My Interactive Brokers Brokerage Account Review IB
Interactive Brokers (IB) is one of online discount brokerage account which offers trading platform to trade online stock or option for investors or traders. Interactive Brokers is especially famous among the active and global traders. IB is also known for its proprietary software and providing direct market access for investors. Interactive Brokers offers stock, option, future, forex, and bond trading. Another reason using Interactive Brokers is IB is continuously improving and updating their trading platforms to maximize the overall functionality for its traders and investors.
Interactive Brokers Details
As one of top online discount brokerage in US, Interactive Brokers was founded in 1977 as T.P. & Co. The current headquarter is located at Greenwich, CT USA. Interactive Brokers is a brokerage and financial services company listed in NASDAQ with ticker: IBKR. IB has various offices around the world such asUSA, Switzerland, Canada, Hong Kong, UK, Australia, Hungary, Russia, India, China and Estonia.IB states that it has consolidated equity capital of over US $4.8 billion, and also states that IB and its affiliates exceed 1,000,000 trades per day and trade 14.1% of the global equity options volume
It currently uses its own clearing service to hold the client asset. Interactive Brokers, member of FINRA & SIPC, holds and clears all client trade. All Interactive Brokers accounts are insured under SIPC up to $500,000 ($100,000 cash) and supplemental Lloyd’s of London coverage up to $150 million ($1 million cash).
Pricing / Commission Fees
Interactive Brokers offer various commission fees structure such
as Bundled and unbundled commission fees. Bundled
commission is a fixed fee and you know where you are with the costs. Unbundled
can work out cheaper if you trade many contracts but the costs are variable.
Most traders choose bundled commission.
- Products: Stocks, bonds, mutual funds, options, foreign investments
- Market Orders: $0.005 per shares ($1.00 minimum)
- Limit Orders: $0.005 per shares ($1.00 minimum)
- Broker-Assisted Orders: $0.01 per shares ($100.00 min)
- Mutual Funds: $14.95/ trade
- Options: $0.70/contract
- Minimum to Open: $10,000 for US-based accounts; varied for foreign accounts
- Account Maintenance Fee: $10.00 - $20.00
- IRA maintenance Fee: $7.50 per quarter
- Some Other Fees: Wire Transfer outgoing: $10.00 per transfer.
- ACH Transfer Fee: $1.00 per transfer.
- Maximum Margin Rate: Based on proprietary base rate
Opening an account
Opening account is straight forward; you just need to fill the online application through IB website. You can open individual, joint, custodial, and Individual Retirement Accounts (IRA). They may require you to submit some identification such as Driver license. The application only takes about 10-15 minute. Once you are done, you’ll need to wait for their approval. Then, you can setup how you want to fund your account.
There are 4 different ways to fund your IB account:
- Wire Transfer – usually can be done same business day
- Transfer an account from other brokers .This will take more than 10 business days
- Mailing a check will take 5 business days
- Electronic Transfer (ACH transfer) will take up to 2-3 business days.
For International or Foreign investor or non US resident, you can apply IB account through website. It will direct you to your regional international website such as United Kingdom, Hong Kong, Spain, Germany, and Canada. Typically, you will need to submit your account by mail. You will need to submit W-8Ben and ID or Passport along with your application. The minimum balance to open an account is $25,000.
Please note: IB is a brokerage gears toward experienced traders or investors. The following are some of IB criteria of experienced investors or traders:
- Have good or extensive product knowledge for something you will trade.
- Have done more than 100 trades execution (any product).
- Can provide a minimum equity deposit in cash or stock of USD 10,000 (or USD equivalent) or USD 5,000 for IRA Accounts.
- For day traders, there is a minimum account value of USD $25,000 at all times in account balance for US stocks, US options and US Single Stock Futures.
Interactive Brokers has two trading platforms. The first is a streamlined web based application called WebTrader. Another one is a more powerful java application named Trader Workstation. Opening, closing, canceling and modifying trades in either platform is easy and quick. Trader Workstation has many more complex order types and conditional trades. These complex orders are simply unmatched by other stock brokers. If you are interested in these advanced trading strategies, you should give Interactive Brokers a try.
