Interactive Brokers Review 2015

After using Interactive Brokers for a number of years, I feel that it’s a good a time to write a review on the popular online discount brokerage.  In late 2014, IB finally delivered on their promise to offer RRSPs and TFSAs to Canadians.  Although it comes with a $50/year maintenance fee, the low trading fees will be attractive to many investors.

2020 update: While IB are going strong, i personally still prefer using Questrade. IB is more geared towards daily trading, offering leverages and low commissions for forex trading. However, Questrade is much better if, like me, you prefer passive income through ETF trading instead. You can read my Questrade review or visit their site before deciding which company is the better solution for you.

Trading Platform(s):

  • The TWS software trading platform is extremely powerful, but a bit tricky to use. Once you get accustomed to the GUI, you will wonder how you ever traded without it. They have demo software on their site so that you can give it a test run before you commit.
  • They also have a web based trading platform which is not as powerful but extremely user friendly. The web based platform is convenient when away from your main computer.

Low Trading Commissions

  • $1USD/200 shares (US), $0.005 / share > 200 shares (0.05% max)
  • $1CAD/100 shares (CAD), $0.01/share > 100 shares (0.05% max)
  • Example: 400 CAD shares @ $5/share, commissions cost: 400 x 0.01 = $4, or $5 x 400 = $2000 x 0.05% = $10, whichever is less.
  • Commissions can get expensive if trading penny stocks.

Low Margin Rates

  • Prime – 0.23 on balances < = $115,000
  • Prime – 0.73 on balances > $115,000
  • Prime – 1.23 on balances >= $1,150,000 (big wigs)

Low Foreign Exchange Rates:

  • Where the big banks will charge up to a 1.25% premium (each way) on top of the exchange rate, Interactive Brokers charges the going exchange rate x 1 basis point.
  • 1 basis point = 0.0001 (0.01%) with a min. commission of $2.50USD.

Real time Quotes

  • NASDAQ quotes are free providing that you trade at least $30USD/mo worth of commissions. Otherwise they are $10/mo, level II quotes are $20/month
  • TSX I quotes are $10/mo, level II quotes are $14.50/mo.
  • You can find the rest of the data fees here.
  • I personally use my bank brokerage and Questrade for my real time quotes.

Fees

  • Min commissions are $10USD/mo. If you don’t trade at least this amount per month, they will take the difference from your account.
  • EFT deposits are FREE, along with the first monthly withdrawal. Fees apply after first withdrawal.
  • $50/year maintenance fee for RRSP/TFSA.

Opening an Account

  • Requires $10,000 initial deposit.
  • Fairly lengthy initial paper work.
  • Deposits take 5 days to get approved (through EFT).

Who is this brokerage suited for?

  • Active traders looking to reduce their trading commissions.
  • Not suited for penny stock traders as there are cheaper alternatives than Interactive brokers. For example, 8000 shares of a stock @ $0.50/share will cost 8000 x $0.50 = $4000 x 0.05% = $20 in commission + ECN fee on venture exchange.
  • You could make the same trade above with E-Trade or CIBC for $9.95 or $6.95 respectively.
  • Suited for investors who pay more than $120USD / year in commissions which works out to be around 4 trades / year with the big banks.

Conclusions:

  • I personally use and recommend Interactive Brokers for active traders as it will save most traders a bundle of money in commissions. The powerful interface along with fast execution times make it an extremely competitive brokerage for traders.
  • This platform is not only for traders, long term investors who spend more than $120USD/year in commissions should also consider this brokerage.
  • If you are interested in stock trading, check out some of the free stock trading tools that I use.
Posted in

FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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13 years ago

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K.K.
13 years ago

Hey great post, I was looking at Zecco free trading account for stocks.
http://www.zecco.com/Default.aspx

They offer 10 trades in any one day up to a total of 40 trades a month at no cost. People in China and India are allowed to open an account, however, Canadians can’t open any account. Although, if you are resourceful I’m sure theres a way to get around this issue.

Outroupistache
13 years ago

Timely post. Someone asked a question on my blog that involves Interactive so I pointed him to here and to your review of online brokerages. Very handy! Keep up the good work.

Daniel
13 years ago

I’ve recently opened an account with IB because they offer access to a great range of international markets, products & account currencies, they cater for non-US investors, and are clearly a seriously professional outfit. But in sharp contrast to this review my first impressions of their platforms are not good. I’ve found their downloadable trading platform unusable because it requires an old version of Java installed. And their WebTrader web-based platform is the most user-unfriendly I’ve used. The various pages are completely unintegrated – E.g. you can’t click on a share in your portfolio to see details. Instead you have to go to another page and enter the stock code again. Also, it seems that only US share data is available for free. Share data on other markets you need to pay monthly or use one of the other free services (Is that right??)

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13 years ago

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Melvin
13 years ago

Im just about to go ahead and open an Interactive broker account.. Ive done my research and what not.. Just wondering, anything that stands out in your minds that i should address of consider before I go forward?

and how long does it take to start trading, once i send my papers/check?

Melvin
13 years ago

The paperwork is quite extensive. Is there anything I need to know about the paperwork? Checking certain boxes, etc?

