Interactive Brokers at a glance
What Interactive Brokers is
Interactive Brokers was founded by billionaire and Wall Street icon Thomas Peterffy because of his background in computer programming instead of his history of profitable stock picking at a big-name firm. Peterffy was an early innovator in computer-assisted trading, and Interactive Brokers remains committed to his philosophy of using cutting-edge technology to increase flexibility and reduce costs.
Of course, this is a double-edged sword. If you're a rookie investor or if you have no intention of doing intensive research necessary to execute sophisticated strategies, it can be overwhelming.
The target audience of Interactive Brokers is veteran investors and even institutional traders. If you're in this category, you will find a best-in-class experience. But if you're not, you're probably going to feel the platform is a bit cumbersome or inaccessible.
What Interactive Brokers costs
With costs that start at just $1 per stock or options trade, Interactive Brokers is difficult to beat on price if you're doing even a modest amount of trading.
But again, you must keep in mind that this cost structure is for a core audience of active traders with deep pockets. The minimum amount to fund an account is $10,000, so small-time investors may be shut out.
Furthermore, there is a pretty small list of commission-free ETFs – and these cater to sophisticated investors without many of the mainstream options that a casual retirement-focused investor would gravitate toward most.
For instance, many of the commission-free ETFs come from the Global X family. These focus on investing strategies like the Global X MSCI Colombia ETF (GXG) for those who want to invest directly in this small South American nation or the Global X China Industrials ETF (CHII) for those who want to drill even deeper and invest in a specific sector of a specific emerging market.
But if, for example, you're just making a few trades a year after rolling over your 401(k) to an IRA, these funds are all but useless to you – regardless of the commission schedule.
Overall, trades are priced incredibly low at $1 apiece. But getting real value out of those trades is all on you as the investor. The good news is that Interactive Brokers does allow you to test-drive the platform at no cost before funding an account, so investors have a chance to truly try see if this is the right trading solution for them.
What Interactive Brokers offers
Interactive Brokers offers robust tools and broad reach across capital markets.
You can trade foreign currencies and futures in addition to stocks and options. You can also access 120 international markets in 26 different countries to buy stocks there directly, instead of relying on those stocks to trade on U.S. exchanges or using an ETF to gain exposure indirectly. In total, customers have access to over 60 different order types.
The platform offers a generous interest rate on idle balances – including a nearly 1 percent rate (at current pricing) on balances of around $50,000. In comparison, some of the best high-yield savings accounts online offer around 1.8 percent currently.
Some of these specific features worth noting include:
What Interactive Brokers lacks
Interactive Brokers may not be the best brokerage for beginner investors. And the company doesn't make much of an effort to grow beginners into experienced investors.
Take its Traders Academy education center, which as the name implies focuses on active trading techniques and has plenty of resources about how options and futures work. If you're new to the stock market and don't understand the basics, these resources aren't very helpful. Furthermore, while many of the platform's functions may be intuitive to investors used to various financial tools and screeners, rookies may never fully realize the potential.
Interactive Brokers is best for...
Veteran investors who are comfortable using high-powered tools and trade at high volume are the ideal customers for Interactive Brokers. The cost savings at $1 a trade can add up over time if you're placing several trades or more each week.
And best of all, if you're a sophisticated trader who has a successful strategy for stocks, there is potential to dabble in options, futures or forex on the same platform.
The platform isn't great on a mobile device, but if you're a full-time trader at a desk with multiple monitors, the flexibility of the Interactive Brokers workspace is a powerful selling point.
In short, if you know what questions to ask about the market, Interactive Brokers is a great way to ensure you get the answers in a way that you can instantly take action on.