tastyTrade Review
Our take: Tastytrade feels like a pro downhill mountain bike. You have great engineering, more features than most people even know exist, tools for dampening shocks and benefiting from jumps. If you really know how to use it, you might shave time off your Strava PB on your favorite trails. Tastytrade will let you buy the world’s least expensive US listed ETFs, go short, lever up with margin, hedge with options and futures and lend out your securities to squeeze extra yield. But you don’t need lock in pedals, twin suspension and carbon fiber handlebars to get to the local shops or commute to work. Riders attempting less demanding financial journeys might not benefit from the complexity on offer and may find the fuss of constant conversion from their home currency to USD grinds their gears.
Our assessment: Tastytrade scores 3.9 on an absolute basis, given low fees and IG Group support. It does benefit from an Investment Grade Rating of the parent. In its category, it scores a strong 3.7.
Is it suitable for you?
- Passive Investors: It is generally not very suitable for EU and UK Investors, as Tastytrade only provides access to US Securities and ETFs. US ETFs have dividend and wealth tax consequences for EU and UK Investors.
- Semi-Active Investors: More advanced investors with knowledge of tax implications can benefit from this cheap broker giving them access to a wide range of US products. The only caveat is the outgoing bank transfer fee. It is US-regulated which means you benefit from a $500k Protection Scheme.
- Advanced Investors: For active, experienced investors, Tastytrade has a massive range of securities and tools for building portfolios, managing risk and applying leverage. These investors could also opt into securities lending to generate additional income.
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Pros & Cons and suitability
Pros & Cons
- Low cost: Zero commission & custody
- Range of advanced features and tools
- Backed by the balance sheet and reputation of IG Group
- $500k US Protection Scheme (SIPC)
- Only US listed securities
- No tax advantaged accounts for international customers
- Active trading focus all platforms
- Outgoing wire transfer fee
Suitability
SOMEWHAT Suitable
Education needed in US ETF investing and tax implications
Suitable
Zeros fees combined with range of U.S. ETFs
Very Suitable
U.S. ETF universe, margin accounts, derivatives.
Availability
Tastytrade is Available Internationally. Check if the broker is available in your country
Tastytrade international accounts are widely available across Europe and the UK. A UK customer specific platform and accounts are currently in the pipeline and expected to be rolled out late in 2024. If Tastytrade’s expansion into the Australian market in 2019 is a guide, this will eventually result in GBP denominated trading and local taxed advantaged accounts.
Broker Snapshot
Why is TastyTrade (Part of IG Group) a Tier 1 broker?
Tastytrade fits best when classified as a Tier 1 broker. It’s not a bank nor the arm of a bank and it isn’t trying to get into the Neobroker app space like Investengine or Trading 212. It is a serious, pure play firm focused on active trading of various securities including derivatives with a particular focus on options and futures. It has a large customer base, with over 900,000 unique users at the time it was acquired by UK’s IG Group Holdings in 2017. Since the acquisition by IG, Tastytrade also benefits from the stock market listing of IG, another characteristic of Tier 1 brokers.
A U.S. Broker, Rated and listed UK Parent, US-regulated
You will be signing up with a US Broker. While Tastytrade is a relatively new player it is now part of IG Group – a profitable financial institution in the business since the mid 70s. IG has a low Investment Grade rating (borderline High Yield) from Fitch and it is listed on the LSE stock exchange with a £2.7bn market cap as of July 2024. It is regulated in the US by the SEC and offers client protection up to $500,000 under Security Investor Protection Corporation.
Company Info
| Characteristic | TastyTrade |
|---|---|
| Inception Date | 🛈 2017 |
| Headquarters | 🛈 Chicago, US |
| Key Owner | 🛈 IG Group (2021 merger) |
| Bank Affiliated | ❌ No |
| Listed on Stock Exchange | ✅ LSE £2.71 bn (IG Group) |
| Parent Rating | ✅ Fitch BBB- |
| Operating Profit (2023) | ✅ £449.9m (IG Group) |
Regulation
| Feature | TastyTrade |
|---|---|
| EU Entity | 🛈 None |
| UK Entity | 🛈 None |
| Key Regulators | ✅ US: FINRA, SEC, NFA |
| EU Regulator | N/A |
| UK Regulator | N/A |
| EU/UK Guarantee | N/A |
| US Guarantee | 🛈 SIPC - $500,000 limit |
No trading fees, Great eTF availability but Foreign Wire Charges
Tastytrade has no account or trading fees, however it offers accounts just in USD and foreign investors incur FX charges. Accounts do not earn interest on cash. Security Lending is remunerated at 50% and margin loans are competitive.