Melvin
13 years ago

The paperwork is quite extensive. Is there anything I need to know about the paperwork? Checking certain boxes, etc? And how secure is this process of signing up? All of our information is being sent over the web ex. SS #, correct? dangerous?!

Jake Snapper
13 years ago

Dont waste your time with the thieves at Interactive Brokers. They will eventually screw you out of 30% of your equity, because of their auto liquidation rule where they can sell your securities for pennies on the dollar. Why pay $1 commission when you end up losing $5000 in stolen securities that they will hoard, and sell at fair value throughout the day?

I believe they should be behind bars, and should be shut down for their scam artist operations.

Ryan
12 years ago

Jake Snapper, what’s your story?

Aliquippa
12 years ago

Hi,

I have a story to share that agrees with these comments on losing equity. I posted it at my new website
http://www.interactivebrokerssucks.com
Just click on exhibit 1.

Thanks,
RC

cebolao
12 years ago

I can’t say I agree with Jake 100% since I haven’t traded with IB. But from the application process, I can say that as a business in general, IB wasn’t very professional! I might be wrong, so please feel free to leave your views and suggestions.

After reading several comments in this forum, I am convinced that I am not alone to think that IB has a lengthy application process. But I took the time to read through everything. Signed the papers, mailed it in, did multiple EFTs checks ( because of an computer error I had to do it 3 times!). And then they tell me that the blank cheque I sent wasn’t good enough, and wanted a letter from my bank to state that my account is in good standing. I did that too. All these haggling took around 4 weeks!

Finally when the time comes to wire the 5k to my account, they DOUBLED the minimum deposit 10K! Just like that, no previous email, no letter,no warning, nothing!

When I called in, the rep was literally ” I don’t know”, “that’s the way it is”, “there’s no way around that”!

From this initial experience, how would you know that they wont just liquidate you shares overnight and claim it to be a “tech mistake”, or even worse, that it never happened?

I am a recent college grad and just starting to learn about all of this. I am still repaying my student loans, so 10k is still a considerable amount of cash for me to just risk a “test run” with IB.

So is there anything else I am missing? Or is this common practice for online discount brokerage firms?Or is it just IB that does this?
And should I still go ahead and finish with the application and cross my fingers?

Jacky
12 years ago

Hi Cebalao,

Same experience. Take note that if you don’t spend $10 in commission, they will take it from your account.

cebolao
12 years ago

Hey Jacky;

So can I close my account right now?
Given thant technically I havent even finshed the application yet?
It would be really f^%ed up if they actually start charging me fees before i completed my application process!

Jacky
12 years ago

I’m not sure, I’m in the same situation as you.

Account opened, and trade permission approved. No market data. And I haven’t paid $10,000 for it.

I am thinking of either to use IB or Zecco. I also want international market access; Hong Kong. And IB has a branch in Australia (I’m in Australia), so monies transfer would be less of a hassle.

I just signed up with Zecco, and paper works will be posted tomorrow.

IB VS Zecco…..struggling to decide…….

Even if they charged it, u don’t have to pay for it. Just ignored them.

cebolao
12 years ago

Jacky, i would go with zecco, simply because they are free, and if i am not wrong, they dont require as much as IB for minimun, the problem is Zecco doesnt offer service in canada.

And yes you WILL pay for IB, because they have access to you bank accout. Since you singned the agreement during your EFT, they can literally just stick a hand in your account, which is something that bothers me a lot as well.

Jacky
12 years ago

Hi cebolao,

IB do not have access to my bank account. What EFT?

EFT is initiatied by me from my bank online to transfer monies to their bank in Sydney.

cebolao
12 years ago

actually no, thats that I tought too. But I think somewhere in the fine print of the contract that you have signed, you authorized IB to act on your behalf to access you bank account. That’s why I was feeling fishy about this whole EFT thing.
Also during the confirmation of EFT process, didn’t they credited and also DEBITED from your account you doing anything?( even if was just couple of cents)? Think about that? how were they able to do that?

Jacky
12 years ago

First of all:
1) I electronic signed all papers
2) I did not fund the IB account
3) I did not provide them with my account details
4) There’s no EFT confirmation process (for me)

cebolao
12 years ago

well good for you then, nothing to worry about

Jacky
12 years ago

Hi Ceboloa,

After checking around with the 4 big online discount brokers (eTrade/Scott/2 more names I can’t remember), they only do US Stocks, and one of them allow for international trading, but it means converting from:

Australia Dollars -> USD -> Hong Kong Dollars

And they charged huge commissions for trading in international markets.

After some considerations, I think I will go with IB.

1) they have bank branch in Australia – can bank in or out quicker, cheaper (free VS sending money to USA); if margin call or something, monies will reached them the next day.

2) low commissions for international trading

btw, for the USD$10,000 minimum, I wonder if I can borrow them put into the account, and withdraw USD$5,000 out.

cebolao
12 years ago

Jacky:
What do you mean “borrow them put into the account”?

