UPDATED: Apr 25, 2016
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Initial investment minimums are high when compared against the industry average. However, if you have the dollars, Interactive Brokers is an excellent place to put them for short term, active day-style trading & investment strategies.
When it comes to any online brokerage house, one of the most important considerations is cost.
I have already touched upon the idea that Interactive Brokers best-kept secrets are guarded by their gatekeeper- high initial investment requirements; however once these walls have been penetrated you are set to take advantage of all the good that comes with being a client.
Lets touch on commissions.
If a client of Interactive Brokers (IB) does not reach a monthly minimum commission payout of $10 (a nominal commission for active traders) the difference will be charged.
Moral of the story- IB is anonline brokerage house designed to provide the highest utility to active traders looking to take advantage of their low cost trade structure. If you do not take advantage by trading somewhat routinely and are perhaps looking for a more automated savings type investment strategy, go play with Sharebuilder and stay away from IB.
In addition to the minimum $10 commission is a $10 monthly fee for real time quotes, waived if an investor has paid more than $30 in commission fees that month.
IB offers Cost Plus (+) & Flat Rate pricing schedules.
IB boasts a “transparent” Cost Plus (+) pricing strategy for stocks, ETF’s & warrants at low commission rates that decrease as volume of trade increases, where exchange, regulatory and clearing fees are passed on. When an exchange provides a rebate, that savings is passed directly to the trader.
Lets take a look at how Cost Plus (+) translates into dollars:
Volume/month <300,000 shares – IB commission per share (IBCPS) USD 0.0035 with a maximum per order of .5% of trade value. 300,001 – 3,000,000 shares IBCPS USD 0.002 capped @ 5% of trade value 3,000,001 – 20,000,000 shares IBCPS USD 0.0015 (.5% cap) 20,000,001 – 100,000,000 shares IBCPS USD 0.001 (.5% cap) >100,000,000 shares IBCPS USD 0.0005 (.5% cap)
Interactive Brokers Flat Rate schedule, as it sounds, charges a fixed amount per share or set % of trade value for stocks, ETF’s & warrants. Where IB’s Cost Plus (+) strategy passes regulatory, clearing, exchange & IB commission fees on to the investor, IB’s Flat Rate includes all these in the pre-determined rate. The thing to remember is the flat rate/percentage is subject to a minimum per order of $1.
Lets take a look at how this translates:
Flat Rate- USD .05/trade with a minimum per order USD 1.00 (.5% max per order)
100 shares @ USD 50/share = USD 1.00 (note the trades meets the minimal USD 1.00 requirement as set by the minimum per order).
1000 shares @ that same USD 50/ share = USD 5.00 (1,000 X .005 per share)
That same 1000 shares @ say USD .50/ share = USD 2.50 but meets the maximum commission of .5% of trade value, also stated .5% X $500
Interactive Brokers cost schedule is designed to appeal to the mass trader, however has checks & balances in place in the form of minimum commissions per order ($1) and monthly commission minimums ($10) to ensure IB still gets its money.
What does all of that mean? When should you use Cost Plus + vs. IB’s Flat Rate?
In my assessment, it comes down to number of shares traded compared with ones trading propensity (style) to add or remove liquidity from the market place.
Liquidity, most simply explained, is added to the market place via unfulfilled (at least initially) market orders. Pair this cash dump into the market with a high volume (1,000,000 +) of shares and the Cost Plus + pricing schedule is the option to go with, as exchanges reward the addition of liquidity to market back to the investor through rebates, which under the Cost Plus + strategy are passed back to you.
If you trade relatively small amounts (<300,000) of shares and often remove liquidity from the market via constantly selling (& buying) stocks, then the exchanges will hit you with fees, which under the Cost Plus + strategy are passed to you, therefore it is a better option for you to use the Flat Rate.
Interactive Brokers (IB) offers a diversified offering of trading platforms designed to fit the needs of most investors. These tools and platforms come at a cost, in the way of a higher learning curve, however this is a result of the overall robust nature of the tools.