Features
| Feature | TastyTrade |
|---|---|
| Key Base Currencies | USD |
| ETF Availability | ✅ Very High |
| Multicurrency | ❌ USD only |
| Cash Interest | ❌ No |
| Margin Loans | ✅ Competitive |
| Exchanges | ✅ US exchanges |
| Security Transfer | ✅ Yes |
| External PFOF Reliance | ✅ Low |
Fee Structure
| Feature | TastyTrade |
|---|---|
| Custody Fees | ✅ None |
| Inactivity Fees | ✅ None |
| ETFs Dealing Fees | ✅ None |
| FX Fees | 🛈 Not Available |
| Deposit Fees | ✅ None |
| Withdrawal Fees | ⚠️ $45 Foreign Wire |
| Security Lending | ✅ 50% of Profits |
I. Company
Tastytrade is a relatively new player in the brokerage space but part of a well-established, very profitable, listed, and Investment Grade rated broker that has been in business for over 50 years. The major revenue sources come from the trading business that focuses on different types of derivatives and premium services. Due to the focus on speculative products, IG Group has received some criticisms in the past although Tastytrade has not.
parent company Business Profile
Tastrytrade is a US Broker. However, its parent – IG Group – is based in the UK.
IG Group strategy is centered around four product areas operating under the IG, IG Prime, Tastytrade, Tastylive, DailyFX and Spectrum brands:
- Over the counter (OTC) derivatives, FX and options (83% of revenues)
- Exchange Traded Derivatives (15% of revenues)
- Stock Trading and Investments (2% of revenues)
- Content and Education
The first two of these areas deliver most of IG Group’s revenue and profits on an annual basis. Stock trading and investments accounted for just £22.6m or 2% of £941.8m total trading revenues for the year ending May 2023. This should be an immediate clue to where the attention and focus of the company is likely to be – namely on derivatives, FX, options and ETDs.
Tastytrade, as part of IG Group, complements the group’s strategy by focusing on providing low-cost, efficient trading platforms primarily for options and futures, while integrating educational content to support its user base. The firm describe themselves as being “The broker centered around traders”. Co-founder Scott Sheridan explains the platform’s philosophy as “agnostic to products, we have the tools you need to be a successful trader.” This stance explains the massive range of securities and derivatives on offer. Cryptocurrencies Bitcoin and Ethereum are also available (readers might consult BoW’s take on Bitcoin).
Tastytrade generates revenue through several streams including commissions on options and futures trades, margin interest from users trading on borrowed funds, payment for order flow, and fees for premium services such as wire transfers and specific transaction charges. This model is aimed at active traders who benefit from sophisticated trading tools and analytics, encouraging higher transaction volumes.
Ownership and Transparency
Tastytrade’s parent Tastylive Inc was acquired by IG Group Holdings in 2017 for $1 billion. Due to the merger of Tastylive with IG Group Holdings, information on the specifics of Tastytrade’s financial performance is subsumed into IG’s overall financial position, so any assessment of the financial stability of the platform must be seen through the lens of IG. IG’s financial position appears strong, posting profits of £446m in 2021, £477m in 2022 and £450m in 2023. IG has a low investment grade credit rating of BBB- issued by Fitch, reflecting an assessment that default risk is low. Our own review of IG’s trading platform provides more information on IG as a company.
Safety Considerations
IG group is very profitable and well capitalised. Its listing on the LSE means the firm’s activities are subject to scrutiny and extensive financial documentation including its strategy. Unusually for a brokerage firm in the UK, IG has a rating by Fitch, which provides more insight into the financial stability. At BBB- (as of April 2024) Fitch’s assessment is just a notch away from High Yield. The estimated probability of default is still low, as measured by 10-year peer cohort probability of default. Based on historical data, 3 out of 100 similarly rated financial companies went out of business over a 10-year period. This estimate would increase to around 6 out of 100 should it be downgraded to HY (BB+).
Regulation & Investor Compensation Schemes
Tastytrade is overseen by the US Securities Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA). The activities of its London-based owner IG are regulated by the FCA. Tastytrade is a member of the Securities Investor Protection Corporation. This compensation scheme guarantees $500,000 of customer assets in the case that the institution fails.
Share & Cash Custodians
Your securities are segregated from the rest of your account and held by Apex Clearing. Your cash is held with BMO Harris Bank, the US subsidiary of Bank of Montreal.
Reputation
Tastytrade is relatively unknown in the personal finance and investing world outside of the USA. Founded in 2017, Tastytrade has a relatively short track record compared to big names in investing like Vanguard or Fidelity.
