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.
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.
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.
|Minimum Initial Deposit||$0|
|Currency Pairs (Total Forex pairs)||115|
|CFDs – Total Offered||6100|
|Exchange Traded Securities: US||Yes|
|Exchange Traded Securities: International||Yes|
|Cryptocurrency traded as actual||No|
|Cryptocurrency traded as CFD||Yes|
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