Interactive Brokers Review
Jordan Wathen is a personal finance expert with a deep professional and personal expertise on credit cards. His articles have appeared on sites such as MSN, CNBC, and Yahoo.
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Interactive Brokers prides itself as the discount broker for serious investors and traders, which is evident from its almost secular focus on having the lowest possible commissions and margin rates on all types of securities in more than 120 markets all around the world. In the Interactive Brokers review below, we’ll explain how Interactive Brokers compares on key factors we think are most important to consider before opening an account.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Our Bottom Line
A great low cost option for small trade volume. While the interface isn't as clean or modern as other brokers, it get's the job done. Interactive Brokers is also a great choice for options investors, traders, and those trading on margin.
$0 per trade
See Interactive Brokers website for more details.
Designed for active traders and sophisticated investors, Interactive Brokers may not be a best fit for everyone. However, it does have some killer features that make it stand out from the pack:
- Low commissions -- Interactive Brokers is simply inexpensive. With a standard commission of one-half cent per share ($1.00 minimum per trade), its pricing is designed for investors and traders who want to minimize the cost of trading.
- Margin rates -- Interactive Brokers’ margin rates are substantially lower than the competition. Whereas many brokers price the first dollar of margin at an interest rate in excess of 10%, margin loans from Interactive Brokers cost a third as much. The difference really adds up, particularly for investors who carry large margin balances for long periods of time.
- International trading -- While virtually all brokers enable you to buy foreign stocks that have a listing on a U.S. exchange, few enable customers to trade directly on markets outside the United States. Interactive Brokers offers access to more than 120 markets around the globe, several times more markets than any other discount brokerage firm.
Powerful platform -- Trader WorkStation is a powerful trading platform, especially when you consider that it is free. It truly has something for everyone, whether you trade stocks, ETFs, options, futures, or currencies.
Whereas most discount brokers employ a flat-rate commission schedule, Interactive Brokers’ commissions are variable, increasing with the size of the trade. Interactive Brokers’ commissions are detailed in the table below.
|Stocks and ETFs||Mutual funds|
|$0.005 per share (minimum $1)||$14.95 per transaction|
|$0.70 per contract for options priced at $0.10 or more|
|$0.50 per contract for options priced at $0.05 to $0.09|
|$0.25 per contract for options priced at less than $0.05|
The variable commission schedule makes Interactive Brokers one of the cheapest brokers for small trades. For example, to purchase 200 shares of Apple, currently worth more than $38,000, an Interactive Brokers customer would pay just $1 to make the trade.
Of course, Interactive Brokers’ pricing makes it costlier for low-priced stocks and penny stocks, given its commissions are capped at the greater of $0.005 per share or 1% of the trade value. Thus, to buy 20,000 shares of a $0.25 stock (a $5,000 investment), you would pay $50 to make the trade, better than the $100 commission based on a $0.005 pe- share charge, but higher than flat-rate discount brokers would charge for such a trade ($4.95 to $6.95).
Buying mutual funds and ETFs
Interactive Brokers may be built for active stock traders, but it doesn’t leave fund investors behind. It offers more than 10,200 mutual funds, of which more than 4,300 can be purchased without paying its standard transaction fee ($14.95).
|Total mutual funds||More than 10,200|
|No-transaction-fee mutual funds||More than 4,300|
|Commission-free ETFs||48 (plus 25 in London)|
Interactive Brokers doesn’t offer as many commission-free ETFs as many of its rivals, and the funds that qualify for free trades are more in the realm of “niche” ETFs rather than plain-vanilla index funds. For example, several of its free ETFs track the value of various precious metals, while another invests in large brands, weighting the stocks by their consumer satisfaction rating. It doesn’t offer ETFs that fully track big, well known indexes like the S&P 500 or Russell 2000, for example.
That said, it’s difficult to penalize Interactive Brokers for having fewer free ETFs. Given the base commission of $0.005 per share, buying 500 shares of an ETF would cost you just $2.50, far less than virtually any other retail broker would charge for the same trade.
