Warrior Trading Blog

Interactive Brokers Review 2018

Interactive Brokers

Interactive Brokers Review 2018

Interactive Brokers

Interactive Brokers Group was founded over 40 years by Thomas Peterffy, Chairman and CEO. It all started when Thomas Peterffy bought a seat on the American Stock Exchange in 1977. As a result, he became a member thus having the ability to trade as an individual market maker in equity options. In 1978, Thomas Peterffy founded TP& Co which helped to expand trading activities under badge number 549.

Over the years, Interactive Brokers LLC has changed names from TP & Co to Timber Hill Inc and finally, Interactive Brokers Inc in 1993. At the time, Interactive Brokers Inc helped to make Timber Hill trade execution services and electronic network available to all customers.

Since its founding days, the organization has grown to become one of the best securities firm. Currently, it has over $6 billion in equity capital which gives it the much needed power and ability to conduct broker business in 120 markets.

Interactive Brokers offers a complete solution for professional traders which includes custody, execution and clearing, and reporting. Interactive Brokers offers lower commissions, no ticket charges; no minimums; no technology, software, platform, or reporting fees; and low financing rates.

Interactive Brokers Products

Trader Workstation (TWS)

As the first company to have used computer generated fair value sheets in 1978, Interactive Brokers now provides Trader Workstation, a trading platform that is optimized for faster trade executions and efficiency. The flagship trading platform offers a wide range of product-centered tools such as:

OptionTrader and Probability Lab – simplifies single and complex multi leg option trading

FXTrader – designed for forex traders

Mutual Fund/ETF Replicator – helps traders to locate lower cost ETF alternatives and mutual funds

The above tools are available to all clients thus bestowing them with the opportunity to trade with a wide range of financial products. Currently, Trader Workstation is available for the following platforms:

Desktop – designed for traders who trade multiple financial products. It offers more power, flexibility, a library of tools and asset trading layouts. The platform also provides access to high volume trades, in-depth news, technical research and risk analysis tools.

Mobile – designed for smart devices. It allows you to trade and monitor your Interactive Brokers account while on the go. Works with iOS and Android devices.

iBot – this is a text and voice based trading interface that understands plain English commands. The add-on is available on both Desktop and Mobile TWS versions.

WebTrader – the web based trading platform has similar functions as the desktop version. It has an intuitive interface and is secured by a firewall among other security protocols.

Securities Trading

Interactive Brokers allows traders to trade stocks, options, futures, forex, bonds, ETFs, CFDs and many more. To get started, you have to create an account. Registration has been simplified by categorizing the accounts into the following groups:

Trader and investor accounts – designed for an individual investor, family office, small business, friends and family advisor.

Institution accounts – designed for registered investment advisor, hedge or mutual fund, money manager, proprietary trading group and incentive plan admin among others.

Registration is free and once your account is verified, you can begin trading. For beginners, Interactive Brokers offers a free trial account.

The free trial account is available to the user without any commitment. With the account, users can test trading strategies, access trading tools, add financial instruments, customize the interface and compare commissions among others.

Required Minimums

Once you open an account, the following required minimums must be met before you start trading.

For Individual accounts, Trading Group Masters and Broker Masters – a deposit of $10,000 or non USD equivalent must be completed.

  • Indian Residents with an Interactive Brokers India account – INR 100,000 must be deposited
  • Non resident Indians with an IB India account – a deposit of INR 500,000 must be made
  • Indian residents with an IB US account and IRAs – a deposit of $5,000 or non USD equivalent must be made
  • Persons aged 25 years and under – a deposit of $3,000 must be made
  • Advisors and broker clients – a deposit of $5,000 must be completed

Commission Schedule

Interactive Brokers currently offers low commission at a fixed rate of $0.005 with a $1.00 minimum on all its products especially for larger volumes and comparable rates. This includes single stock futures, stocks, options, futures options, forex bonds and CFDs. To ensure flexibility and favorable pricing plans for its customers, Interactive Brokers has created the following pricing plans too:

Fixed pricing

Under this plan, Interactive Brokers charges a flat rate per contract. This includes all commissions together with exchange, regulatory and third party fees.

Tiered pricing

Also categorized as transparent volume tiered pricing, Interactive Brokers offers lower broker commission. This reduces according to volume of shares per month. The best news about the tiered pricing is that in case an exchange offers rebate, the savings are passed onto the customer if you add liquidity to the markets.

More information on Interactive Brokers commission schedule can be found here.

Interactive Brokers Advantages

  • Competitive commissions rates with fixed and tiered pricing (see commission rates)
  • International market access
  • Can trade from multiple account types (IRA, single registered, Joint, etc.)
  • Many different asset classes and investment/trading options
  • A robust Trader Workstation (TWS) with MANY tools
  • Direct market access
  • Free real time paper trading account for practicing in a simulated environment (when main account is funded)
  • A robust online education center with tutorials for using the software
  • Institutional level research and tools available to retail traders
  • Competitive platform pricing
  • Great options analytics tools and pricing
  • Smartphone app works wells

Interactive Brokers Disadvantages

As noted above, commission structure can be fixed or tiered, based on volume and even where you are trading from. There are many nuisances to consider, but generally, for most retail traders, the fixed pricing will be the most cost effective.  Traders who take large positions in excess of 10k shares will often look for fixed pricing to reduce their costs.

However, Interactive Brokers has always been a big advocate of transparent pricing and that means you pay for exactly what you use.  If you use lots of order flow, you pay for it.  If you don’t, you don’t have to pay for it.  This is not a bad way to price the commissions but can be more expensive for very aggressive traders who trade 100k-200k shares/day.

Final Thoughts

Interactive Brokers is among the Top Recommended Brokers by Warrior Trading.  They are also a top choice for international traders looking got take part in the US stock and options markets. It can be a great resource for new traders with decent capital. The tools and Trader Workstation can be overwhelming for newbs at first, especially since learning to use the software is a do it yourself kind of deal.

The cost of actual trading is for the most part, competitive if you aren’t trading big lots. The ability to switch between Forex, futures, options and equities from one screen and have multiple types of trades going can be very appealing to diverse traders. Also, if you are like me, you can trade from your IRA or other account types not allowed at many other US based brokerages.