IB offers desktop-based, HTML/web-based platforms as well as mobile applications & platform demos.
IB’s Flagship platform is their desktop-based offering of Trader Workstation (TWS). This piece of software is unlike most other products offered by any competitor simply in its general superiority… Again, remember all these tools are offered to all clients of IB at the cost of a true discount broker.
Here is a list of the features Trader Workstation (TWS) offers:
- Trades stocks, options, futures, forex & bonds
- Access to over 100 markets worldwide in 30 countries
- Account management is simplified, however, sophisticated
- Robust offerings of news, analytics and account management (decreases ease of use)
- Built in trader tools
- FXTrader (Forex market trades)
- ScaleTrader (scale large orders into small, incremental price components)
- SpreadTrader (create & manage futures)
- OptionTrader (customizable tool enabling management of option orders)
- Accumulate/Distribute Algo (disguise large market orders into smaller increments & releasing them randomly, achieving the best price without the notice of the markets)
Here are a few additional tools IB offers in order to help mitigate overall risk:
- Risk Analytics (tools)
- IB Risk Navigator (portfolio risk across multiple asset classes)
- Model Navigator (modify pricing assumptions)
- Option Analytics (Values reflecting rate of change)
Interactive Brokers also offers the web-based platform, WebTrader. WebTrader offers:
- Simplicity – easy to use for those looking for fewer frills
- News and live market information
- Charts & trading assistance (tools)
- Account monitoring and management
When possible, use Trader Workstation, not WebTrader!
TWS also offers most of its desktop functionality through the mobile apps. TWS Mobile Trading Platforms are available for:
Interactive Brokers’ reign through their pricing schedules and worldwide market access (over 100) ends at retirement accounts… In that they offer basic IRA accounts offered by other brokerage firms, but place less emphasis on them than say, Vanguard and Scottrade.
That’s ok… It is better to be one of the best at a couple things (pricing, market opportunities) than to be ok at a lot (including retirement).
If you are a small business owner looking to provide 401(k) services or other full service retirement options, you probably want to check out other places (Hint: Vanguard).
Bottom line – Trade with Interactive Brokers; save for retirement somewhere else.
As I have previously stated, Interactive Brokers is a lean trading machine offering access to lots of markets around the globe with a pricing strategy to match, and they do it all while being a discount broker. That being said, IB is not a full service brokerage firm, and would not be able to offer you the savings they do otherwise.
You do not bank with Interactive Brokers. You do not have access to saving accounts, checking accounts, debit cards or ATM’s.
You have access to investment options. That’s it.
Customer service at Interactive Brokers is fine.
Give a man a fish, he eats for a day, teach a man to fish and he eats for a lifetime.
Interactive Brokers offers a bunch of educational products, including:
- Live & Recorded Webinars
- Online Courses like “Introduction to technical analysis & mechanics of foreign stock transactions”
- Online “tours” of Interactive Brokers platform functionality
IB can also be reached by phone 24/7. When testing out the phone system, I was led through a quick three-step automated process to qualify me as a potential or current client and was then immediately connected to someone who could assist.
- (877) 442-2757 – Toll free
- (312) 542-6901 – Direct Dial
I am impressed with Interactive Brokers.
They offer an excellent user experience on their website, and provide tutorials and informational tools at no expense. Additionally, there is access to a robust line of trading platforms and tools while their price point is one of the lowest in the industry.
It is important though, to first qualify yourself.
What are your needs and what are your expectations from your brokerage firm regarding products offered? If you will require automated investment strategies geared towards long term growth with access to banking services and a lot of retirement options, Interactive Brokers is NOT for you (try Vanguard & Charles Schwab).
If you are looking to actively trade a large number of shares without the need of banking and retirement services, then Interactive Brokers has just what you need. With cost strategies that are designed to provide high utility and market participation while also providing an excellent trading experience via their Trader Workstation trading platform.
Interactive Brokers is one of the better online brokerage houses you have never heard of.