Interactive Brokers Broker Review

|


Based in the United States, Interactive Brokers is the largest electronic brokerage firm in the US due to the number of its daily average revenue trades. The firm is also the leading broker of foreign exchange (forex). Its headquarters are located in Greenwich, Connecticut, and the company was set up nearly 40 years ago, with its founding member, Thomas Peterffy, having been in the brokerage business since the company’s beginning.

Interactive Brokers states that its mission is to “Create technology to provide liquidity on better terms. Compete on price, speed, size, diversity of global products and advanced trading tools.” The company has more than $6 billion in equity capital and conducts business on more than 120 market destinations throughout the world.

 

Through its specialist platform, the brokerage gives direct access to online trading and clearing services, catering in the main for professional and institutional traders. Traders can invest and trade in a wide range of products, including forex (FX), bonds, futures, stocks, options, CFDs and funds worldwide.

The company has offices in several countries as well as the US, including Canada, Hong Kong, Australia, the UK, China, Japan, Switzerland, India, and Russia. The offices provide a presence in all the major countries with stock exchanges, thereby allowing the company to easily monitor trade markets with their varying opening hours depending on time zone.

Interactive Brokers is regulated in many jurisdictions, with major regulatory bodies including the US Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and the UK’s Financial Conduct Authority (FCA).

 

Products and trade offers

For this Interactive Brokers broker review, traders should be aware that the brokerage services are aimed mainly at professional and highly-skilled traders, though that should not necessarily prevent inexperienced traders from working in the system.

The broker offers 12 types of product for trading and investing; a very broad selection of opportunities in many different markets. The products include:

  • Stocks – stocks can be traded in 120 markets, and Interactive Brokers provides a specialized suite of advanced order types. Traders can trade with an automated algorithmic tool and use other sophisticated trading tools.
  • Options – the broker offers OptionTrader, its proprietary trading tool, enabling clients to execute speculative trades or build complex multi-leg orders so they can hedge positions. Options contracts include indices, equity, and currency.
  • Futures – there are many options offered for buying and selling futures and commission rates are amongst the lowest in the industry. Traders can speculate on price movements or hedge a position in areas that include, agriculture, energy, currency, metals, single stock, equity index, and fixed income.
  • Forex – there are 23 currencies available to trade worldwide, and the broker offers tight spreads and substantial liquidity. Currencies include both major and minor pairs that include USD, EUR, GBP, CAD, AUD, CHF, RUB, SGD, and PLN.
  • Metals – clients of Interactive Brokers can access the London bullion market, the center for the international OTC (over-the-counter) market for precious metals, by trading Spot Gold and Spot Silver.

Other products include fixed income, ETFs, mutual funds, CFDs, EFPs, hedge funds, cryptocurrencies, and smart bets, giving traders plenty of choice in many financial markets.

 

Broker Commission Rate

 Interactive BrokersMerrill EdgeTD AmeritradeE*TRADE
Standard Stock Flat$4.95$6.95$6.95$6.95
Options Per Contract$0.70$0.75$0.75$0.75
Options Base Level$0.00$6.95$6.95$6.95

Interactive Brokers offer low commissions through its structure for stock and ETFs. The brokerage commission structure favors high-volume traders who frequently trade, offering 0.5 cents per share. There is a minimum trade commission of $1 with the maximum being 1% of the total trade value. Exchange and regulatory fees are included, and there is also the offer of tiered pricing, so rates can be even lower.

The tiered pricing is for investors who trade over 300,000 shares a month, and they can pay 0.2 cents or even less per share, although that depends on trade volume. Traders on this plan will find that regulatory and exchange fees are extra, but very high-volume traders may find rates go even lower.

Trading options are also offered at a low price. Each contract has a 70-cent charge, and there is no base, with a minimum of $1 per order. Larger volumes will also attract discounts.

Margin rates are also low at Interactive Brokers. The maximum rate is 1.5% on top of the benchmark rate and investors will be charged a blended rate by the broker based on how large the margin loan happens to be. On its website the broker has a calculator, so traders can quickly work out the math based on their balance.

Interactive Brokers charges inactivity fees, so traders who have accounts that have balances under $100,000 have to meet a minimum in trade commissions of $10 a month. Failing to meet that minimum will incur a monthly fee for the difference. For accounts that have $2,000 or less as their equity balance, there are minimum trade commissions of $20. However, for clients who are 25 or under, there is a minimum monthly trade commission of $3.

