Interactive Brokers: Pros and Cons in 2024
Interactive Brokers is a publicly-traded company (IBKR), and its online brokerage platform contains several features, not found in some of the industry’s biggest players. Over the course of my career, I’ve had the opportunity to try out several brokerage platforms. I have to say that Interactive Brokers is one of a kind. Here’s a review of a satisfactory experience.
At a glance
Interactive Brokers is an ideal online broker for active traders. Its superior tools make it the broker of choice for those with advanced knowledge of the stock market. It does, however, require you to pay fees and takes some time to get used to.
Investing with Interactive Brokers
Interactive Brokers clients can invest their money worldwide. Whether you want to diversify into stocks, options, futures, currencies, bonds, or funds, you can do it from 200 countries and with 27 currencies. Fund your account in multiple currencies to advantageously trade assets denominated in the currency of your choice. I opened a paper account in Canadian currency, but you should know that many Canadians use the platform with a USD account.
Buying Stocks with Interactive Brokers
I have to say that I ran into some difficulties when placing an order. My paper account seems to have had a bug. In short, I was unable to place my orders! I would send an order to buy a stock or ETF at market price (no stop or limit orders) but it stayed in progress for several minutes. However, I downloaded the platform onto my computer instead of using my online account and saw that my order for Apple, for example, had gone through.
In my trading community, it’s a respected and well-liked broker. I know several people who use it and don’t experience any bugs. So it should work well when you try it (fingers crossed!).
Interactive Brokers’ platforms and apps
Interactive Brokers offer powerful mobile apps for iOS and Android devices called IBKR Global Trader (for beginners and intermediate traders) and IBKR Mobile (for advanded traders). These applications offer continuous data, charting tools, and the ability to carry out the most complex trades; various types of orders are offered. I downloaded the beginner’s app and had access to many global markets to trade the stocks of my choice. Several local platforms only offer access to the North American market.
The client portal serves as your one-stop destination to check quotes, place trades, see account balances and key performance metrics, and more. Trader Workstation is the desktop platform designed for active traders and investors who trade multiple products. If you’re a beginner or intermediate trader, you might prefer the IBKR Desktop platform (which is the one I used).
The Portfolio Analyst and Global Analyst tools
The new Portfolio Analyst tool allows me to monitor and analyze your investments, offering advanced reports, risk metrics and more. The dashboard provides portfolio performance, risk measures such as the Sharpe ratio, and breakdowns by geography, asset class and sector. As for Global Analyst, it is another tool designed to help investors find investment opportunities by using filters to compare companies and identify the ones that are undervalued at the moment. These tools, which are just examples of the many tools I found on the platform, are complemented by an impressive library of educational content.
What values do you want to emphasize as part of your investment philosophy? With this dashboard, you can ensure that your current and future investments reflect your values. Based on your preferences, the tool assigns a score that demonstrates how well your investments match your values. You can see if a company’s business practices are in line with your values. If you prefer using an app, download the IBKR Impact app.
Interest on my cash balance
I was surprised to log on to my account after two and a half months and realize that I had won over $7,000 without doing anything! Interest may vary but for the moment, you could earn 4.83% on your cash balance. Some conditions apply.
The most important one being that you need an account with a net asset value of 100,000$ USD or more. Accounts with lesser amounts can still receive interest, but at rates proportional to the size of the account. The first 10,000$ earns no interest and interest is earned on cash balances held in the securities segment but not in the commodities segment.
Elaborate conditional trade orders
Interactive Brokers allows you to place different types of orders. One, the “Bracket order”, is an order that consists of multiple contingencies. With it, I am now able to enter a limit buy order and attach a subsequent limit sell order and a stop sell order to it. This feature is very practical to make sure I take profit when a stock’s price is high and put a stop to my losses when things don’t go as I hoped. Here’s my example with a Tesla share, bought at market price with an expected resale price of $210 and a stop order at $196.
Basically, without any supervision on my part, I could buy the stock that I want at a maximum price of $25 per unit and sell the same stock for $30 as soon as it rises to that threshold. Or I could protect your downside risk by requiring the sale of stocks when it drops to $20, for example. One order, so many possibilities!