II. Fee structure
Tastytrade does not have custody or trading fees and it scores very well in the comparison with its direct competitors. However, it offers accounts in USD only FX fees adding complexity for non American investors and potentially conversion fees.
Platform fees
Tatsytrade has no platform fees.
Trading Commisions
Tastytrade does not charge commission on opening or closing deals on ETFs or stocks or fractional shares. The platform instead generates revenue from commission fees on options and futures.
Overall Fee Simulation vs Competitors
Most of our readers have simple Index portfolios. Using our Broker Total cost calculator, you can estimate the total cost of holding ETFs throughout the investment period. For our simulated scenarios, TastyTrade comes out as very competitive.
Fee Simulation For General Accounts
Tastytrade’s zero fee structure for those trading ETFs stands out in beating both IBRK and Vanguard on costs. But remember that you’ll need to make your own currency conversion to USD before funding your account and think forward to the impact of international withdrawal fees when you start to draw down your assets.
Investor assumptions
| Model Feature | Assumption |
|---|---|
| Investor | International |
| Instrument | ETF |
| Account | International |
| Initial Investment | $ 100,000 |
| Monthly | $ 1,000 |
| Time Horizon | 20 years |
| Gross Return | 8% |
Total Fees
Currency Exchange fees
Tastytrade does not provide any currency exchange services and doesn’t allow you to trade securities denominated in currencies other than US dollars. International users will have to convert their own currency to USD and then request a wire transfer from the bank holding their USD funds to their Tastytrade account. This ingoing wire for deposit is free. It does add an extra step of complexity to the process and will involve seeking out a third-party currency exchange and a bank account which can hold USD. Outgoing international wire transfers from Tastytrade cost $45. Potential customers will need to be careful in considering their currency exchange options and what exchange rate risk they may be taking on. They’ll also need to consider how the cost of transferring out their future cash flows might eat into returns or negate low fees.
Other fees
Deposits and withdrawal are free of charge.
III. Platform & Features
TastyTrade offers lots of features for traders. This is all very interesting, but for long term investors it is at best background noise and at worse a serious distraction. For wise investors, what would be good to get is automated investing, cash remuneration or family accounts. Advanced investors will find a lot of products, though, including access to US ETFs.
Account Opening Process
Opening an account from the UK was straightforward, requiring basic personal details and verification of identity.
account Features
Tastytrade’s platform user interface is, like that of its owner IG, trading focused. Major highlights are:
- Advanced Trading Features like stocks, ETFs, commodities and indices, as well as options, futures and options on futures.
- US ETF.US ETFs typically have the lowest total expense ratios internationally. For example, Vanguard’s US Total World Stock ETF (VT) has a TER of 0.07, compared to the FTSE All-World UCITS ETF (VWRP) at 0.22%.
- US treasury bills, notes and bonds over the phone, although not on the web platform;
- Apps for Android and iOS, a desktop application and the browser platform with an emphasis on information provision
- Great customer Service: The experience of getting into contact with a Tastytrade customer service agent was rapid, well informed and responsive to our questions.
- Lack of beginner friendly features including regular, scheduled investment service. This may be deliberate move in line with their aim to stand (as their promotional materials put it) in contrast to “robo-advisors who put your portfolio on autopilot.”
Internalisation and PFOF
Tastytrade receives payment for executed listed equity orders routed to market makers. However, they do not receive payment for increasing order flow to any given market maker, so it should not distort their service to you as a customer.
Cash Interest
Tastytrade does not offer interest on cash. If cash represents a significant part of your portfolio, you’ll likely want to hold this elsewhere.
Advanced Features
tastytrade provides you with access to US based ETFs. Margin loans and options, futures, derivatives and FX are available and you can take on commodity exposure via ETCs.
Features
| Investment Type | Availability |
|---|---|
| ETFs | ✅ |
| Stocks | ✅ |
| Bonds | ✅ |
| Funds | ❌ |
| Options | ✅ |
| Derivative | ✅ |
| Futures | ✅ |
| CFDs | ❌ |
| Forex | ❌ |
| Crypto | ✅ |
| Commodities | ✅ |
IV. Taxes
Tax Wrappers
Tastytrade’s US customer focus means that users outside of the US are not provided with tax advantaged accounts. This means that whatever other practical or cost advantages Tastytrade has will need to be measured against the cost of realizing profits or taking dividend income outside tax efficient accounts in whichever country a customer is registered for taxation. Tastystrade does not provide retirement or child investing accounts for international investors.
Tax Reporting
Good Luck and Keep’em* Rolling!
(* Wheels & Dividends)
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