What are Interactive Brokers

Interactive Brokers Group Inc., commonly known as IBKR, has provided brokerage services since its founding in 1978. The company offers online securities transactions through their website interactivebrokers.com at competitive prices. With over 1 million accounts open today, they are considered one of the best brokerages on the market!

Interactive Brokers has grown over the years to include a wide array of services, including forex and futures trading. This makes them more than just an online stockbroker. They are also known for having low commission rates.

 The Benefits of using IBKR

Before I registered a brokerage account, I have done a lot of research to find the best option based on:

·      user-friendliness

·      fees

·      choices of investment

·      reputation

Let’s look at those factors one by one.

User-friendliness

Interactive brokers have a trader workstation, a website, and an app. As a non-professional trader, I almost only use the app. I have downloaded the IB trader station in the past, and I was confused by the charts, windows, and all functions available in the trader station. If you don’t know what you are doing, you might buy or sell a financial investment by mistake.

If you are a beginner or an average investor like I do, having your mid-term or long-term investment plan, then you only need to place your order in the app.  In my opinion, the app is easy to use and understand for someone who never used an online brokerage account before.

I would say buy and sell on IB is very intuitive. Once you have deposited funds into your account, you can convert them into different currencies. You simply need to buy the forex pair of your home currency/desired currency.

In the dashboard, you can see how much funds you have in each currency. After that, you can place orders on the targeted investment in the same currency.

You can set a target price and execution period as a day or good-till-cancel. Then you don’t need to worry about it. The trade will be executed automatically if your target price is hit.

It’s always advisable to set a target price, even if it is the same as the current market price. There might be a massive price movement in the millisecond, and if you do not set a target price, your trade might be executed based on the market price, which can be much higher than you hoped for.

On the main dashboard, you can see your overall portfolio value in your home currency. You can see the chart that shows the trend of your portfolio value. I like this chart because I have an overview of my asset. If the total portfolio value drops, I then go to my holdings and see which assets’ prices dropped. Then I decide if I want to invest more or do nothing.

Once you get used to the app, you will spend as little as 10 minutes per month investing!

Fees

IBKR charges a commission fee for every trade. You can choose between two fee schedules: tiered or fixed.

Tiered commission cost is calculated based on the trade value. The higher the trade value is, the lower the percentage of commissions charged on your trade. The total transaction cost is commission plus exchange, regulatory, and clearing fees.

Fixed commission cost is fixed when the trade value is below a certain amount. As long as your trade value does not exceed that amount, regardless of how small or big your trade is, you pay a fixed amount of commission. When the trade value exceeds a certain amount, the commission is charged based on a percentage.  It includes all IBKR commissions, exchange, and most regulatory fees, excluding transaction fees, which are passed through on all stock sales.

For retail investors, if your trade volume is not that big, a tiered commission structure is more preferable.

Usually, the cost of my total trading fee is below $10 per month, as I don’t buy and sell frequently. In 2021, I only paid less than $15 in fees till the end of August. One of the reasons is that I made fewer transactions in the last two months, and I have a minimal $100,000 account value that IB will not charge me the $10 monthly inactivity fee if my trading cost is less than $10 per month.

IB charges much lower commissions than the banks or other brokerage accounts do, which could be 10 to 20 times more.

For example, if I buy $2000 worth of a US stock, Swissquote charges me $25 per trade. IB charges me around $0.05.

If I buy a CHF1000 worth of swiss ETF, IB charges me around CHF7, including all the third-party fees and such. Swissquote would charge me CHF20.

 If you invest in 3 types of ETFs per month, have three trades per month. You could have saved CHF 500 to CHF 600 per year just on the fees.

 Choices of investment

IB offers a wide range of investments. Not only can you invest in different stock exchanges around the world, but you can also choose the same ETFs in different currencies.  This offers investors many possibilities to diversify and access investments that are not readily available in their domestic exchanges.

IB offers stocks, options, futures, and bonds in 125 markets in 31 countries, using 22 currencies. According to Investopedia, there are 23,000 stocks and 26,000 funds available.

Even if you want to invest in foreign currency-based investment, IB offers a competitive forex rate that allows you to convert your home currency to target currency immediately and place your order.

Especially those low-cost US EFTs that might not be available in your area, but you can buy them on IB.

 Reputation

Reputation is the foremost important factor when you choose a brokerage account. When you invest with brokerage firms, they act as your custodian. You transfer money to them, place an order on their platform, and purchase the stocks on your behalf. You need to ensure the brokerage firm will exist in the next 10, 20 years as long as you are invested.

Another reason is the reliability of the trading infrastructure. The market moves rapidly, and prices change within a millisecond. If the platform is not stable, you can not execute a trade on time, leading to a considerable loss.

IBKR has been offering trading services to its customers since 1978; it has a proven track record to establish itself as a reliable service provider.

There are many newly founded fintech companies offering zero-fee trading services. You can try it out but be aware of the counter-party risk. Do not put all your money on one platform.

Drawbacks to using IBKR

The downside to using IBKR is that it can be challenging for beginners to understand the different types of trades and the graphs and charts. IBKR offers a wide range of products, meaning there’s a lot to learn. It’s also easy to make a mistake when going through the information on screen without someone sitting next to you explaining each step.

In account settings, beginners might make mistakes by choosing the wrong account type or cost structure. If you start with IB, you have to spend some time understanding how to use this platform. Once you are familiar with that, you can spend as little as 10 minutes per month placing your order and automatically letting it execute for you.

Don’t be scare of the complexity at the beginning. You can follow my account for more upcoming articles, in which I will explain how to use interactive brokers in detail.

 Conclusion

Interactive Brokers offers many investment opportunities covering domestic and international markets, giving you access to investments not readily available on your local exchanges. IBKR is an established brokerage firm with decades of experience providing quality service at competitive rates thanks to its low commission fees. The drawback may be that it can be difficult for beginners without prior knowledge to understand how to get started with the platform. Once you familiarize yourself with the platform, it is pretty easy to use. Investing will take you a little as 10mins per month.

You can register an Interactive Broker account and try it out, even without putting any money into it at first.