Review of: Interactive Brokers
Reviewed by: Kat Peach
Last modified: August 7, 2018
Interactive Brokers is perhaps one of the most comprehensive stock brokers for active and advanced traders. It offers professional customer service, and execution of trades is easy. However, for novice and less active investors, we recommend you look elsewhere.
- Advanced traders
- Forex traders
- Options traders
- Penny stock traders
- High-volume traders
- Day traders
If you’re an experienced, frequent trader looking for low commissions, a wide variety of investment types (penny stocks, anyone?) and attractively low margin rates, Interactive Brokers may be a great choice for you.
This online discount broker was created specifically with do-it-yourself (DIY) day traders in mind. There aren’t a lot of bells and whistles — don’t expect much in the way of educational features. And Interactive Brokers also charges inactivity fees for idle accounts. So novice investors and infrequent traders need not apply. (Instead, they should check out our list of the best brokers for beginners.)
So what are Interactive Brokers’ pros and cons for high-volume traders? We took a closer look at the platform, and this is what we found.
Interactive Brokers Fees & Features
|Stock Trades||$0.005/trade $1.00 minimum|
|Options Trades||$0.70/trade + $1.00 minimum|
|Investment Types||Stocks, Penny Stocks, Options, ETFs, Mutual Funds, Bonds, FOREX, Futures|
|Access||Website, iOS App, Android App, Blackberry App|
|Broker Assisted Trade|
|No Fee ETFs|
|Customer Service||Phone: M-F 24 hours; Live Chat: M-F 24 hours; Email|
- Trader Workstation — Interactive Brokers’ super-fast signature platform lets users trade stocks, options, futures, options, funds and even forex from one account.
- Mosaic — This completely customizable workspace includes features such as charts, watchlists and market scanners.
- IBot — IBot is a text-based interface that provides a streamlined, no-nonsense way to create and submit trade orders.
- FYI Notifications — Interactive Brokers will send you a real-time notification ahead of market events that could affect your portfolio.
- No-Fee Mutual Funds — With Interactive Brokers, you can trade more than 4,300 transaction-fee–free mutual funds.
- Commission-Free ETFs — Choose from 45 commission-free exchange traded funds for your portfolio
What Is Interactive Brokers?
Interactive Brokers is the largest U.S.-based electronic brokerage firm by volume of daily average revenue trades. It has been a go-to for active traders (especially those interested in forex and commodity trades) since its story began in 1978.
Of course, when T.P. & Co., the company that would eventually become Interactive Brokers, was founded, the internet was just a glimmer in Vint Cerf’s eye. Back then, the company dealt securities in a more traditional manner. However, in 1987, the company’s founder and CEO, Thomas Peterffy, invented the first fully automatic algorithmic system for creating and submitting market orders. By 1994, Interactive Brokers had become a fully fledged electronic trading platform.
How Does Interactive Brokers Work?
As we stated in the beginning, Interactive Brokers is a no-frills trading service. It’s really intended for advanced day traders who don’t need hand-holding. In fact, beginning or casual investors might find the service overwhelming.
Interactive Brokers uses several different trading platforms. The most popular, currently, is Trader Workstation (TWS), which operates on a desktop. TWS allows users to monitor trades in real time, maintain watchlists and receive alerts.
Compared to the other desktop platform, WebTrader, it is feature-rich. It’s also Java-based, which some users may find unwieldy.
For traders who want a more streamlined approach (or who have to get past a firewall), there’s WebTrader, a platform that is HTML-based. However, WebTrader still allows users to access some features such as charting and news feeds.
Then there are also mobileTWS and MobileTrader, which are the smartphone equivalents of TWS and WebTrader, respectively. You can access your Interactive Brokers with these apps on your iPhone, Android or even BlackBerry. (WebTrader will also work with Windows-based mobile devices.)
If you’d rather use a third-party platform with Interactive Brokers, there’s a way to do that too. Through Trader Workstation, Interactive Brokers offers “API,” which allows you to program your own automated strategies that run in conjunction with the TWS software. However, you need to know exactly what you’re doing before diving into this feature.
Note that you’re never locked into using just one platform. You can switch between interfaces whenever you like.
Interactive Brokers Pricing
OK, let’s get down to where Interactive Brokers really shines, and for active traders, that’s with its pricing model.
Interactive Brokers offers two pricing models: fixed rate and tiered.
With fixed-rate pricing, on standard stock trades, you’ll pay just $0.005 per share with a minimum of $1 per order and a maximum of 1% of the trade value. That means, if you trade 100 shares of a stock priced at $25 per share, you’ll pay just $1 in fees. Trade 1,000 shares of the same stock, and you’ll pay only $5. With fixed-rate pricing, all exchange and regulatory fees are included.
Frequent traders can also take advantage of a tiered pricing structure, which will drop rates as low as $0.0005 per share when they trade more than 100 million shares per month with a minimum of $0.35 per order and a maximum of 1.0% of trade value. If you trade fewer than 300,000 shares, you’ll be charged just $0.0035 per share. However, these rates do not include exchange, regulatory or clearing fees.
Options contracts are also very cheap, at a charge of only 70 cents per contract with no base and a minimum of only $1 per order. And here again, there are discounts that apply for high-volume traders.
However, if you’re not an active trader, you’re going to find Interactive Brokers less appealing. For starters, the firm requires a $10,000 minimum investment, which is much higher than normal. (For example, popular pick E*TRADE requires only $500, and Ally Invest waives a minimum altogether.) Now, if you’re 25 or younger, the minimum is lowered to $3,000, and if you are investing in an IRA, you’ll have to commit only $5,000.
And then there are the inactivity fees. If you keep a balance below $100,000, you must make enough trades to pay a minimum of $10 in commissions. If not, the firm will charge you the difference. And if you keep less than $2,000 in your account, you must meet the commission minimum of $20 per month or pay the difference. Although these aren’t huge amounts of money per month, they make Interactive Brokers more expensive than other options for novice or infrequent traders and send the signal that the company is more interested in having active day traders on board.
Pros and Cons
- Low Margin Rates — For margin investors, Interactive Brokers' rates are the lowest in the industry.
- Low Fees for High-Volume Traders — If you're a very active trader, you'll save a bundle with Interactive Brokers' pricing schedule.
- BlackBerry App — BlackBerry users rejoice! There's an app for you here.
- Wide Range of Investments — If you're looking for forex, precious metals, futures, penny stocks, bonds, mutual funds, ETFs, and options as well as traditional stocks, you're in luck.
- Free Trial Account — Give Interactive Brokers a test-drive with a paper trading account.
- Too Many Fees for Less Active Traders — If you are not meeting your commission minimums, you'll be penalized.
- High Minimums — The $10,000 for most investors is very steep.
- Too Complicated for Novice Investors — If you're new to trading, you'll likely be overwhelmed by Interactive Brokers' platforms.
Interactive Brokers is a great choice for active and advanced traders who are looking to cut commissions and who aren’t bothered by sacrificing any hand-holding. Although the service offers a variety of features and analytical tools, it’s not meant for beginners and would, in fact, overwhelm a novice investor.
However, if you’re curious about Interactive Brokers, you can always paper trade with a free trial to see if it’s right for you.