There is one thing that IBKR gives you above all other brokers, and that is control. You can invest and trade in pretty much anything you want, in pretty much any account type, pretty much how you want.
Interactive Brokers is a major US online automated electronic broker company. The financial broker is listed on the Nasdaq Exchange with ticker IBKR. The firm operates in 150 electronic exchanges in 33 countries, and offers trading in 23 currencies. Interactive Brokers has more than 1.75 million institutional and retail customers.
If you are not familiar with Interactive Brokers (IBKR) they are American, but global, as most American things are, with the notable exception of their news, which always seems to be local. But I digress, IBKR was one of the first brokers to offer electronic trading to the masses. They were founded in 1978 and if you want to know more about the man who founded them and is still running the show, read my interview with Thomas Peterffy, the founder and chairman.
For us Brits you can have an Investment ISA account, manage your SIPP, trade CFDs, on exchange futures and options, buy funds, buy physical shares, (then earn money by lending it out to people who want to bet against you and short it through their Stock Yield Enhancement Program). You can earn money on your cash, you can buy bonds (high and low yielding), buy warrants, partake in placings, vote on company corporate actions. You can convert currency at 0.2%, which is cheaper than most specialist currency brokers or money transfer apps.
Which actually segues me nicely to prove my control point. With most brokers you have to choose an account base currency (if you are in the UK that is probably going to be GBP) and when you trade, no matter what currency an asset is traded in your P&L will be converted to that base currency. But with IBKR you can run your account in multiple currencies. So, if you put in GBP and trade the S&P for example, your P&L will be in USD. If you buy USD stock you get the option to attach a currency conversion to the transaction so you can convert exactly the right amount to cover the purchase, or you can choose to run a deficit in USD. It’s not such an issue for small traders, as currency exposure, whilst important to be aware of, isn’t the most pressing matter. But if you are running a net flat long/short global macro portfolio, then keeping on top of your currency exposure could be the difference between making money or not.
Through ScaleTrader, (one of the founder’s favorite features) IBKR also gives you some very advanced order functionality, the sort you usually only get with professional trading systems like Fidessa (for stocks) or TT (for futures). If you’re building a big position and don’t want the market to know you’ve got a big order to work, IBKR’s order ticket will let you gradually feed that into the market (but only charge you for the single order). You can automatically drop bids and offers into the market based on time and price to take advantage of volatile markets. You can also set it to scalp for quick profits in choppy markets.
You can trade one stock against another automatically by spread, percentage or price. Why is that important? Because it can help you build a market-neutral portfolio and when we asked the boss of IBKR the habits he saw in his most profitable customers, (referring back to our interview with him for the third time) he said the ones that traded one stock against another, often did well.
You can of course do these things with other brokers, but what you can’t do is do them all in one place. For this review, I spent a while talking to Steven Sanders, IBKR’s head of Marketing & Product Development, and he said in the twenty years, he’s worked for Interactive Brokers the thing he’s most proud of (other than it being founder lead and therefore very little red tape when you want to get things done) is the implementation of the Universal Account, where everything is done from one account. What’s amazing to me is that nobody else really offers it. Ten years ago when I was a derivatives broker at Man Financial, we offered everything that IBKR did, but all on separate platforms. We have a couple of big accounts, £20m upwards, that we were always trying to lure back from IBKR with our personalised voice brokerage where you could phone us up we’d take care of your complicated orders for you. But times change, there is still demand for bespoke voice brokerage, but not as far as Interactive Brokers are concerned. They do offer it from specialists desks if needed, but most trading and investing is done online.
It’s not all great, it takes a while to get through on the phone to customer service, and it has a slightly outsourced feel about it (if you know what I mean). The desktop trading platform, despite its exceptional functionality, is also a bit “Windows 95”. But if you don’t need all the bells and whistles, the web based platform, or app has a more modern feel to them.
There is no doubt that Interactive Brokers is a proper trading platform, for those who know what they are doing and cater mainly to the more sophisticated investor. But they are making an effort to open their services up to the newer breed of investor and trader. It’s standard now among many fintechs, but IBKR were actually the first to offer “no commission trading”, they also offer fractional shares through IBKR LITE and IBKR Pro accounts and have removed the monthly minimum account charge.
In tune with moving with the times, Interactive Brokers has also released the IMPACT app to help people investing in ESG and impact sectors, so they can put their money to good. You can see the IMPACT dashboard on desktop, but it also operates as a standalone app that connects directly to your IBKR account and scores your portfolio based on how ethical the stocks you hold in it are. Ratings come from FactSet and Refinitiv, and there is this excellent feature that allows you to swap into more ethical stocks. If one of your holdings is flagged as not that ethical, the app will suggest another one and at the click of a button, it will sell your shares and calculate how many new shares of a more ethical but similar company to buy and do it all for you. If you’re in the US, you can also make charitable donations directly on the app.
The hope of course is that by onboarding investors when they just start, they can look after their investments for the next 40 years, just as they have been doing for their existing clients for the last 40 years. Interactive Brokers runs a Student Trading Lab where students from 600 schools and universities take part in a $1m paper trading account for the purposes of getting a better understanding of the markets. No broker these days can tell you what to buy or sell, but IBKR GlobalAnalyst, helps you hunt out undervalued opportunities, across the world, not just in the US. They offer a Trading Academy, podcasts, webinars and blogs for beginners and experienced traders so that new customers survive the markets to become long-term clients.
Plus, they are cheap.
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