Thinkorswim
Trading Software Review

Thinkorswim ("TOS") is a really cool platform! It has some of the best analysis tools where you can trade all investment products from one location. 

Most reviews show that people are really impressed with the features of the platform. They even offer Level II data feed for free! I don't know any other broker that currently offers this market depth feature at no cost. 

The platform is free and there is no charge for data!

But wait, like the saying goes...there is no free lunch. What you need to analyze are the commission costs and your trading style. Check out my simple cost analysis below. I also provide a solution that other traders utilize to get most of the benefits without most of the costs.

As much as I love this platform there are two major drawbacks. See if it's right for you.

Asset Classes     All

Ease of Use     4/5

Charting     4/5

Value for Money     5/5*

Customer Support     4/5

* The platform itself is free and is very robust so I gave a high ranking here; however, commissions can kill your account - check out cost analysis below!

Cost

Platform Cost - Free
Market Data - Free

Alright so the trading software doesn't cost anything and you don't have to pay for market data - so what am I fussing about?

Ask yourself, how many trades do you make per month on average?

Platform Fee Comparison

TD Ameritrade (the broker for the thinkorswim platform) charges $10/trade

What about other brokers? 

To have the Interactive Brokers TWS platform "for free", two trades on thinkorswim would cover the monthly cost of TWS inclusive of market data. 

To have the Tradestation ("TS") platform for free, you need to trade 5,000 shares in the month (about $32 in commissions). With Tradestation you have to pay for market data on top of this - so you have to see whether it is worth it based on your activity. 

Cost of Platform measured in thinkorswim stock commission trades:
TOS - Free
TWS - Free after 2 trades ($20)
Tradestation - Free after ~4 trades(~$40)
(assuming you only use basic Level I data)

Trader Type Comparison

Ironically if you are any more frequent than a "buy-and-hold" investor, executing orders on this platform likely isn't a good option. Check out what I mean: 

Swing Trader

Let's say you are a swing trader doing about 10 stock trades a month. 

thinkorswim cost:
$100/month

Interactive Broker cost:
$10/month for trades + $10/month market data =
$20/month

TradeStation cost:
$10/month for trades + $100/month for platform =
$110/month

Worst >> Best
TradeStation >> thinkorswim >> Interactive Brokers
Annual Cost:
$1,320 >> $1,200 >> $240

Winner: Interactive Brokers

Thinkorswim is going to cost you $80/month or $960 more per year compared to IB. But in this case, TOS is better than TS since with TS you will have to pay a platform fee for not hitting minimum criteria. 

Day Trader

Let's say you are a swing trader doing about 10 stock trades a day. 

thinkorswim cost: 
$2,000/month

Interactive Broker cost: 
$200/month for trades + $10/month market data = 
$210/month

TradeStation cost:
$200/month for trades + $5/month for Level 1 stock market data = 
$205/month

Worst >> Best
thinkorswim>> Interactive Brokers >> TradeStation
Annual Cost:
$24,000 >> $210 >> $205

Winner: TradeStation/Interactive Brokers

*Assumptions:
- 20 Trading days per month. I know there are a bit more days but you get the idea.
- You will trade more than 5000 shares to hit the TS minimum criteria and not incur platform charges. 

Once you start using the TOS trading platform to do some serious day trading...you will find yourself paying TD Ameritrade a crapload. It'll cost you $24k in commissions for the year in this example!! ARE YOU KIDDING ME? While IB and TS is pretty much same cost with an immaterial $5 difference for the year. 

And that my friends, is why the TOS platform and data costs are "FREE."

And this is the irony - this trading platform is not really economical for day trading.

Solution

The trading software is great but the cost of commissions kills you if you are actively trading. What some traders do, is that they have a TOS account to have access to the platform, however they execute their trades on a different system. TOS doesn't charge a minimum activity fee making this solution a viable option. 

This works if you are not scalping as you have sufficient time to analyze on one platform and then execute on another. Your call!

Advantages

General

  • Trade all investment products from one platform

  • Robust platform with multiple order types and a ton of features/indicators

  • Platform and market data are free

  • Easy to enter orders even complex multi leg option strategies with only a couple clicks

  • thinkScript - have their own programming language where you can alter charts and studies or create your own. There is also a thinkScript lounge where you can share ideas with fellow traders using this tool - opportunity to learn from others and ask questions 

  • Customer service is good - generally I found minimal complaints from others

  • Education - Offer a "Thinkorswim Learning Centre" - archive of tutorials/videos showing the features and functions of the platform

    Offer Swim lessons - Learn platform from former traders/platform experts; take platform demos; or there is the "wading pool" webcasts for n00bs.

Charting

  • Easily organize multiple charts, add on indicators and other studies

  • Have various charting tools such as a DOM window for futures trading and Market Profile charts (leading competitor MarketDelta charges big money for this type of charting)

Analysis

  • thinkOnDemand - allows you to replay recorded market data from a past time period and trade it as if it is real-time (tick by tick).

  • Company Analysis - have a setting where you can play around with company inputs (i.e. revenue drivers) to see the potential impact on the earnings/stock price.

  • Compare fundamental data across various companies using financial/leverage/profitability ratios, etc. 

  • Option analysis - You can look at the probabilities of specific strikes expiring in or out of money, project value of an option trade by adjusting date, volatility, price, and they have visual analysis tools so you can see profit and loss areas of your strategy.

    Spread Hacker tool: you can see what option spread orders other traders placed (e.g. vertical, calendar, iron condor, etc.) and then choose with a single click to replicate that trade.

    Strategy Roller: the platform will automatically roll forward your option contracts based on predefined criteria you specify. You can also stay updated on the status of the strategy through SMS text alerts or email. 

Disadvantages

I'll keep it simple - 2 MAJOR drawbacks;

  • Commissions - will eat up your money so fast if you are an active trader. 

  • Not Direct Market Access ("DMA") - for all the other brokers I review here, they have DMA meaning you have direct access with the order book of an exchange. With non-DMA brokers, they are an intermediary between you and the exchange and thus the broker controls the way a transaction is managed.

    There are multiple benefits of DMA but mainly they are:
    - lower transaction costs (client is only paying to use only the technology and not for the broker who has oversight responsibility in executing your order"
    - you have more control over the final execution as it goes straight to exchange and there is no middleman that screws you over by taking control over it

    Since thinkorswim does not have DMA execution can be crappier due to 1) being slower 2) slippage - broker fills your order at a price unfavourable to you and collects the difference into his pocket. Ask any trader or read up on it - slippage costs are real but are hard to quantify or prove. 

    Ultimately, if you are day trading, you need a DMA broker for your executions. you can't afford losing out on slow executions and slippage. These are HUGE drawbacks.

Final Thoughts on Thinkorswim

The funny thing about this review is the dichotomy in my conclusion.

This platform is fantastic, it has great charting features and the analysis tools available are amazing.

Irony with thinkorswim - the platform has all the features you would want for a day trading platform but it is not great for day trading.

It does not have direct market access which is key for trading, otherwise the broker will eat at your account insidiously through slippage and slow executions against your favor. If you want to actively trade and not just buy and hold stocks, commissions will burn through your wallet fast. This is also why I don't bother reviewing the other big name firms like E-trade, Schwab, etc. since their commissions not only suck but their platform offerings are no where near what thinkorswim offers.

Potential Solution: Try out the platform with a free trial. If you really like it you can use it for analysis, its best feature. Then use a different broker like Interactive Brokers for execution since they are an industry leader in this along with low commissions.


› ThinkorSwim