Summary:
- 160 global markets available
- Platforms developed for experienced traders
- Poor customer service
- Daily interest on unused cash
Pros:
- Competitive fee structure for all markets
- One of the widest offers of products and worldwide markets
- Advanced and professional trading platforms
- Advanced short-selling and margin system
Cons:
- Inactivity monthly fee
- Tax report not customizable depending on the country of the investor
- Forex and leveraged CFDs not available
- Platform not suitable for beginners
4.7
Interactive Brokers review and rating
Interactive Brokers (hereinafter IB) is an American online broker founded over 40 years ago and probably the global leader in the brokerage industry. It is listed on the Nasdaq Stock Exchange (IBKR: US45841N1072). In 2018 IB received a BBB+ rating with a positive outlook from Standard & Poor's.
IB success is founded on a modern structure that allows investors to benefit from advanced services at affordable prices. Such setup generates a competitive advantage on a global level over all the other players in the financial industry.
Trading fees and Costs
IB adopts a unique global fee structure, regardless of the investor's country of residence. By virtue of this setting, the investors will find the fees on some markets particularly convenient, while on other markets the competition of local brokers could prevail. Let's examine this aspect in greater detail.
Regarding the stock markets, the fees can be very convenient for stocks listed on the US and Canadian stock exchanges (0.005 USD and 0.01 CAD per share respectively). But beware of the number of shares traded for each transaction, as above a certain threshold the use of a broker with a fixed fee structure could be cheaper.
Use our tool to calculate trading fees on US stocks with Interactive Brokers →
For European stocks, IB applies a variable commission rate. For German markets, the fee is 0.12% of the amount traded (minimum fee € 6,00); for French, Italian, Dutch and Spanish markets, the fee is 0.1% of the amount traded (minimum fee € 4,00); for UK markets the commission is fixed when the countervalue is up to £ 50,000: £ 6.00 per trade.
Use our tool to calculate trading fees on European stocks with Interactive Brokers →
Very advantageous are fees for derivative products: European futures cost between € 1 and € 3 per contract; US futures cost about $ 2.50; slightly cheaper are options.
The TWS platform is free for the first 3 months. After this period it has a monthly fee of $ 10. Such cost can be cut by generating the same amount of trading fees in the reference month. This requirement represents an inactivity fee that can discourage the less active investors from choosing IB.
Currency conversion is one of the most advantageous aspects: the cost to convert currency is just 0.002% (min. $ 2), which would make it a service that can be exploited not only by traders but also in a business context by import/export companies who operate in the currency markets.
Another big advantage is the financing costs, which is the passive interest for the borrowed money: up to € 100,000 the annual interest rate is equal to 1.5%: this value can lead to huge savings for investors who are used to trade with leverage, thus using part of the capital granted by the broker to have more liquidity available.
Beware of money transfers, as only one withdrawal per month is free: from the second onwards IB charges a cost of € 8 per withdrawal.
If the tariffs on the US and derivatives markets are incredibly low with Interactive Brokers, those on European markets are on average of the rates of European brokers. If you are a passive investor pay attention to the inactivity costs, since they can cancel the advantages of low trading fees.
Account types
Opening an account is done online through the IB website. Within the opening process, you can choose between an individual account or a joint account (max. 2 joint holders).
To open a cash account you must be at least 18 years old. For a margin account (a less restrictive account for which a minimum portfolio value of $100,000 is required), you must be 21 years old.
If you open an Interactive Brokers account through TradeStation Global the minimum deposit is just $1,000.
No specific operations are required either to have a Multicurrency account or to be able to negotiate derivatives and use the margin (financial leverage): once your trading account is activated, currency conversions and use of the margin can be set within the platform.
Products and Markets
Are you looking for a broker that offers the largest access to markets and securities? It will be hard to find one that does better than IB. With 120 markets of 26 countries in 22 currencies and the chance to trade shares, ETFs, bonds, futures, options, warrants, CFDs, funds, commodities and forex, IB will be able to satisfy the trading needs of even the most sophisticated investor.
Regarding stocks, you can access not only traditional exchanges, but also exotic markets that are not accessible through other brokers, such as the Mexico, Baltic Republics, Australia, Hong Kong, India, Japan and Singapore Stock Exchanges.