Fees you should know about
Because Interactive Brokers is designed for active traders and sophisticated investors, it has a few quirks in its list of fees that warrant additional discussion.
- $10 minimum monthly commission requirement -- With a few exceptions for younger investors and those with large balances, Interactive Brokers requires individual investors to spend at least $10 on commissions every month. If you do not spend at least $10 on commissions in any given month, you will pay a minimum activity fee equal to $10 minus the commissions paid. Thus, if you spend $2 on commissions in one month, you would pay a monthly activity fee of $8 to bring your total commissions to $10. This fee is waived for account holders who have an equity balance of at least $100,000. (People who are 25 years are younger are only required to generate $3 in monthly commissions.)
- Options exercise and assignment fees -- Investors who use stock options will appreciate that Interactive Brokers doesn’t charge an extra fee to exercise an option you own, nor does it charge a fee if an option you sold is assigned. Many brokers charge an amount equal to their base commission ($4.95 to $6.95), if not more, for options exercise and assignment. Interactive Brokers options fees are among the best for people who expect to exercise options, or have them assigned.
- Research fees -- We’ll address this later in more detail, but for now, we should note that Interactive Brokers has a la carte pricing for many popular research and news tools. Though some are offered for free, many more come with a monthly subscription fee.
If you are an infrequent trader, or have less than $100,000 to keep in your account, the $10 minimum monthly commission may sway you away from Interactive Brokers. Given many brokers charge $4.95 per stock trade, with no minimum monthly commission requirements, Interactive Brokers is costlier for people who simply want to place a very occasional trade.
Customers will find that Interactive Brokers has several different trading platforms designed for the needs of active traders and long-term investors alike. Its platform earns high reviews from active traders who appreciate access to a fully-featured trading platform on their desktop.
Here are the platforms Interactive Brokers has to offer:
- IB WebTrader -- Think of this as Interactive Brokers’ simplified browser-based platform. This slim platform offers little more than basic charting and streaming quotes, but it makes placing a trade as easy as a few clicks. IB WebTrader fills the basic need of being able to quickly log in and place a trade.
- IB Trader WorkStation (TWS) -- TWS is a fully-featured desktop trading platform that offers all the functionality (and more!) that investors have come to expect from desktop solutions. Fully customizable, you can design your screen how you want to. Its watch list feature can include an extraordinary amount of information on every stock, from its P/E ratio to how many days it takes the company to sell its inventory, on average. TWS is chock full of screeners, stock option analysis tools, and backtesting options.
- Mobile platforms -- Interactive Brokers also offers a powerful mobile application for iOS and Android devices. The apps offer streaming data, charting tools, and the ability to place even the most complex trades from a mobile device. With access to over 120 worldwide markets, mobile users will find that there are no limitations on their ability to trade from the palm of their hand.
As long-term buy and hold investors, we don’t necessarily make full use of all the bells and whistles of a fully-featured trading platform. Frankly, the impressive functionality offered by its desktop platform, IB TWS, can be as much of an advantage for active traders as it is a disadvantage for inexperienced investors.
New investors may be put off by all the moving parts of its desktop platform. Even the basics can be overwhelming since the platform is built to offer access to so many different markets. For example, after entering in a ticker symbol for a popular ETF, the platform prompted us to select whether we wanted a quote for the stock, options, or futures contracts based on its value. It’s simple to navigate, but new investors may be lost in the shuffle.
It’s safe to say that margin lending is Interactive Brokers’ special sauce. Most competing discount brokers charge two to three times more for margin loans than Interactive Brokers. If margin is central to your trading or investing strategy, its low interest rates may alone be a reason to put it on the short list of brokers to choose from.
Margin rates decrease as you borrow more. The table below shows its interest rates based on your debit balance.
|Margin balance||Interest rate|
|$100,000 or less||3.87%|
|$100,001 to $1,000,000||3.37%|
|$1,000,001 to $3,000,000||2.87%|
|$3,000,001 to $200,000,000||2.67%|
|More than $200,000,001||2.67%|
The table above is indicative of the brokerage’s focus on high value accounts, financial professionals, and active traders. Few brokers even bother to publish margin rates for amounts in excess of $2 million-$5 million. That Interactive Brokers publishes margin rates for loans in excess of $200 million says a lot about the service from the get go.
