How tastytrade can eat profits & affect trading behavior of active traders

Investment brokerage tastytrade has enticing promotional offers. But, it’s important to consider how much these offers will actually cost you to use tastytrade.

Margin Interest Rates

For starters, their lowest margin rate is 8% if you have a $1 million margin debit balance. That rate is more than one percentage point higher than some brokers’ lowest rates. That means that your $1 million margin balance would cost you $10,000 more a year at tastytrade.

Don’t have a million dollar account? Maybe you’re an active day trader with Pattern Day Trader status. You’re required to maintain a daily opening balance of $25,000. If  you use 100% of your available margin ($25,000), that’s an extra $750 that you’ll pay in margin interest each year.

Commissions and Fees

tastytrade also charges for fees that a lot of brokers don’t charge for. Options commission, for example, is $1 per contract at tastytrade. The brokerage charges a max commission of $10 per leg for each order, and that can amount to $520 in options commission fees per year if you trade weeklies.

And, although they do cap the options commission, these are fees that are either non-existent or about 35% cheaper at other brokers. In the past few years, brokers have luckily trended towards not charging commissions for options, but when they do, it’s usually the standard 65 cents. Some even allow you to negotiate these fees. 

Regulatory Fees

Surprisingly, a lot of brokers don’t pass on some regulatory fees to customers. tastytrade, on the other hand, charge fees that I’ve never even heard of. I’m sure that these are legit fees. This just reinforces my point that most brokers don’t pass on all regulatory fees to customers. tastytrade is not shy about passing the buck. My account ledger even has a line item for a “regulatory fee adjustment” of one cent. 

One fee that I’m not used to paying is (and I still don’t know what fee this actually is) costs $.0008 a share. I’m used to only being charged for trading equities when I’m actually selling, not when I’m buying. I suppose that some brokers only charge for selling to encourage…trading.

How tastytrade’s Fees Affected My Trading

And herein lies the problem. I found myself limiting my trading with tastytrade because of the fees. You can see from the last example how fees can rack up at tastytrade.

As an active trader, there were times when I would have normally closed an options position with the intent to reopen it that day…or times when I just wanted to day trade. But, I didn’t because the fees would have accounted for about 25% of the profit. Although there still would have been profit left after accounting for tastytrade’s extra fees, the fees made the trades not worth the risk. After all, there was no guarantee that the trades would have played out how I had hoped, and if it didn’t work out, I would have paid trading fees in addition to losing money on the trade. So, in the end, the extra fees resulted in me not executing trades quite a few times.

Even after intentionally limited my trading at tastytrade to curtail fees, after less than 2 weeks, the fees that I racked up at tastytrade were only about $10 lower than the fees that I was charged for making over 80 trades at another broker over the course of a month.

Why I’m Not Leaving tastytrade

Despite all of this, I actually plan on maintaining an account with tastytrade and opening at least one more. tastytrade definitely serves a purpose and I knew about their fees and margin rates before I signed up. In addition, one can still actually get the full benefit of tastytrade bonuses with proper planning and strategizing. It’s a matter of minimizing your fees, and that’s as simple as not trading often with tastytrade.

How to Save Your Money While Using tastytrade

tastytrade charges for every trade, so the obvious answer to saving money at tastytrade is to limit your trading with them. Use tastytrade for positions that you plan on holding for longer periods. Use other brokers to trade positions that you don’t plan on keeping for the long-term. Day trading is certainly not something that you should do on tastytrade if you’re trying to limit your costs.

While using tastytrade, you can also preserve your funds by not utilizing margin. Not to encourage what some might consider risky behavior, but if you’re an experienced options trader, you’ll know of a few strategies to “own” stock without actually buying it outright.

Which tastytrade Promo is Right for You

If I haven’t scared you away from tastytrade and you’d like to see what they have to offer, they have a referral offer and a deposit offer.

If you’re an active trader or someone who isn’t quite willing to make a one-year commitment to tastytrade, you might consider just signing up for a referral offer instead. It only requires you to maintain $5,000 for 6 months.

If you’re ready to give tastytrade a try for at least 12 months and also want a bigger bonus payout, sign up for a deposit bonus, which will pay up to $5,000.