Negotiating Stock and Option Commissions
Many traders that: (1) are active traders, or (2) have large accounts, eventually look to get a negotiated commission from their broker. The rates that brokers advertise on their web sites are called "published rates."
The rate that brokers charge for a stock trade (and the flat part of the options commission) is called the "ticket" charge. These days most brokers charge anywhere from $5-$12 for their ticket charge.
If you are a valued customer, then you may be successful in getting your broker to lower your commissions. If they do lower your commission, they will probably cut your ticket charge by about 20-30%. For example, if Ameritrade/ThinkOrSwim/Scottrade charge $10 per trade, then they may lower it to about $7-8.
Getting brokers to negotiate lower option contract fees is much more difficult, which is frustrating since their volume-based option contract fees are way more profitable for brokers. Most traders seem to be under the impression that a customer that has a large account who threatens to transfer their account to a competitor has plenty of leverage to get a negotiated rate, but I disagree. Considering that the break-even profit level for option contract fees is probably around 5 cents for brokers (assuming that eOption and OptionsHouse are both profitable), then most brokers are marking up options about 1,000-2,000%. In the long-run, of course, option commissions will become commoditized just like stock trades 15 years ago, but until then, online brokers in general seem perfectly happy earning an excess profit while treating any transferred accounts as acceptable collateral damage.
Back when I was trading 3,000 option contracts per month, I managed to get negotiate E-Trade down to $0.50 from their published $0.75 rate. Even though they did it, they were very reluctant to do so. I left soon after though for OptionsHouse.
- Don't ask a broker to lower their commissions just because you can. Wait until you truly deserve a lower commission.
- Be prepared to transfer your account if you threaten to do so.
- Quote a competitor's rate.
- Most brokers won't match Interactive Brokers (IB). IB seems to do more institutional business, and seems to be in a different class of broker than your average retail broker like TD Ameritrade, etc. Most brokers seem reluctant to use them as a benchmark for competition.
- Traders that have a low commission-to-account-value ratio should consider asking for a negotiated commission. Keep in mind though that this does not mean that you definitively deserve a lower commission. A high commission-to-account value is primarily determined by your trading style, which is a choice you are making.
- Assuming you are a desired customer, the chances that your broker will give you a negotiated rate are probably about 50/50.
- Some brokers, such as TD Ameritrade, seem to be less likely to give a negotiated rate.