Interactive Brokers also deserves some praise for using a clear and easy-to-understand method for calculating its margin interest rates. The brokerage adds a spread to the Federal Funds Effective Overnight Rate, whereas other brokers substitute their own proprietary benchmark to calculate interest charged to customers who have a debit balance.
Customer service and support
Primarily an online brokerage, Interactive Brokers doesn’t have a large branch footprint like many of the largest retail discount broker firms. That said, it offers support 24 hours a day by phone, chat, or a secure message through its account center.
Research and screeners
This brokerage offers a wealth of research, with a catch: Not all of it is free, as certain research providers charge a flat-rate monthly subscription fee for access. We’ll explain in more detail. For now, we’ll focus on what is free:
- News -- Interactive Brokers offers news and reports from 24/7 Wall Street, a daily brief from Dow Jones, and reports from Market Realist, just to name a few news and research providers. It also offers Social Sentiment data from MediaSentiment, showing you whether investors are bullish or bearish about particular stocks or events on social media platforms.
- Mutual fund/ETF replicator -- This tool is really valuable for fund investors. It enables you to enter a ticker symbol to find mutual funds and ETFs that offer a similar performance profile. For example, I typed in a ticker symbol for an actively-managed mutual fund, and it suggested an index fund with similar performance at a lower expense ratio.
- Stock scanner -- This tool is excellent for finding investments based on fundamental and technical parameters. If you want to find stocks that pay a dividend of more than 2%, have a P/E ratio under 20, and are based in Angolia, you can do it with a few clicks. The depth of its screening tools is really remarkable.
We haven’t even scratched the surface of what Interactive Brokers has to offer in free news and screeners -- going through every tool would take hours, if not days -- but it’s certain that it ranks among the top of the list as far as its screening tools go.
Of course, there’s a downside: Research you might expect to receive for free at other brokers isn’t free at Interactive Brokers. For example, many brokers offer Morningstar equity research reports for free, but Interactive Brokers’ non-professional customers pay about $14 per month for the service. That said, a la carte research and news options are plentiful, and many offer a free trial so you can see what you’ll get before you commit to a monthly charge for access.
Research pricing shows how Interactive Brokers caters to investors who place more trades. For high-volume traders, savings from its lower commission prices more than make up for money spent on research. Lower volume traders, however, might be better off going elsewhere and paying a higher commission on every trade in exchange for free research.
This brokerage account is right for you if:
If the following statements apply to you, Interactive Brokers should make a short list of places to open your next brokerage account.
- You trade often. Low commissions make Interactive Brokers a compelling value for people who make frequent stock and options trades. It’s an especially good deal for high-priced stocks, since its standard commission of $0.005 per share is a relative rounding error.
- You’ll keep a large balance. Investors who maintain a balance of $100,000 or more aren’t subject to minimum monthly commissions, thus avoiding Interactive Brokers’ minimum monthly fees of $10. Given Interactive Brokers’ minimum to open an account stands at $10,000 ($5,000 for IRAs, and $3,000 for people 25 years old or younger), it isn’t fit for people who are starting with small amounts of money, anyway.
- You use margin. Low margin rates are Interactive Broker’s biggest strength. Consider that most brokers would charge you about $500 in interest per year on an average margin balance of $5,000. At Interactive Brokers, the same margin balance would cost you about $171. It’s no surprise that Interactive Brokers has the largest amount of margin loans outstanding of any discount broker -- the savings are simply too big to ignore.
- You don’t need handholding or vast (and free) research. Interactive Brokers is unapologetic about catering to active traders, financial professionals, and sophisticated individual investors, which is reflected in it’s a la carte options for paid research. That its average client trades more than 300 times per year says a lot about the kinds of traders and investors who tend to gravitate to Interactive Brokers.