Interactive Brokers Review
Interactive Brokers is a dominant player in the world of professional trading. It has become prominent by pushing the industry standards in providing robust services with minimal fees.
Provides direct market access to all types of securities from one account.
Need access to international markets? You can trade over 100 markets in 24 countries and in 20 currencies.
Its platform is great for those serious about trading. It provides extremely low margin fees, low costs for trades and great easy-to-run portfolio analysis reports.
Take a look at the details below - you will see the awesomeness I am talking about. Of course with everything there are also cons which I will go through, but out of all my research, this online broker is ...dare I say it....the top broker?
Have a look for yourself and see how it fits your needs and style of trading.
Stocks / Options / Bonds / Futures / Forex
High - $10,000 USD
STOCKS $0.005/share; MIN: $1.00 MAX: 0.5% of trade value
OPTIONS* $0.70/contract MIN: $1.00
FUTURES† $0.85/contract + exch./reg. fees
FOREX‡ 0.2 bps * Trade Value MIN: $2.00
BONDS 0.1% * Face Value (10bps)
GOLD/SILVER 0.15 bps * Trade Value Min: $2.00
MUTUAL FUNDS $14.95 / Transaction
Note: All prices above are per Interactive Broker's North America fixed pricing structure and are in USD. For a full breakdown of their commissions please click here.
* Note that commissions are not charged for US exercise and assignment.
† From my experience exchange/regulatory fees were roughly $3 round trip for popular contracts such as the ES (a.k.a S&P 500 emini)
‡ Interactive brokers has some of the tightest spreads in the industry . It combines quotes from 13 of the world's largest FX dealers so spreads can sometimes be even lower than 1/2 PIP. It passes this discount to the client but charges a separate low commission. (Unlike other brokers who don't charge commission but take a huge cut by charging large spreads).
You might have noticed by now that for brokers that provide really cheap commissions you need to subscribe to a data feed. You might at first think - so what's the point, whatever I save in commissions I now have to spend on data.
It's still cheaper going this route. For regular level 1 data at Interactive Brokers (a service typical big broker names provide for 'free') I pay $13.00/month. That's about the same price as one commission charged by these big brokers such as TD Ameritrade/Charles Schwabb/etc.
Interactive Brokers offers a $10/month bundle which includes:
BATS exchanges, US Mutual funds, Dow Jones Indices, CME Lvl 1, OTC Markets Lvl 1, U.S. Bonds.
To get AMEX, NYSE, or NASDAQ exchange market data access you need to add $1.50/month for each of those.
So minimum all in Level 1 data for trading in all securities is $14.50/month. (Still less than a round trip trade in a stock at a regular broker dealer assuming $10 commissions per trade).
If you are an active trader, the $10/month bundle is actually free if you generate at least $50USD in commissions per month.
For further details you can view all additional data pricing and services here.
- Offers a full range of asset classes to trade
- Trading platform is free and very robust
- Offers an extensive amount of order types
- Lowest trading costs in the industry
- Can create portfolio reports instantly which provide an in-depth look on your account. This includes asset allocation, sector allocation, open positions, performance statistics/benchmark comparisons and more! I find this very useful as it provides measurable results in a pleasing visual format.
- Executions with Interactive Brokers are amazing!
NERD DETAILS: For executions, Interactive Brokers uses what they call Smart Routing in order to lower your costs as much as possible. I have experienced a noticeable difference in favorable fills compared to other brokers I have used.
For instance with options, IB looks at exchange fees/rebates in deciding where to route an order. It may route an order to an exchange not currently posting the NBBO (National Best Bid and Offer) but it may be willing to step up to NBBO to avoid/reduce exchange fees for executing the order. Ultimately, this results in a lower execution fee for the customer and a fill at the NBBO once trade goes through.
- Interactive Brokers is excellent in trying to pass along cost reductions to you as the end user. For example, for stocks that you own, a broker has to "segregate" them wherever they are held in custody and these are untouchable. But IB offers you the option of letting them borrow those shares to meet temporary needs of executing orders on their end and they give you a % return - essentially you charge them a borrowing fee on your shares!
- IB holds in custody a wide variety of stocks. If you want to short an unpopular stock, many brokers will not have any extra shares that they can lend you. So at the end of the day you can't execute a short position even if you wanted to. However, IB will typically have shares for you to borrow for short positions of hard to borrow stocks, pump and dumps and OTCs.
- Access to markets on a large international scale
- Need at least $10,000USD to open account. They do this to eliminate the beginning traders with only a couple grand to invest.
- One of the biggest disadvantages I have come across from review sites all over the web and my own experience is the learning curve of the TWS Desktop platform. IB does have various educational resources to learn the platform but it will take you some time.
- Another popular complaint is the customer service. In brief, IB will not hold on your hand. I personally have had no issues and they have responded quickly to all my questions. However, I have heard from several sources that they might not be too helpful or for any problem they usually find blame on your side or the exchange before they take any blame themselves.
- Cater to a more knowledgeable investment crowd - you may have difficulty being able to get permission to trade futures/forex. They ask you to enter how many trades you have done in the past in each type of asset class if you wish to trade it, or you need to take a test to prove you know enough about the asset to trade it.
Trader Tip: If you have no experience trading an asset class, IB forcing you to take an asset class test is not a disadvantage in my opinion. If you can't answer the questions correctly, you should not be trading that asset class. They are actually helping you.
"Risk comes from not knowing what you are doing" - Warren Buffet
Very true statement as even "risky" assets like futures have much smaller risks if you have proper knowledge of how the asset trades and how to protect yourself with proper risk management tools.
- Further to the above point, Interactive Brokers does not allow you to open a paper trading account on assets you were not approved to trade. So if you have never traded forex and want a paper trading account to start, too bad. This is one thing I did not like but once again, it goes back to them catering to a little more seasoned clients.
- Monthly activity fee of $10 - if you generate at least $10 in commissions then this is waived.
- Monthly fee for data feeds - the $10/month bundle is free if you generate $50 in commissions
Final Thoughts on Interactive Brokers
These guys have the lowest fees and trading costs in the industry. They offer great international access and an enormous amount of securities. You can trade all asset classes from one platform.
Just keep in mind they aren't there to hold your hand and get ready to dedicate some time to learn their trading platform.