Jacky
12 years ago

I thought your issue with IB was the sudden increase in min to open the account? They did not specify min to maintain an account?

get USD$10,000 (borrow or otherwise), put into IB, and withdraw it after the account has been open to return to lenders

cebolao
12 years ago

Jacky:
You sure you can do that?
As far as I know, your account has to maintain a minimun of EQUIVALENT value of US$10k.
If what you said is true, everybody would be doing it. I mean i can even just leave 1K in the accont.
Let me know if you can actually do that.
I will open an account with them in a heartbeat!

Jacky
12 years ago

I believe the min for opening an account is USD$10k. It did not state maintain.

If you read from the website that you need USD$10k to maintain an account, please provide links/quotes.

====================
From: http://individuals.interactivebrokers.com/en/accounts/fees/minimumDeposits.php?ib_entity=llc

In order to open a new account the following minimums are required:

Keywords = open a new account, minimums are requred

Jacky
12 years ago

quoted:

As per US regulations, in order to trade in a margin account you must have at least USD 2,000 (or USD equivalent). Because of contribution limits, IRA accounts will only be required to deposit USD 4,000 in order to open a new account. In addition, US Regulators require USD 25,000 (or USD equivalent) to Day Trade stocks and options.

keywords = trade

Question: what is the difference between trade and maintain? Does it mean that u can’t buy any stuffs if your account is less than USD$2k? You will need to top it up to USD$2k in order to place orders?

I’m @ work now, could someone post this question to IB using the account management? thanks.

cebolao
12 years ago

I just asked them about this, hopefully I hear from them soon enough.

I never thought about it like this before, so FT, you mean i can literally EFT 10k in to open the account, and widraw 8k back out as soon as my account is approved?

cebolao
12 years ago

Thanks again for the quick reply FT.
Yes, I understand that. I said 2K because I wanted be sure that I understood what you and Jacky meant. 2K under the assuming that I didnt buy any equities, and leave it in there as cash. (of course assuming again that I am willing to pay for the $10 inactivity fee).

What i would do is actually leave at least 4K in there just to be sure. But I said 2K to be sure.

IB still haven’t emailed me back.
I just don’t undertand why would IB increase the minimun if this can so easily be bypassed?

On a side note, Questrade only requires 1K, and all of their unregistered accounts are by default margin acc. I guess since they are Canadian they aren’t binded by US rules.

Good to know thogh. I guess I am opening 2 accouts then.

Jacky
12 years ago

Hi guys,

Do you know what will happen if you get a margain call? With my previous experiences, they will ask u to top up within a certain period of time.

If u did not top it up, they will proceed to sell whatever stocks u have with them until USD$2k is reached.

cebolao
12 years ago

I think you have it on the dot about that. Actually on the IB website, they said they wouldn’t make the margin call. But i guess they do it out of courtesy according to my friend who’s got an account with them.

Also he also told me this about the minimum:

“U can’t do that, that doesn’t’ work. Maintaining margin is a totally different thing. The ratio for each different investments u buy is different. U get different margin for different stocks, derivatives, futures etc. just make sure ur “Net Liquidation” is @ $10k, ur SMA positive, and your available funds positive.”

I will tell him to come post in this forum see what he thinks about all of this.

Jacky
12 years ago

Just post all question to IB people, and get them to answer it.

We can’t know (or 2nd guess) their business logic.

And pls post it here too.

cebolao
12 years ago

Ok just an update. I called IB.
Yes you are correct Jacky, minimun 10k to open. And to keep it open only has to stay above 0. But to trade it has to be above 2k

Jacky
12 years ago

Good! I emailed to them, and they pointed out it’s all in their website:

1) $10k to open
2) $2k in stocks/cash to trade
3) no activity/comission => $10 expenses min per mth
4) less than $2k in stocks/cash => $20 expenses min per month

I will put it more than $2k, but I don’t think I will not have too much activity, and I have to pay the $10 per month

cebolao
12 years ago

ya same here.
I i will do at least 2 trades a month.
And that will already cost me close to 10 anyways at questrade.
But I still gonna keep questrade for canadian securities

Jacky
12 years ago

Good! Wish we will get rich soon! haha!

btw, just discovered that we can buy/sell in the charting page by drawing a line of some sort.

Jacky
12 years ago

yupe, I understand that. So I might as well subsribe to US market data. $10 per min. So they are not charging me for inactiviy

cebolao
12 years ago

any ideas why questrade ask if i had an account with another broker during application?
or was that just for stats?

NewIB
12 years ago

I have just opened IB account. And there are questions I don’t understand.
Whole process of opening account is electronic. I have signed bunch of electronic forms but I don’t get any confirmations from IB. Usually must be paper signed agreement.
Actually I have not any guarantees of my ownership. How customers of online brokers are protected from frauds?

cebolao
12 years ago

That’s acutally a good point. All signed documents are from the customer side, and mailed to them.
My guess is you can ask your bank to prove it that there’s a link between IB and your bank account thru EFT.

Does any of more savy investors here have any advice on this?

IBUser
12 years ago

Jacky: inactivity minimums are based on commissions (i.e. trades). Spending $10 on market data is not considered a commission. You could be out $20 a month if you don’t trade.