While many online brokers have their roots in the pre-internet era, eOption joined the fray in 2007. This late entry may have allowed the company to target an underserved area — the deep discount niche — and then pursue it ferociously. That’s been a boon for traders looking for the lowest possible costs, particularly in options, where eOption offers almost unimaginably low commissions. And fees for other types of securities are notably cheap, as are the broker’s margin rates. All in all, eOption is a broker for cost-conscious investors that delivers what it promises.
Who should consider eOption
Investors who are hyperfocused on trading commissions should have eOption among the top contenders for their new account. The broker’s stock commission is among the best around, and its meager charge for options should have options traders lining up outside to get in. While low costs would be an attractive feature for beginning investors, eOption really is a broker for more experienced hands given its lack of research and educational resources and the dearth of fee-free funds.
eOption fees and features
|Option trading fees|
|Stock trading fees|
|Amount minimum to open account|
|Account fees (annual, transfer, inactivity)|
|Commission-free ETFs offered|
|Mutual funds (no transaction fee) offered|
|Mobile app||iOS, Android|
|Customer support||Phone, Email|
Strengths of eOption
- Low trading costs: Like Just2Trade, eOption focuses on keeping trading costs low for investors, and the broker is tremendously good at it. Stocks and ETFs trades cost just $3 a pop, and that’s about as cheap as you can go. In this respect, eOption undercuts virtually all the usual broker suspects with their high-powered ad campaigns. Additionally, mutual fund investors will shell out just $5 per trade, whereas some other brokers charge a fee in the double digits.
Options traders should rejoice even more. The broker charges a base fee of $3.00 and then just $0.15 per contract. That’s much better than Just2Trade, and it compares very favorably to the rates at discount broker Interactive Brokers, where there’s no base fee and a fee of $0.70 per contract. This pricing structure means that once a client reaches just six contracts on a trade — a very low threshold — eOption is already cheaper. While Interactive Brokers’ per-contract fee declines as low as $0.15, it requires the client to trade more than 100,000 contracts a month to reach that level. At eOption, however, every client receives its low pricing from the first contract.
- Low margin rates: eOption offers some of the lowest margin rates in the industry, and that’s a boon for more experienced traders who can effectively use margin loans. As is standard in the industry, the interest rate declines as the margin balance increases, with the rates bottoming at balances over $1 million. It’s another way eOption focuses on low costs.
- Auto-trading: Something not typically found in a broker is the ability to automatically trade based on recommendations from investment newsletters. But that’s what eOption offers. Clients identify their newsletter and then authorize eOption to trade a specific amount of the stock or option, either buying or selling, depending on the recommendation. Newsletter recommendations are sent directly to eOption, which executes them without any further effort from the client. Clients can change the trades at any time. The service costs modestly more — $5 per stock trade or $5 plus $0.15 per contract for options — than eOption’s headline rate, but that still looks like an excellent value for the service.
Drawbacks of eOption
- No fee-free investments: Sure, eOption offers the standard range of Stocks, Bonds, ETFs and Options, but it does little for investors who want no-transaction-fee mutual funds and commission-free ETFs. Investors looking for ETFs will pay the same standard $3.00 commission, which is still quite cheap, to be fair. Investors on the hunt for fee-free mutual funds are out of luck and must pony up $5 a trade.
- Account fees: For a broker that’s so focused on low costs, eOption really hits clients with additional fees, including the nearly extinct inactivity fee. Here, the broker charges a $50 yearly inactivity fee if fewer than two trades or less than $10,000 in credit or debit balances. A partial account transfer costs a pricey $50, while a full transfer is $60.
- Limited research and education: New investors looking for guidance and investing research will be disappointed with what eOption offers, which is very little. That’s the trade-off for such low trading commissions, of course. Investors who need these elements would be better off trying out a full-service broker that is well-known for its research and educational components, such as Charles Schwab or Merrill Edge.
Is eOption safe?
Although it’s a relatively new player in the online broker space and less well-known than some larger rivals, eOption has the same coverage from the Securities Investor Protection Corporation (SIPC). The SIPC guarantees that investor assets up to $500,000 (including a cash-only limit of $250,000) will be returned. The broker’s clearing firm, Hilltop Securities, also holds excess coverage, protecting an individual account up to $25 million.
These coverages don’t protect an account from investment losses but rather safeguard the account in the event that the brokerage is unable to return the assets.
If you’re a stock or options investor and have some experience — so you don’t need extensive guidance — eOption could be a great choice. That’s especially true if you’re trading high volumes and really need to minimize costs. In this respect, eOption delivers on its promise, putting it among the industry’s low-cost leaders.
But if you’re a beginner and need the research and education that typically is provided by a full-service broker, you should consider rivals like Charles Schwab and Fidelity Investments. Both provide what many beginning investors need at a modestly higher per-trade fee and also offer commission-free ETFs, another favorite of new investors.