{"id":2498,"date":"2020-09-28T23:13:05","date_gmt":"2020-09-28T22:13:05","guid":{"rendered":"https:\/\/businessfinancenews.com\/?p=2498"},"modified":"2022-01-01T01:50:14","modified_gmt":"2022-01-01T00:50:14","slug":"interactive-brokers","status":"publish","type":"post","link":"https:\/\/businessfinancenews.com\/investments\/interactive-brokers\/","title":{"rendered":"Interactive Brokers"},"content":{"rendered":"\n
Interactive Brokers is a discount broker (1<\/a>) (2<\/a>) with a proprietary online trading system (12<\/a>). It was founded more than forty years ago and has licenses from many regulators (3<\/a>), not only in the United States but also in the United Kingdom (5<\/a>). It has several decades disclosing all its financial statements to the public (6<\/a>) and to the federal agencies (7<\/a>) (11<\/a>) that are in the jurisdiction of the financial regulatory activities in the United States (4<\/a>), such as FINRA (9<\/a>) and SEC (10<\/a>), and other countries as well (8<\/a>).<\/p>\n\n\n\n According to our editorial review, this is currently the best broker overall that we can identify and it is also the best one for futures and for day trading.<\/p>\n\n\n\n It is regulated by the Security Exchange Commission (SEC) in the United States and in the United Kingdom by the FCA that is the Financial Conduct Authority.<\/p>\n\n\n\n The biggest advantage of Interactive Brokers is that it has the largest availability of products in their portfolio and a very wide number of markets range. It has a plethora of tools to perform research, it has a lot of educational resources, and as we anticipated above it is regulated by a good number of financial authorities worldwide. Excellent overall.<\/p>\n\n\n\n A big pro is the IB Key available through IBKR Mobile. This two-step authentication that we have in Interactive Brokers is very good in comparison to other logins that incredibly offer only one step authentication availability.<\/p>\n\n\n\n There are some cons anyway, and there we have to consider that the desktop trading platform is very complex even more than the one of Tastyworks<\/a>, that we regarded as one of the most complex to use.<\/p>\n\n\n\n There is a negative side in Interactive Brokers, that we do not see very often in brokerage services, which are the inactivity fees. The fee is that you must pay $10 each month of inactivity fee if you have not generated at least ten dollars in commissions.<\/p>\n\n\n\n Also, I find another con, that is that opening of an account is a cumbersome process and it is not so smooth as in other companies that we have reviewed already like Webull<\/a>, Tastyworks<\/a>, Robinhood<\/a>, and Firstrade<\/a> among others. The deposit and the withdrawal of funds are only performed via bank transfer.<\/p>\n\n\n\n Interactive Brokers is recommendable if you are an advanced trader, but not if you are a beginner. In this review, we will go in detail through all the pros and cons that we just mentioned, and you will understand why this platform is suitable for very mature and advanced traders and not for beginners for whom I will recommend other options.<\/p>\n\n\n\n I will also explain what you should be doing if you are a beginner, and you want to start your trading path with Interactive Brokers even when it is not the most user-friendly as a beginner.<\/p>\n\n\n\n When we discuss the fees of a certain broker in our reviews, we always utilize the same analysis so you can compare these features and attributes among all the available brokers.<\/p>\n\n\n\n In regard to fees, we talk about direct fees and indirect fees.<\/p>\n\n\n\n The direct fees let\u2019s call them better the \u201cdirect trading fees\u201d, are the ones that you have to pay related to a specific operation. The most typical example is the commissions: when you pay a commission for each operation that you perform. But there are also financing rates, like when you operate with margin. Also, you have spread and also in some cases conversion fees. Conversion fees that are charged in the cases that the transactional activity requires a currency conversion.<\/p>\n\n\n\n The indirect trading fees, on the other hand, are the ones whose charge is unrelated to any specific trading operation. These are, for example, the fees for inactivity, like if you have your account dormant for some time. We also include among the indirect trading fees the monthly or annual maintenance fees, the fees for relative inactivity if you do not operate enough with your account, and do not generate enough commissions.<\/p>\n\n\n\n Deposit fees that are charged to you when you fund your account, and also a good example of these indirect trading fees are withdrawal fees: these withdrawal fees are independent of a trading operation, and you are obliged to pay them when you transfer money from your broker cash account to your bank or financial institution.