High Risk Options Trading Is Being Pushed By Some Brokerage Firms


In another example of brokerage firms catering to retail investors’ worst instincts, supposedly investor-friendly firms like Charles Schwab and TD Ameritrade are focusing on expanding their trading business beyond traditional investment like stocks and bonds into alternative investments like options because the commissions are so high. (“‘Easy Money’ Options Pushed by Online Brokers,” Bloomberg).

Commissions from stock trading have declined while options trading has hit a record high. Options are a way for firms to increase revenues, and provide a “spring board” for investors to take the leap into even riskier futures and currency trading, which are lucrative for the firms.

One cannot help being reminded of the gateway drug analogies; marijuana (options) leads to the harder stuff (futures, currencies). These practices put brokerage firms on a par with pushers and “Doctor Feelgoods.” According to one observer quoted in the article: “They’re easy money, huge commissions and they tend to be extremely addictive for those who actually trade them.”

Options and futures contracts are highly leveraged, dangerous securities. Like the high roller tables in Vegas, players can burn through a lot of money fast. So much for any claim that these firms put their clients’ interests first.

Individual brokers may experience shame over such practices but they are controlled by their firms, which do not. The imperative of brokerage firms is to make money for the firm ? apparently at any cost.

Options are simply unsuitable for most people and unsuitable for anyone who intends to invest rather than gamble with their money or hedge other investments. Brokerage firms and their representatives know this, but continue to sell them anyway. Investors should think twice before being sucked into what is nothing but a brokerage firm scheme to increase revenues at the expense of their clients.

Page Perry is an Atlanta-based law firm with over 170 years collective experience representing investors in cases involving options and other investments. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. For further information, please contact us.