Interactive Brokers is a full-featured investment platform that has traditionally been built for professional and institutional investors. Although in the past two years it has introduced a Lite brand aimed at the retail investment crowd, the truth is that this remains a very sophisticated product. So if you’re a sophisticated investor of just about any stripe, Interactive Brokers may be for you. A financial advisor can help you decide what type of platform is best for your financial strategy and tactics as well as developing realistic financial goals.
Services & Features: What Does Interactive Brokers Offer?
The core of Interactive Brokers is its desktop trading interface called Trader Workstation (TWS). This is a multi-window trading program which provides users with virtually all of the data that a technically oriented investor could ask for. This program is modular, using a mosaic layout in the standard way of many trading platforms, and is highly customizable. Investors can set up their workspace to meet their particular needs, choosing which industries, assets and data to prioritize.
While this mosaic format is not unusual, what sets Interactive Brokers apart is the sheer volume of data that you can pull from. Interactive Brokers offers one of the most comprehensive data sets that this reviewer has seen. This includes: sector heat maps; news feeds; customizable technical charts where you can compare data across indicators and assets; and screeners that provide vast amounts of data on any given asset, offering both technical and fundamental analysis on stocks and options.
The ability to pull up fundamental analysis, often in quantified form, also sets Interactive Brokers apart. Most data-driven trading platforms tend to offer little of this, focusing almost entirely on technical analysis instead.
Once you have this data in hand, you can use it to build highly complex conditional trades, as the TWS supports multi-step orders and conditional orders based on a vast array of factors. You can set a purchase order to trigger around trading volume, for example, or a sale to trigger if your asset hits a certain volatility. The range of both conditional order types and the data triggers they support is beyond what most platforms offer.
For the technically driven day traders out there, Interactive Brokers also offers an automatic routing feature. Orders are shifted to find the most efficient router at any given time in order to maximize the speed of each transaction. Few investors will notice the difference that a system like this can make, but for a high-volume day trader the half-second gained by smart routing can mean a very real difference in dollars.
Interactive Brokers offers a comprehensive set of asset classes. This includes equities, exchange-traded funds (ETFs), mutual funds, bonds, options, futures, foreign currency and more. Depending on availability and legal restrictions, you can trade these assets not only on U.S. markets but on more than 100 different markets worldwide.
In addition to its Trader Workstation, Interactive Brokers also offers a web-based an app-based version of its trading platform. These portals give you access to the same trading network (as opposed to many other companies which set up multiple different products around assets and devices). The web and app-based versions of Interactive Brokers offer many of the same features as its core brand, however, unlike many online trading platforms they are not the firm’s flagship product and offer considerably fewer features.
Finally, as a niche but noteworthy feature, Interactive Brokers has jumped on the movement toward socially conscious investing with its Impact Dashboard. This tool helps you sort assets and build investment strategies around different social priorities such as environmental concerns, social justice issues and political representation.
Fees: How Much Does Interactive Brokers Cost?
There are usually four types of fees to look out for when choosing a trading platform. You should look out for these when evaluating any investment or trading service:
- Trading fees. Any fixed charge attached to each trade that you make. This can come in the form of a flat fee or what’s known as the “spread.” This is when your broker charges you based on the difference, if any, between the buying and the selling price of an asset.
- Trading commissions. This is when a broker will charge you a percentage based on the volume or value of each trade.
- Inactivity fees. Any fees that the broker charges you for not trading, such as for keeping money in a brokerage account.
- Non-trading/Other fees. Any form of fee for trading on this platform not covered above. For example, a brokerage might charge you for making deposits into your brokerage account, taking money out of it or signing up for additional services.
Interactive Brokers is neither one of the cheapest nor one of the most expensive products on the market. As is common with professional grade products, it does not pretend to be completely free. However, it is cheaper than many comparable services.
This platform relies on a pricing structure tied heavily to individual use. It has tiered and fixed pricing plans, and in some cases offers zero-commission trading. The fixed pricing plans set your price-per-asset or price-per trade in advance, regardless of your trade volume or account balance. A tiered pricing plan does the opposite, scaling your per-asset or per-trade prices based on how you trade during any given month. Within these plans your prices will further depend upon where you live and the markets on which you trade.
Zero commission trading is available for certain accounts, on certain assets.
For example, a U.S. investors trading on U.S. markets might choose a fixed price plan with which to trade stocks. In this case they would pay $0.005 per share traded, with a minimum price of $1 per order and a maximum price of 1% of the transaction’s overall value. A tiered pricing plan for this same investor would scale based on how many shares they trade per month, starting at $0.0035 per share if they trade below 300,000 shares per month and scaling down to $0.0005 per share if they trade more than 100 million shares per month.
This pricing structure holds true for all asset classes supported by Interactive Brokers, with different specific price points for any given asset, plan and location.
Finally, Interactive Brokers Lite offers zero commission trading. This is the platform’s attempt to appeal to retail investors. Through Interactive Brokers Lite you can receive zero-dollar trades on stocks and exchange-traded funds (ETF), however, you do not get access to the platform’s Trader Workstation. Investors on the Lite plan use the platform’s web and app-based trading portals. They can trade the platform’s full range of assets, but only stocks and ETFs are free. Lite subscribers must still pay for other assets based on a tiered or fixed pricing model.
Effectiveness: How Well Does Interactive Brokers Work?
Don’t be fooled by the Lite plan. If you are an inexperienced or casual investor, Interactive Brokers is not for you. As noted above, the heart of this platform is its Trader Workstation. Trading on Interactive Brokers through the web interface or its app is fine but, unless you truly need to invest in niche financial products or global markets, this platform isn’t bringing anything to the table that you won’t find on E*TRADE or other full-featured platforms. It is the desktop product where this platform truly shines.
And the desktop product is incredibly complex. This is a deep, powerful set of trading tools. Newcomers to trading will find an incredibly steep learning curve, if they can learn how to use this product at all. Just as importantly, it will be an unnecessary learning curve. Inexperienced investors will not need the full set of tools that Interactive Brokers offers; indeed, they likely won’t even know to look for many of those features. The same is true of infrequent traders. If you are not a high-volume trader, the complexity and depth that Interactive Brokers offers is simply not necessary. You will not need the real time information or order routing optimization of this software to occasionally update your index funds or tweak your speculative assets.
Interactive Brokers is a full-featured investment platform built for sophisticated and professional investors. It has a wealth of assets and data that will overwhelm inexperienced investors and likely won’t have much value for the average trader either, but which can do great things for a professional or sophisticated investor. Users can trade equities, ETFs, mutual funds, bonds, options, futures, foreign currency and more in both the U.S. and scores of foreign markets.
Tips on Investing
- Whether or not you’re ready for the Trader Workstation that doesn’t mean your money shouldn’t be doing its absolute best work. With SmartAsset’s matching tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Consider using a free investment calculator so you can get a quick snapshot of how you’re doing in progressing toward your financial goals.
Photo credit: ©iStock.com/Laurence Dutton, ©iStock.com/hadynyah, ©iStock.com/Yozayo