<\/p>\n\n\n\n So now, with this distinction, let\u2019s discuss the fees for Interactive Brokers in separate paragraphs according to the classes of assets that they handle. So, let\u2019s go.<\/p>\n\n\n\n Since 2020, the clients that are United States residents can select a new plan whose name is IBKR LITE. These American clients may trade ETFs and United States stocks without being obliged to perform the payment of a Commission and without inactivity fees in case that their account is dormant for some time.<\/p>\n\n\n\n We will discuss later, briefly, this plan that has two versions the pro (IBKR PRO) and the light (IBKR LITE). It is very convenient for US customers because they can be saving a lot of money in commissions and trading fees.<\/p>\n\n\n\n In general, outside this relatively new plan that started to roll out in 2020, the customers can choose Interactive Brokers between a price plan that is by tiers or by fixed rate. Let\u2019s see both of them:<\/p>\n\n\n\n There is a stock trading fee with Interactive Brokers that depends on the volume. These fees are the same for stocks or for ETF\u2019s.<\/p>\n\n\n\n We have compared these fees with two close competitors. These competitors are Saxo Bank and Degiro.<\/p>\n\n\n\n In Interactive Brokers, if you trade stocks or ETFs for, for example, $2000, you will be obliged to pay the following commissions.<\/p>\n\n\n\n When you perform trading operations on a short sale or margin, you are always obliged to pay a rate. This is an interest, actually a rate, called financing rate. This is not what we would call a commission: It is an interest rate for a loan.<\/p>\n\n\n\n On margin operations, the broker is lending you money that you do not have in your account, to complete an operation. So it is like you take a loan from your broker for a reduced amount of time. For this loan, as expected, you have to pay an interest.<\/p>\n\n\n\n We can say that the financing rates are not high when we work with Interactive Brokers. Let\u2019s see.<\/p>\n\n\n\n The following rates are the financing rates that apply to Interactive Brokers customers for operations performed with options stocks and futures.<\/p>\n\n\n\n The margin rate in American dollars is 3.4%. For operations in British pounds is 1.5%. Also, 1.5% is the margin rate for operations in Euros.<\/p>\n\n\n\n These rates provided are the average rates because they depend, they fluctuate, according to your debit balance.<\/p>\n\n\n\n The fees for forex operations are high with Interactive Brokers. The highest ones come up are for the very popular currency pair EUR-USD. Here the benchmark fee for a $20,000 30: 1 long position maintained during a week is 17,90 dollars.<\/p>\n\n\n\n For the currency pair GBP-USD (British pounds and US dollars), the benchmark fee is $13.60. And for the currency pair Euros and Swiss francs (EUR-CHF), it is much lower $ 7.10. These are similar to the ones offered by Saxo Bank who is a brokerage service that has a very similar profile with Interactive Brokers, and this is why we chose them for the comparison. Here we are not considering Degiro as a competitor as we normally would have done, because Degiro does not work with Forex, therefore obviously we cannot know the benchmark fee for any currency pair.<\/p>\n\n\n\n Also, with the Forex fees, these commissions may vary according to your amount of trading volume. The commission will be much lower if you perform more operations.<\/p>\n\n\n\n For mutual funds, Interactive Brokers has a commission of $15 if you purchased mutual funds for $2000. This commission is higher than the one in Degiro that is 10.30 dollars. In the case of mutual funds, the big winner here is Saxo Bank that does not have any commission for operations with mutual funds.<\/p>\n\n\n\n For most of the asset classes, Interactive Brokers has low fees. Commissions for operating with government bonds are not the exception to that rule. For a commission on an operation with $10,000 in government bonds, we have a commission of $5 when it is with United States Treasury bonds. The commission goes to $10 when these government bonds are bonds of the European Union.<\/p>\n\n\n\n If you are going to operate with government bonds, then Interactive Brokers may be the option for you because Saxo Bank, which also operates with bonds of the European Union and United States Treasury bonds, has very high commissions of $88.00.<\/p>\n\n\n\n Let\u2019s take for example a commission of ten contracts of stock index options of the United States, Germany, and Great Britain. For stock index options of the United States, the commission in Interactive Brokers is $7.00. This is much better than the $40 for the same operation and quantity of contracts in Saxo Bank, which is $40. For stock index options of Germany, the commission in Interactive Brokers is 12 .10 dollars while in Saxo Bank it is $44.