Thinkorswim: A Better Broker

July 29, 2008

With so many stock brokerages touting their low commissions and customer service, it can be a hard task to choose what’s best for you. Thinkorswim is worth a look with top-rated software, support, and unique features.

With so many stock brokers touting their low commissions and customer service, it can be a hard task to choose what’s best for your needs. Compounding the importance of this decision is the likelihood that most people rarely switch from their original brokerage choice. Although most brokers will get the job done at a reasonable cost these days, some provide the tools that can take your investing to the next level.

After using the highly regarded Scottrade as my broker for many years, I have recently adopted Thinkorswim and am very impressed with what this upstart broker offers. Thinkorswim was founded in 1999 with an emphasis on options trading. The top-rated software, customer support, and unique features make Thinkorswim worth a look. The company offers several options for accessing the market, including the thinkDesktop.

The proprietary thinkDesktop trading platform helped Thinkorswim earn the honor of “best for options traders” in a 2007 survey of brokers by Barrons. The platform’s main page displays real time changes in account value, as well as quotes for the market and a customizable watch list. On the easily accessible trade tab, you can enter orders for stocks or options while watching the real time movement in the stock. Additionally, Thinkorswim provides Level II quotes which show the best bid and ask orders in the order book. Scottrade only provides this service to those with accounts over $25,000 of equity.

Moving beyond the basics is where Thinkorswim gets really interesting. There are tools to analyze the risk profile of individual stocks, see the probabilities of the stock reaching certain levels, and even pull up stock or option quotes from the past to see how the stock has historically performed. You can even enter paper trade mode where you can test out strategies with a practice account and see how you do.

The company has also incorporated web 2.0 features like seeing outstanding option spread orders of other Thinkorswim customers and reading brief twitter-like updates from fellow Thinkorswim investors. You are even able to trade futures and forex through the platform.

One of the greatest features is the Prophet charting tool. In addition to creating basic views of a stock, you can draw directly on the chart which will dynamically save your data. This is very useful when used in conjunction with technical analysis through the creation of trendlines, price channels, support and resistance levels, and even Fibonacci analysis. This type of charting can help you set clear goals for where a good entry point is, and where you would like to ultimately close the position at. By also having drawn a support level that you believe a stock should stay above, you can exit positions gracefully when the support level is breached instead of holding on for a bigger loss.

Commissions are among the lowest in the industry, especially for options. For $5 you can trade up to 300 shares and up to 5,000 for $9.95. In between you are charged $0.015 per share. Moreover, Thinkorswim even matches the commission schedules of other brokers such as Scottrade and Charles Schwab if you prefer to maintain what you are used to. Paperless ACH transfers and withdrawals can be made online. Customer service is also very reliable with fast phone, email, and live chat support.

There are still a few things that can be improved, but Thinkorswim is constantly working to stay ahead of the pack. The trade tab would be better if you could monitor a chart of a stock you want to trade. Another thing that Scottrade offers that Thinkorswim currently lacks is the time and sales feed, which shows the latest trade quantities and prices.

Thinkorswim remains relatively small with only 78,075 funded accounts and 50,400 daily average revenue trades in June. However, the recent growth in its user base is evident with client assets up 75% over the last year to $3.11 billion. As a comparison Fidelity added 130,000 new accounts in the last quarter alone and now has $1.92 trillion of assets.

Overall Thinkorswim is a very functional option with superior trading software and customer service. The platform is best for advanced options traders, but offers enough functionality to be worthwhile even for amateurs. The company is so confident in their service that they allow users to sign up for an account and make use of the platform through a demo practice account. I highly recommend trying out Thinkorswim or another highly rated broker like optionsXpress, especially if you have been with your current broker for many years.

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