What is Interactive Brokers?

Interactive Brokers is a brokerage that offers low commission rates for active traders. Through their trading platform (called Trader Workstation, or TWS for short), users can trade in over 24 countries on more than 100 market centers for bonds, forex, stocks, bonds, ETFs, futures and options. The brokerage claims there are over 60 types of order types supported. Users also have the option to make trades via their IB brokers app.

When you make a trade, Interactive Brokers will offer “smart” routing to ensure your order is directed to markets that offer you the best deal, since they have memberships in numerous markets. Traders also have the option to bypass this open and instead direct orders to a preferred exchange manually.

Interactive Brokers also offers other features such as comprehensive reports which includes transaction cost analysis, real-time trade confirmations, margin details and tax optimization. They provide tools such as the Option Strategy Lab that allows users to create multi-leg option orders based on price preferences and volatility forecast.

Interactive Brokers Is Best For…

• Expert or advanced traders
• Day traders
• Traders who have a large amount of money to invest
• Options traders
• Traders who want to open a margin account
• Traders who want to trade penny stocks

Pros and Cons

Pros:

• Offers the lowest margin rates of any broker
• Wide variety of products and services
• Low commissions for ETFs and stocks
• Robust trading platform: Fast and includes a customizable dashboard

Cons:

• Interactive Brokers fees: You get charged if you have an inactive account
• High account minimums (as of December 2016 the minimum is $10,000, though users under 25 years old have a minimum of $3,000)
• Can be a steep learning curve to use platform for less experienced traders

Supported Account Types

Margin accounts - Allows purchasing of securities on margin, futures positions, naked options positions and short security positions
Cash accounts - Can only use to enter long securities positions, covered short option positions and long option positions
Portfolio margin accounts - Foreign accounts may not qualify

Account Minimums and Fees

All account minimum amounts are in USD, or the non-USD equivalent for those outside of the US

Individuals >25: $3,000
RAs, Advisor/Broker clients and Indian residents trading with an IBLLC-US account: $5,000
Individuals (over 25), trading group masters and broker masters: $10,000

Fees depend on the types of trades and products used. In general though, fees differ depending on whether or not you choose fixed or tiered pricing.

Here is an example of their pricing:
Fixed pricing for stocks and ETFs: $0.005 per share with a $1 minimum trade commission and 0.5% maximum (includes exchange and regulatory fees)
Tiered pricing for stocks and ETFs: those who trade 300,000+ shares per month pay less than $0.002 per share and does not include exchange and regulatory fees

For a detailed account of pricing structure, visit the Interactive Brokers pricing page for up to date information.

Opening an Account

The process to open an account depends on the type you plan on opening and your country of residence. For individuals, the minimum age is 18 to open a cash account, but you need to be at least 21 to open a margin account.

Interactive Brokers also require individual account holders prove that they have fairly extensive knowledge on products they want to trade. That means you have to have executed at least 100 trades (any product type will do) or 100 simulated trades using their demo software. Users will also need to meet the minimum equity deposits.

Requirements differ for institutions, but generally you’ll need to be registered under your local regulatory law. For example, in the US that may mean registering with the Commodity Trading Advisors (CTA) for institutions that want to trade US commodities.

For all accounts, you will need to provide documents that prove you or your institution's identity, proof of address, and funding information.

Citizens or residents from most countries can open an account. The only exception are those that are prohibited by the US Office of Foreign Assets Control.

Trading Platform

Interactive Brokers’ Trader Workstation (TWS) is considered a pretty robust trading platform out there. The desktop version features alerts, watchlists, real-time monitoring and the ability to customize the dashboard.

Once you log in, you can create different workspaces which allows you to look at different data and execute trades. Some of the tools you can access include advanced charting, paper trading, mutual fund replicator, volatility lab. Traders can also access an options strategy lab to compare strategies as well as create and submit simple and complex multi-leg options.

Within this trading platform, you can also access research news and market data. Some of this information might require a subscription.

Since there are so many options to trade on Interactive Brokers, the TWS may seem overwhelming to first-time users. Traders might want to consider using their HTML based trading platform called IB WebTrader which may be less intimidating to use. They also have mobile apps for both iOS and Android.

For those wanting to give the platform a try before committing, you can download their demo software.

Advisory/Investor Education

Investors’ Marketplace is a place where third-party service providers can interact with investors and clients. The goal is for this to be a place where they can do business together. Not only can anyone connect with different service providers, but it can also be a place to ask questions and learn about different advisors, research analysts, business developers and hedge funds individuals can work with.

They also provide on-demand learning, called Traders’ University. Traders can learn about IB products and services. This includes courses, on-demand webinars, interactive tours and IB Traders Insight, which provides commentary from leading experts.

Bottom Line

If you have fairly extensive experience active trading experience, Interactive Brokers might be the best solution for you. With its low fees and myriad of options, those with a considerable sum to invest will see that this is one of the best brokerages around. However, if you’re just getting started in trading or want a fairly low maintenance investing solution, then the steep learning curve of their trading platform may be too much for you.