<\/p>\n\n\n\n Finally, for stock index options of the United Kingdom, the commission in Interactive Brokers is $20.40, whereas it is also here much higher in Saxo Bank that encompasses 36 dollars.<\/p>\n\n\n\n Operating with futures also has lower fees in Interactive Brokers. Let\u2019s take an example of an operation with stock index futures of exactly ten contracts.<\/p>\n\n\n\n For stock index futures of Germany, you will be paying a commission of $22.00 with Interactive Brokers. This is much more than Degiro, where you must pay for the same operation for the same ten contracts, the sum of $9.90. In Saxo Bank, for the same quantity of German stock index futures, the commission will raise to 44 dollars.<\/p>\n\n\n\n In the case of stock index futures of the United Kingdom, the commission for these ten contracts will be $20.40. Much higher is in Saxo Bank and in Degiro, The commission for the same operation: $36 in Saxo Bank and $29.20 with $0.20 in Degiro.<\/p>\n\n\n\n In regards to stock index futures of the United States, here is where Interactive Brokers really excels. This is because their commissions are $8.50 only while Saxo Bank is $40. Only Degiro can have a lower commission for stock index futures of the US because they will charge you for the same ten contracts operation only $6.50 of direct trading commission.<\/p>\n\n\n\n Let me tell you first, that in case that you have doubts or want to enhance your knowledge about cryptocurrencies and trading of cryptocurrencies, we have an article that is a good introduction to crypto, that we invite you to read.<\/p>\n\n\n\n In Interactive Brokers, you can perform trading operations with currencies through exchange-traded notes (ETNs) and futures.<\/p>\n\n\n\n For Bitcoin and ether ETNs, their availability is in the Stockholm Stock Exchange. Interactive Brokers will charge you a fee that is very low when you trade on this Stock Exchange. It will charge you 49 Swedish crowns or 0.05% of the operation.<\/p>\n\n\n\n As we said, you can also perform trading operations with Bitcoin futures. These are done in the Chicago Board Options Exchange CBOE. Here the commissions are $5 per Bitcoin futures contract.<\/p>\n\n\n\n Now we are going to discuss the non-direct or indirect trading fees. This will take us less work than the previous listings of direct trading fees. The reason is that Interactive Brokers has a very long list of assets classes whose trading fees we needed to discuss with you.<\/p>\n\n\n\n So, we will start now with the indirect trading fees that are those trading fees that are unrelated to any specific trading operation.<\/p>\n\n\n\n There is a negative side in Interactive Brokers, that we do not see very often in brokerage services, which are the inactivity fees. The fee is that you must pay $10 each month of inactivity fee if you have not generated at least ten dollars in commissions. Thus, this is more than a dormant account fee. This is a fee that you are required to pay if you did not generate these ten dollars in commissions for Interactive Brokers. This is not common, and we see that in the majority of brokers there is no inactivity fee.<\/p>\n\n\n\n Only in some rare cases, we see inactivity fees for legal entities, like in Webull<\/a>. But with Webull<\/a> it is only for legal entities after having the account dormant for many years. But this is not common and this inactivity fees I understand they are high.<\/p>\n\n\n\n On the other hand, you do not have to pay anything to open the account, no monthly maintenance fee, and no deposit fee.<\/p>\n\n\n\n If you perform withdrawals, the first withdrawal that you perform in the month is free of commissions. However, if you perform more withdrawals during that month, these subsequent withdrawals will make you incur the obligation of paying a fee. Therefore, I would suggest that you organize yourself in a way that you only have to perform only one withdrawal in a month, so you avoid paying any kind of fee.<\/p>\n\n\n\n This broker provides a service that we want to see more often in brokers. It is a service called Interactive Advisors from Interactive Brokers. It is not easy to qualify for this service, but it is almost like a robo-advisor.<\/p>\n\n\n\n This is a good alternative for you if you want to delegate a bit of the management of your investment. Thus, if you really do not desire to perform the management of your portfolio investments on your own or just simply you need to gain gradually more confidence, more trust in yourself in investment operations, this is a way to go.