 

 

What others say

  • “Interactive Brokers CEO Thomas Peterffy is considered an industry pioneer, bringing standalone computerized trading into the 21st century, while making IB a top choice for at-home and small office professional traders, as well as fund and money managers. The Trader Workstation (TWS) trading platform is a highly mature trading software product, constantly updated, providing an industrial strength interface for the risky business of market speculation.” Investopedia’s Interactive Brokers broker review is complimentary regarding the broker’s pioneer work, through its CEO, of standalone computerized trading, noting the quality of its trading platform and the fact that it is constantly updated to provide high calibre tools for trading.
  • Interactive Brokers is recommended if you like low-cost trading and easily navigate yourself in a really complicated platform. We would mainly recommend IB for traders who are able to monetize on the wide range product portfolio and the almost unlimited functionalities.” In its Interactive Brokers review, brokerchooser.com highlights the low cost of trading, likely to be popular with professionals who can navigate the complicated platform. The forex broker review also notes the wide range of products available from the broker and the high level of functionality.
  • Mobile trading with Interactive Brokers is mostly an enjoyable experience. All devices, including iPhone, iPad, Apple Watch, Android smartphone, and Android tablets, are supported. When testing the iPhone app, I found it had everything I needed to trade effectively. From lightning quick streaming data to full-featured order entry and portfolio management, all the main criteria were quickly checked off.” The review by stockbrokers.com shows the reviewer was very impressed by Interactive Brokers’ mobile offering, and with the need for traders to be able to trade from anywhere in the world at any time, it is a positive recommendation on this aspect of the forex broker’s service.
  • “Interactive Brokers was created for active or advanced investors. If you fit in these categories, you’re probably going to love the broker’s trading platform, its wide range of securities available for trading (including foreign stocks), its ridiculously good margin rates and its low commissions. All features that put Interactive Brokers among our picks of best brokers for day trading.” nerdwallet.com is impressed by the trading platform, noting that it was developed for active or advanced investors and also pointing out the low commissions and the many different products available to be traded.

 

Customer service

As mentioned previously, customer service can be weak, and although it is available by phone, chat and email, and customer care is accessible in several languages, response times can be slow.

Anything to do with security issues, such as security tokens or resets, has to be dealt with by phone. Phone access is available 24 hours a day during market days, though that moves to foreign venues overnight and that can make contact more difficult. Using the chat function can lead to long waiting times, especially during outages, though they are infrequent. Trades that are placed by phone during an outage will generally have fees waived. The chat room operators are very knowledgeable about the platform software and will help new and inexperienced users through any difficulties they have in using them effectively.

Interactive Brokers provides a comprehensive knowledge base for customers and its web-based account management interface can handle common tasks such as fund transfers, tax reporting, and account changes.

 

 

Platform features and tools

Trader Workstation (TWS) is the main platform offered by Interactive Brokers and has been developed so that anything can be traded through the markets, and that includes global assets. Unsurprisingly it has been designed for use by traders who have considerable market experience as – compared to other platforms that are easier to use – it takes some time and effort to master. TWS is probably not ideal for investors who are new to trading, but once they have found their feet in the trading world, they might want to consider it for future work.  One interesting feature of the TWS offering is that users can consider their appetite for operational risk and select which version of TWS they use. ‘TWS Latest’ is the version that is updated most frequently and includes all the latest features.  ‘TWS’ is updated less frequently, so whilst not featuring all the latest tools will be more stable.

 

Interactive Brokers Paper Demo account: Anchor Window

 

The default dashboard within TWS is called Mosaic which is a grouping of windows and monitors that provide your: analytics, trades, quotes, research, news, AI support and trade portfolio information in one place. It supports an enormous range of asset classes and has geared it so that when any stock symbol is typed in a summary of available securities is displayed. Watch lists range through individual options contracts, forex, futures, warrants, and equities so a close eye can be kept on all the markets. There are a vast number of different watch list columns and monitors that can be fully customized, though sometimes there can be a lot of matches when trying to find certain companies and these could become confusing, especially for inexperienced users.

 

Interactive Brokers Paper Demo account: Options Monitor for MKS CFD

 

With 121 optional charting indicators and studies available to be added to any chart, there is plenty of scope for traders to customize them to cover all possible options, and though the number of studies is lower than those for some other brokers it should be sufficient for most traders. Nine tools for markups can be accessed and though these include notes, zooming and trendlines it does not have tools such as channels, resistance lines, and support.

However, TWS does have functions that include viewing historical trades, trading off charts, alerts, index overlays, and comparisons. There are many other tools and features available, such as Layouts Library, FYI, Trader Journal, and IBot, the latter using a basis of artificial intelligence (AI) to service customer requests quickly.

 

Paper Demo account: FYI function

 

Paper Demo account: IBOT function

 

 

Mobile trading

In general, the mobile trading app from Interactive Brokers is easy and fast to use, and mobile devices are supported. That includes Android smartphones and tablets and iOS with iPads and iPhones as well as Apple Watch. Data streams very quickly and there are full-featured portfolio management and order entry.

 

Screenshots from IBKR mobile phone app

 

Usability can be problematic because although there are charts with 68 optional studies, they are not flexible. Charting is also affected by not having many stock comparisons for those to index, and a customizable home screen is not available through the app. There are some other features lacking, including the absence of videos on demand and the ability to stream live TV.