Purchase of fractional shares
Wealthsimple Trade is not your only destination for buying fractional shares. Interactive Brokers allows you to choose any available US stock and decide how much you want to invest in it. With fractional shares, you can spread your investments across a larger number of stocks to get a more diversified portfolio. This is the ideal way to make small amounts work quickly, instead of letting them sit as cash!
Basically, margin trading with Interactive Brokers or any other broker is borrowing money to trade. You use the cash or securities in your account as leverage to increase your buying power. While most brokers offer margin trading, Interactive Brokers’ rates are interesting. They charge margin loan rates from 5.38% to 7.83% also varying by currency (US or CAD).
US overnight trading
One of the coolest features of Interactive Brokers is the possibility to trade (almost) whenever I want. There are over 10,000 US stocks and ETFs available for overnight trading. Because I work a 9 to 5 day job, I am interested in this. Starting at 8:00 pm (eastern time) until 3:50 am, from Sunday night until Friday morning, I will be able to trade.
How does Interactive Brokers differ from the competition?
Less known than some other discount brokers operating in Canada, Interactive Brokers has a long history. While well-known players like Wealthsimple Trade and National Bank Direct Brokerage offer no-fee accounts, Interactive Brokers does not. Yet, it’s one of the most appreciated platform in the country.
True, Interactive Brokers does charge fees. The investor may choose a fixed commission, which is better for smaller trade amounts, or tiered commissions for larger volume. But Interactive Brokers is worth a visit for the most demanding investors. Those who want to be able to count on a range of well-developed tools.
Interactive Brokers makes its competitors bite the dust regarding trading tools. There are multiple features. This multiplication of tools goes beyond the usual offer of a discount or commission-free broker.
Does Interactive Brokers have any weak points?
Like any platform, Interactive Brokers has some weaknesses. First, some types of accounts are not available. For Canadian investors, non-registered accounts, tax-free savings accounts (TFSA) and registered retirement savings plans (RRSPs) are offered. For any other type of account, I will need to turn to another provider.
Second, Interactive Brokers’ fee schedule and tools are complicated. For the investor, the abundance of tools and features is appreciated. However, it is sometimes difficult to find one’s way around and understand all the ins and outs of a choice of platform or pricing grid.
What are the fees for using Interactive Brokers?
Some US ETFs are free to trade. Then, you can choose between a fixed or tiered plan. Prices vary between stocks and ETFs, options, futures and bonds. For example, my Tesla order (above) came with a $1 commission. At least Interactive Brokers told me the fees before I clicked Submit!
Let’s take a look at fixed prices for stocks. Interactive Brokers charges commissions of 0.005$/share for US stocks and 0.01$/share for Canadian stocks. However, there is a minimum commission of 1$. For example, 500 shares of a US stock would be charged 2.50$ USD commission, and 500 shares of a Canadian stock would cost 5$ CAD commission. As for tiered prices, they are lower, at 0.0005 to 0.008$/share.
With Interactive Brokers, there are no hidden fees or spread commissions. However, a fee to look out for is the real-time market data fee. For free, you’ll get delayed market data, which isn’t very useful. A typical Canadian individual trader will subscribe to the US Securities and Commodities bundle for 10$ USD/month and the TSE for a few extra dollars.
Interactive Brokers offer a free trial where you can open a fictional account. That should help you evaluate if it’s worth paying for.
Interactive Brokers: What is the verdict?
One thing is certain, Interactive Brokers stands out from other online brokers. In my trading community, it’s a respected and valued broker. This quality platform, although complex in its rendering, is designed for active investors, margin traders or for savers who have the goals of investing internationally on their own.
Although this online broker offers features that make it stand out, it is not necessarily the interest of the average person to open an account with it. Several online brokers, such as Disnat or National Bank Direct Brokerage, will do the job if your goal is simply to invest at low cost.
What I like about Interactive Brokers
- Robust trading features.
- Opening up to global markets.
- No account minimum.
- Sophisticated tools for experienced traders.
- The ability to buy fractional U.S. stocks.
- A reasonable transaction commission, even if you prefer a fixed rate.
- The audacity to make people forget more simplistic platforms.
- The ability to open a fictitious account and convert it into a real account.
What I like less about Interactive Brokers
- The vagueness surrounding the price of certain features.
- It is difficult to navigate: some will get lost in the maze!
- Limited account types.