gotten two of those. They also rebate up to $100 in ACAT fees charged by your old broker, and I got a $75 rebate from that. No hassles about any of these; they just work as advertised. Finally, they send every customer a free stuffed monkey. No big deal, but it is a nice touch, and I think it says a lot about their approach to customer service.

I've heard a number of people complain to me lately about broker problems, so I'll include a quick comment on that here. I saw a minor software bug once, but they released an update (automatically downloaded) that fixed it before I could report it. I have never seen a serious software bug. Sometimes there are problems with exchange data, but they seem to be exchange problems not broker problems, and ThinkOrSwim will broadcast a message via the trading software letting you know what the problems are, and again when they are resolved. Once or twice one of the two charting applications in the platform has gone down, and they send a message about that as well. Compare this with some of the complaints I hear about other brokers, and I'd say they are pretty rock-solid. The few times I've used the support online chat, the response is sometimes a little slow but they've always resolved my problems. I suppose if it was an emergency, I'd be calling them anyway.

Since I opened a Roth IRA with them first, I thought I should comment on how they handle that. In my previous Roth, they supported selling covered calls. That was it. You couldn't even buy a call or put. ThinkOrSwim lets you enter ANY position with defined risk. If I sell a 10 call, but buy a 5 call, they reserve $500 to cover the risk, but let the trade happen. If I buy a calendar spread, that's fine with them. The limitations are mostly that you can't sell naked calls (you can sell naked puts, though the margin requirements are prohibitive), and you can't be short stock at the end of the day. Also no forex or futures trading for IRA accounts, since they aren't defined-risk. If they find you are violating these rules near the end of the day, they will go in and make an appropriate trade to fix it so you don't violate IRS rules (for example, if you got assigned on a short call and ended up with short stock, they might exercise a long call to fix it, or maybe sell a call and use the proceeds to buy back the shares that were short). This is one of the biggest reasons I went with them -- they give me the power to use most options strategies in my Roth IRA, while many brokers only allow the most basic of options trades.

In conclusion, this is a company that seems to take care of it's customers. They aim to provide a great experience, and they succeed in my eyes. I've had one of the founders of the company personally respond to an email in 12 minutes on a Saturday night. They provide all the education you could want, and personal assistance through the trade desk if you get stuck somewhere. They provide tools to all their customers that are comparable to the premium tools from larger brokers. The commission rates are highly competitive, but the service is not that of a deep-discount brokerage. They provide excellent support for options in IRA accounts. I think they are a phenomenal broker and I think anyone looking for a broker should at least give them a look.

Recommended: Yes