Traders will find watch list syncing and stock alerts with basic fields as well as a touch ID, and the broker’s mobile app also has after-hours charting and custom screening and scanning, making it overall a tool that has a core functionality that traders need to be able to trade effectively.

 

Robo trading

The Application Programming Interface (API) that Interactive Brokers provides allows investors to trade all the products that are supported by the broker’s TWS platform. These include stocks, futures, options, bonds, and forex.

API has been specifically designed for professional traders who want an algorithmic trading solution that is extremely effective. There are many advantages to using API for traders who wish to design and implement a programmed trading strategy. They include:

  • Multiple programming languages support that include Java, C++, Visual Basic for ActiveX and DDE for Excel. The broker considers this to be more reliable and robust in comparison to languages written in a simplistic, non-standard environment.
  • No dedicated server is needed so there is no FIX system with a high overhead required. There is access to the order entry and order management features of TWS using API.
  • For traders with less experience, there are sample applications to help them start the process, so they can develop their own applications and hone them to as near perfection as possible by initially using Excel before migrating to a different language.

Traders who have experience of programming with Java, for example, will find a steep learning curve and a longer time to production; however, it can be used it on all platforms, including Mac, Windows and UNIX/LINUX. Most users experience a very robust, reliable and high-performance system.

 

 

Research and learning

Interactive Brokers provides a range of research and education options through various third-party providers, the broker not having its own in-house research team. Investors can access the research functions via the Information System menu point (IBIS), and free research that includes the top newspapers and stock reports from the likes of Thomson Reuters. Research and analysis are continuously supported by time-saving tools (such as the Merger Arbitrage modeller) that lead the user towards being able to execute a trade based off their hopefully improved understanding.

Daily video commentaries made by the broker and third parties, can be accessed free of charge, as can technical analysis tools and fundamental data. The Daily Lineup function gives a summary of the latest important market news as well as the latest recommendations from analysts. Also included are earnings and an economic calendar that help prepare traders for a fast start to their working day.

 

 

There are numerous opportunities to delve into the educational information provided by Interactive Brokers to dig deeper into all aspects of market trading. Online courses, webinars, and educational videos are available through the Traders University, and there is a useful glossary that can be used to look up unfamiliar expressions, words and acronyms. Courses can be chosen depending on the level of professionalism a trader has reached, and there is a very useful course that shows how to use the broker’s trader application.

 

Regulatory details

Interactive Brokers, as an agency only direct market access broker, provides a range of services for clients that include execution, clearance, settlement and prime brokerage. The business covers securities and commodities brokerage but is not involved in proprietary trading.

The company is a registered Futures Commission Merchant (FCM) and is therefore subject to the Commodity Exchange Act following rules laid down by the Commodity Futures Trading Commission (CFTC), and the National Futures Association (NFA) as well various commodity exchanges of which the company is a member.

Interactive Brokers is a registered US broker-dealer and is subject to the rules and regulations of the Securities Exchange Act of 1934 and other rules enacted by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and the rules of several securities exchanges that include the UK’s Financial Conduct Authority.

 

Interactive Brokers ProsInteractive Brokers Cons
Well regulatedAccount opening slow
Competitive fee structureLimited funding and withdrawal options
Very Good platform
Weak customer service
Wide range of charting optionsFixed Fees
Extensive market range
Effective mobile trading

Conclusions

There is little doubt that Interactive Brokers is aimed at experienced, professional traders. The platform is in fact often used by institutional grade portfolio managers and start-up hedge fund managers who are incubating new funds.  Whilst those just getting started will find it a steep learning curve they might want to persevere if they are serious about their trading future.

One aspect that stands out is the low cost of trading and depending on the volume of trades the costs can be further reduced.  Advanced level traders, with a more considered approach to risk-return benefit from the lower trading costs not creating as much of a drag on performance as with other brokers. The product portfolio is extensive, and this gives traders opportunities to make money on practically every type of market available.

Another positive aspect is the TWS trading platform that is highly sophisticated, quite complex to learn initially but provides almost unlimited functionalities. Unfortunately, the web-trading platform is limited in its functions and is not very convenient to use.

There are plenty of research and education tools to access, and the mobile trading platform is generally okay to use. Though customer care is weaker than it should be, and account opening can be slow, the broker has decades of experience, is well regulated and is certainly worth considering as an appropriate and effective trading platform.

 

 

Brian Ducey

Brian graduated from Chaminade High School and the University Of Vermont Kalkin School Of Business with a concentration in Finance. He began his career with Knight Capital Markets, working his way to market maker. Brian later expanded his market repertoire, working with various sell-side research brokerage firms, such as Sidoti & Co., and William O’Neill & Co., as an Account Executive. With over 20 years-experience in the financial industry, Brian has built a unique perspective into “market intelligence” understanding an ability to read the tape and apply second level thinking in a fast paced environment. Brian also carried several market licenses, including the series 7, 24, 55, 65, and 63 licenses as well as previously passing The Connecticut Life and Health Insurance Exam