Interactive Brokers Review
Executions and Routes
Interactive Brokers is an online discount broker with a wide array of day trading tools and resources. The company provides access to trading platforms, impressive short lists, and stock market education. Interactive Brokers is one of the more advanced discount brokers with access to more routing options and better borrow lists.
About Interactive Brokers
Founded in 1977, Interactive Brokers (IB) is one of the largest and oldest online brokers with market making and trading access to almost 120 worldwide markets. IB is a discount online broker that caters to retail investors, traders, independent investment advisors and portfolio managers. Traders can trade stock, option, bond, mutual funds, futures, commodities and forex markets through the online, mobile and standalone TWS platform. IB requires $10,000 minimum despoit in cash or securities to initially open a non-IRA account. IRA accounts require a $5,000 minimum deposit. For individuals under 25 years of age, the minimum is $3,000. Margin accounts need to maintain a minimum balance of $2,000.
Commissions and Fees
The commission structure at IB can be complicated depending on what financial instruments you trade.
Stocks and ETFs trading
IB gives the two commission pricing structures. The Fixed commission is a per-share pricing model that charges $0.005 per share and a $1 minimum commission per order. This includes IB commissions, exchange and most regulatory fees. However, transaction ECN fees are not included. For example, ARCA exchange transaction fees are an additional $0.003 per share for removing liquidity and $0.0021 rebate for adding liquidity. However, IB states they may apply some or part of the rebate back to the customer.
The Tiered pricing structure scales the commissions lower based on total monthly trading volume. The commissions start at $0.0035 per share and $0.35 minimum commission per order for the first 300,000 shares total trading volume. Exchange, clearing and regulatory fees are added onto the costs. The commission fee starts to shrink with more trading volume. For example, for the trading volume from 300,001 to 3,000,000 shares, the commission drops to $0.002 per share and then $0.0015 from 3,000,001 shares to 20,000,000 shares. From 20,000,001 to 100,000,000 shares of volume, the commission drops to $0.001 and then $0.0005 per share for the portion of shares over 100,000,000 for the month. Traders who routinely provide liquidity and trade over 3,000,000 shares a month will see the difference in commissions. Traders who don’t surpass the 300,000 shares a month may be better off with the fixed commission rate.
IB charges $0.70 per contract plus exchange fees if the premium is larger than $0.10 and $0.50 per contract plus exchange fees if the premium is between $0.05 to $0.10 and $0.25 per contract plus exchange fees if premium is less than $0.05. All options trades have a $1 minimum commission.
There is a $10 minimum monthly inactivity fee and $20 minimum fee for accounts under $2,000 that can be waived if the account generates as much in commissions. Accounts over $100,000 have no monthly inactivity fees.
Platform and Tools
IB can be accessed through their website, mobile or standalone desktop TWS (Trader Work Station) software, which should be used by any serious trader. The TWS platform can be set-up with the classic mosaic screen that just shows stock quotes with simply bid/ask click and execute orders. I like to open up the integrated stock windows, which give me Level 2, Time and Sales as well as a single time frame chart. I use the chart on a 1-minute time frame to just gauge the candlestick patterns. The mobile app is surprisingly feature-rich with access to realtime quotes, basic charts and news. It even includes streaming level 2 with a simple order execution interface.
Executions and Routes
IB provides point-and-click direct access order routing from the level 2 quote windows. One of the best features is the hidden orders option that lets you mask your limit orders on level 2 for almost all stocks. You can also set it for reserve mode where it only shows decoy size while hiding the true size. This works great and helps to prevent others from seeing your sizing if you are trying to unload larger shares. I also like the smart routing feature, which is standard for executions. The TWS smart routing is one of the best automatic routing algorithms I’ve used and is amazingly fast with fills without making too much market impact. It will actually route to dark pools when available.
Borrows and Locates
IB does a great job of updating the available short shares for any stock that is placed on a watchlist. The total available short shares inventory updates throughout the day, which is incredibly helpful. I make sure that I don’t stick around too long in a short position when the available shorts inventory is small (under 100,000 shares). These stocks are very susceptible to short squeezes when short-sellers can’t average their short positions and may incur forced liquidations from intra-day margin calls.
Intra-day Margin Calls and Forced Liquidations
IB is very strict with risk controls. They can adjust maintenance margins mid-day for stocks that many be exhibiting extreme volatility (IE: short squeezes). They are also quick to administer forced liquidations on intra-day margin calls especially on short squeezes. This is very dangerous for traders who don’t stay on top of these margin changes intraday. For this reason, it’s always prudent to check the available short shares for any stocks you are trading.
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Interactive Brokers has many basic platform tutorials and manuals that explain all the functions in a straightforward manner. As for actually courses and trading education, they have very courses through their Traders’ University section, which is a compilation of basic courses on trading strategies presented through various experts and vendors. Traders can register to sign up for live scheduled webinars presented by IB staff or view archived webinars. Once again, these are all basic tutorials on how to use the platform. Don’t expect specific methodologies given away for free from any online broker.
Additional Benefits and Features
For traders who like to pick their entries and exits ahead of time, the bracket orders are excellent. TWS lets you place bracket and conditional orders to trigger at limit prices and then execute at limit or market prices. The hot keys are versatile and easily programmable. I also really enjoy the ability to add custom sound effects through the global settings for different actions like a lightsaber noise when a trade is executed or a “Goodbye” voice when an order if cancelled. Sound effects help me tremendously by freeing up my eyes to properly monitor charts, news and activity feeds throughout the day. If you haven’t tried using sound effects, I highly recommend them. Otherwise, you have to be glued to the screens until your orders are filled. Its suprising how many platforms don’t allow for customized sound effects? TWS also provides subscriptions to NYSEARCA Open Book and Nasdaq Total View quote feeds, which is very useful for scalpers to determine the depth of the bids and asks.
What Type of Trader is Interactive Brokers Best For?
The TWS is best for seasoned retail traders, professional advisors and portfolio managers that know what they want and what they are doing. There isn’t a whole lot of hand holding on this platform. The smart routing and invisible orders are the two best perks of the platform in addition to customized sounds and easy hot-key programmability. Traders who desire to perform their own direct access order routing and collect pass-thru rebates will be frustrated being forced to use the smart routing only and the ambiguous stance pass-thru rebates. IB states they may apply some or all of the pass-thru rebates back to the client. However, traders can configure smart routing to only route to exchanges meeting certain requirements, dark pools, max rebates or based on price improvement and preferred fill requirements. For most traders, this is good enough. Manual order routing can be more tedious than beneficial especially when speed is a factor. Algorithmic traders tend to prefer the direct access order routing more so than retail traders. TWS can also accommodate program trading through their API.
Interactive Brokers is a professional’s online trading broker. They are one of my favorite brokers for the efficiency, stability and simplicity of order fills once you get acclimated.
- Per-share pricing makes it cost effective for traders who scale positions
- Smart routing is effective for most retail traders
- Hot-Keys and sound effects
- Invisible and reserve orders are easy to place
- Flexible API for algorithmic and automated trading
- Low margin rates
- Solid access to all types of financial instruments
- Complicated commission and fee structures
- Maintenance margin requirements can change intra-day for volatile stocks