Regarding futures and derivatives, the thorough offer of CME products is a supply that few other brokers in the world can afford.
Concerning bonds, the offer limited to Euronext is an exception compared to other financial instruments. If we are therefore interested in bonds listed on MOT-EuroTLX or Xetra we should look elsewhere.
Trading platforms
IB is definitely designed to serve the most experienced and active traders. If you deem to belong to one of these two categories, you will certainly not be disappointed by the choice of IB. If, on the contrary, you believe you are a passive and/or not experienced investor, not even inclined to put commitment in learning how to operate a quite complex platform, then there are many other solutions that might be right for you.
Tax regime
Since IB is an American broker with headquarter in the United States, for tax purposes it must be considered as a foreign broker. As a result, the money and securities held by IB must be considered as financial assets held abroad.
Depending on the country in which you are fiscal resident, there will be taxes eventually to be paid, generated by the trading activities with IB. In this regard, we suggest contacting a tax advisor to fulfill all tax obligations.
Customer support
The real weakness of IB, whether you are an experienced trader or a beginner, seems to be the Customer Support offered to its customers. This is a widespread sentiment among IB traders and has been confirmed by our tests.
To test the quality and speed of the Service Desk, we conducted a series of cross-tests consisting in 50 calls and 50 emails. It turned out that in 27% of calls made between 07:00 and 24:00, the response took place within the first minute. Regarding the email support, in 46% of the cases the response arrived within 3 hours (excluding the night time slot from 10pm to 8am) and the remaining 54% between 3 and 24 hours.
Safety
Despite not being a bank, IB is committed to offering some typical banking products and services. For example, IB provides a MasterCard debit card, currently available only in the US, but in the pipeline also in the UK.
However, it is recommended to consider IB only as a broker to access global markets and trade online. Just think of the fact that it does not even offer financial advisory services, typically offered by the big players in the financial industry.
Focusing on the safety aspect, as we reported at the beginning of the review, IB is a publicly traded investment company whose balance sheets and financial statements are made public and accessible to anyone.
Standard & Poor's has assigned a rating of BBB+ with a stable outlook. IB is regulated and supervised by the SEC and the FCA. An important aspect that affects the stability of IB is the fact that this is a DMA broker and not a Market Maker: it means that it acts as a pure intermediary under the principle of "execution only", without thereby exposing itself as a potential counterparty to customer transactions. This is a fundamental aspect to take into account.
The protection of clients' money takes place through the segregation of assets from IB. Segregation is a fundamental requirement for the safety of investors’ funds and securities held by a broker: a requirement fully met by IB.
How is customer liquidity managed? the majority is invested in US government securities (AAA) while the remainder is deposited with US banks and on reserve accounts to guarantee daily operations.
How is customer liquidity managed?
The majority is invested in US government bonds (AAA) while the remainder is deposited with US banks and reserve accounts to guarantee daily operations.
Each client's account is insured up to $ 250,000 by SIPC.
In summary, Interactive Brokers is a non-ESMA broker based in the USA. The level of security offered by American regulations makes it transparent and stable, on a par with (or perhaps more than) the regulated brokers in Europe.
Education
As already mentioned within this review, IB aims at experienced and advanced traders, who need little additional training on online trading.
The educational material available on the website will essentially contain guides and learning courses on the complicated TWS platform. In any case, even for beginners there is an introduction course to the platform that will guide the user to understand how to configure and set TWS. The courses will also provide an explanation of basic concepts such as order types, graph configuration and order entry methods. Intermediate users are instead offered courses for learning derivative instruments such as options and futures.
In addition to online courses, webinars are also available (most of them in English but there are also some in other languages such as Spanish, German and Italian). A trading glossary is also available in English only.
Overall rating
In conclusion, Interactive Brokers is on the whole one of the best brokers around, although mainly aimed at experienced traders. However, first-time investors will be able to practice on the demo versions offered on the IB platforms.
The possibility of opening an IB account through TradeStation Global has recently been established. In this way it will be possible to have an Interactive Brokers account to which to connect the popular TradeStation platform, one of the most appreciated by traders worldwide.
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