What have Interactive Brokers done?
The online multi-asset platform recently rationalised its UK and European rate cards by offering flat fee executions on small trades and commissions of just a few basis points on those trades that exceeded a £6000 or €6000 threshold.
The brokerage which is headquartered in Greenwich Connecticut, but which operates across the globe, has also highlighted its US execution rates by publishing a comparison table that compares the fees Interactive Brokers charges, versus those of 8 leading UK and European brokers.
Interactive Brokers directly compares what its clients would pay on US equity trades with considerations of £2000, £5000 and £10,000 and highlights the differential between its fees and those of the opposition.
Using the strapline
“Zero Commission Isn’t the Same as Free”
The results are quite eye-opening.
For example on the trade of 100 US shares, with a £5000.00 consideration, Interactive Brokers would charge total trade costs of just £2.05.
Interactive Brokers breaks down the figures, it charges 3.50 basis points of commission on US equity trades and an additional FX conversion fee of 2.0 basis points, subject to a minimum ticket charge of $2.00.
The firm also breaks down the charges that it believes clients would pay at its rivals for that same trade.
Are the Interactive Brokers comparisons valid?
To be fair to the competition it’s probably correct to point out that Interactive Brokers makes certain assumptions about how that trade might be executed at its rivals and the type of accounts that clients might hold there.
So one could suggest that they have cherry-picked examples that show Interactive Brokers in the best light, but why wouldn’t they? After all, it is their marketing exercise.
But even allowing for that, the differential in total fees charged, particularly on larger trades, are so wide that it’s hard to imagine that the opposition would be able to come close to the Interactive Brokers charges.
To illustrate that point let’s consider a trade in 200 shares of a US stock, with a consideration of £10.000.
No doubt we will see these comparisons refuted by the opposition brokers at some stage but for now, Interactive Brokers is very much on the front foot and has put the ball, or balls, firmly into the opposition court, if I may mix my sporting metaphors.