Commissions & fees
For Stock Trades, Interactive Brokers is a well known broker amongst active traders. It also has a varied rate commission structure. Standard US stock trades will cost $0.005 per share with a minimum of $1.00 and a maximum of 0.5% of trade value. Several examples of how this commission structure is calculated are seen below:
1. For non penny stocks, it usually costs $0.005 per share such as:
- 100 shares of a $40 per share stock = $1.00 Total Commission Fee
- 500 shares of a $40 per share stock = $2.50 Total Commission Fee
- 1,000 shares of a $50 per share stock = $5.00 Total Fee (this trade price is the cost of 1,000 shares *.005 per share)
2. For penny stocks,
a maximum of 0.5% of trade value may kick in to lower the trading fees such as:
- 100 Shares @ USD 0.50 Share Price = $1.00 Total Commission Fee
- 500 shares @ USD 0.50 Share Price = $1.25 Total Commission Fee (or 0.5%*$250 =$1.25)
- 1,000 Shares @ USD 0.50 Share Price = $2.50 total (this trade also meets the maximum commission of .5% of total trade value, or .5% x $500)
If you need broker assistance, the trades will cost $0.01 per share with a minimum order price of $100.
Interactive Brokers does charge inactivity
fees if investors or traders don’t meet certain requirement such as monthly commission
fee thresholds. For regular accounts if $10 is not spent per month in
commissions then the difference will be charged (i.e. if you spend $5, then $5
would be charged). For trader which is under 25 years old, the trading minimum
is $3 per month. Lastly, for lower balance clients with less than $2,000 in
portfolio value, the minimum is $20 per month.
The following order types can be placed on IB: Market Order, Limit Order, Stop Loss Order, Stop Limit Order, Trailing Stop Loss Order ($ & %), Trailing Stop Limit Order ($ & %), Market If Touched Order, Limit If Touched Order, Trailing Market If Touched Order, Trailing Limit If Touched Order, Relative/Pegged-to-Primary Order and Conditional Order.
For Options Trades, the standard rates are also tiered. For an investor
trading less than 10,000 contracts per month having their trades routed using
the Interactive Brokers Smart Routed system (default setting), there are 3 tiers
based on the price of the contract itself. These tiers are broken down below
(exchange and regulatory fees may also apply):
- Contract price > $0.10 = $0.70 per contract with a $1.00 minimum and no maximum.
- Contract price $0.50 - $0.10 = $0.50 per contract with a $1.00 minimum and no maximum.
- Contract price < $0.05 = $0.25 per contract with a $1.00 minimum and no maximum.
If options traders want to directly route their trade options
orders to different routed system, they can do so at a price of $1.75 per
contract with a $1.75 minimum and no maximum.
For Mutual Funds, Non-loaded Mutual Funds are simply $14.95 per trade. There are no tiers. Initial purchase must be at least $3,000. For loaded funds additional fees will vary.
For Forex and Future trading, please check Interactive Brokers website for details.
Advantages and Disadvantages of Interactive Brokers
Pros using IB
- Offers cheapest and very competitive trading fees for stock and option
- Best of class access to international markets and offers various international market for trading
- Also offers account for non US resident or international
- Provide complex and conditional orders
- There is no ticket fee for option and the option trading fee is low compare to other brokerages
- Support various trading system such as ninja trader
- It provide support for mobile phone application such as Iphone, blackberry, Nokia and other Smartphone
Cons using IB
- High minimum initial investment to open an account
- There are fees charged for inactive accounts
- Heavy learning curve to trade with their trading platform
- The web based trading platform are lacking some features
- The quote is not real streaming and there is a slight delay in order execution
- Lack of research tools
Other Customers’ Complaint from research:
- Some complaints about the long opening period account especially for international account.
- Issue with hidden fees
- It takes longer to transfer money out from account
- Customer service is not very responsive
- Various issues with buggy Trader Workstation
- Issue with Forex account
Interactive Brokers comes with a $10,000 minimum funding and is not suited for casual investors. It provides fantastic support for international stock market trading and the commission fee is very competitive especially for active traders who seek low trading fee or cost. I would recommend IB for advanced traders who use the desktop software application. I would not recommend for web based traders as well as for IRA account holders.
It also supports the mobile application such as iPhone, BlackBerry,
Nokia and a generic version. The web based application is rather limited
compared to the desktop software application. For a web based platform traders,
Interactive Brokers may not be ideal. The desktop software application offers a
very powerful stock & options trading engine. There are various advanced
charting features that, similar to thinkorswim, are geared for advanced
traders. Casual traders looking for a simple trading engine may be better off
with other brokerage services such as Zecco, E*trade, Firstrade and Scottrade. Commissions
and fees can be varies but in general it is very low. There are also
various fees for subscribing to real time market data but delayed market data
is included without charge. Margin rates are very competitive compare to other
brokers. The iTWS iPhone app is serviceable but is not among the best
mobile trading platforms.