<\/p>\n\n\n\n This asset management service costs a plus from the standard brokerage commissions that you have to pay in Interactive Brokers. This means that you have the ordinary commissions and additionally, you will have the cost of this asset management service. So how much does this asset management service cost?<\/p>\n\n\n\n There is a minimum investment amount that is $5000. You can only access the asset management service with an investment of a minimum of $5000. These are the minimum funds necessary to compromise in the investment through the funding of your account, to become eligible for the asset management service. It is not a commission.<\/p>\n\n\n\n The payment for this asset management service is an annual fee that ranges from 0.08 % to 1.5 %. It is tiered by the volume of deposited funds. This means that for those $5000 of the minimum amount you will have to pay 1.5 %.<\/p>\n\n\n\n Therefore, as a summary, using the asset management service you are obliged to the payment of the standard brokerage commission plus a maximum of 1.5% as an annual management fee.<\/p>\n\n\n\n This interactive advisor sounds very interesting. You have to answer in a form a couple of questions and the algorithm will use your answers to envisage a portfolio. The other way to work with this interactive advisor is to choose from a selection of many portfolios that are managed by internal Interactive Brokers portfolio managers.<\/p>\n\n\n\n\t\t\t I found that the online application form of Interactive Brokers is somewhat cumbersome and long. It is not streamlined like the online registration processes that we reviewed in some other brokers such as Webull<\/a>, Tastyworks<\/a>, Firstrade<\/a>, and Robinhood<\/a>, to put some examples. The verification took around 4 days (it takes 3-4 days according to them). <\/p>\n\n\n\n The advantages of opening an account with Interactive Brokers is that the process is fully digital. This is now the standard in the industry.<\/p>\n\n\n\n Another advantage is that you do not have any minimum deposit when you sign in.<\/p>\n\n\n\n There are some other account types that do require a minimum deposit but in general, we see that this minimum deposit is not required.<\/p>\n\n\n\n Among the cons that we found opening an account with Interactive Brokers is that the user experience is very bad it takes a lot of time and it is not so streamlined like with other competitors. But the pros are that the process is fully online, and no minimum deposit is required at registration<\/p>\n\n\n\n Interactive Brokers has the widest range possible in subjects that are eligible to open an account and operate with them.<\/p>\n\n\n\n They allow customers from practically every country to open an account. There are a few exceptions, like North Korea, but in practice also countries with civil unrest such as Venezuela, are eligible to become customers with Interactive Brokers.<\/p>\n\n\n\n About the minimum deposit, we already said that there is no minimum deposit for cash accounts. As you know there is normally a minimum deposit if you want to trade on short sale or on margin. This minimum deposit for trading on margin is $2000. This minimum deposit of two thousand dollars is because you are going to request a loan from the broker when you operate on margin. Therefore, in order to do that, you have to deposit funds for this quantity.<\/p>\n\n\n\n There are many types of accounts that can be opened with Interactive Brokers. Even if you are a foreigner you can open many account types. However, some of these account types are reserved only for customers that are residents in the United States. This is because for legal reasons they can only be available to clients of the United States because they correspond to the application of American regulations.<\/p>\n\n\n\n This is the list of account types that can be opened in Interactive Brokers<\/p>\n\n\n\nPros And Cons Of Interactive Brokers<\/strong><\/h2>\n\n\n\n
Structure of fees<\/strong><\/h2>\n\n\n\n
Interactive Brokers direct trading fees<\/strong><\/h3>\n\n\n\n
The segmentation of fees in Interactive Brokers<\/strong><\/h4>\n\n\n\n
ETF and stock trading fees.<\/strong><\/h4>\n\n\n\n
Trading on margin with Interactive Brokers<\/strong><\/h4>\n\n\n\n
Forex fees<\/strong><\/h4>\n\n\n\n
Fees for operations with bonds<\/strong><\/h4>\n\n\n\n
Fees for operating with options<\/strong><\/h4>\n\n\n\n
Fees for operations with futures<\/strong><\/h4>\n\n\n\n
Cryptocurrencies fees<\/strong><\/h4>\n\n\n\n
Indirect Trading Fees in Interactive Brokers<\/strong><\/h3>\n\n\n\n
Asset Management Interactive Brokers Service<\/strong><\/h2>\n\n\n\n
Opening Of An account In Interactive Brokers<\/strong><\/h2>\n\n\n\n
Eligibility To Open An Account With Interactive Brokers<\/strong><\/h2>\n\n\n\n
Account types that can be opened in Interactive Brokers<\/strong><\/h2>\n\n\n\n
Comparison of IBKR LITE AND IBKR PRO<\/strong><\/h2>\n\n\n\n