Interactive Brokers is an online broker from the USA, which opens accounts for clients all over the world. All communication with the broker is exclusively online.
A few facts:
- Interactive Brokers has been in business for over 40 years;
- Interactive Brokers has a market capitalization of over $29 billion;
- Interactive Brokers shares are traded on Nasdaq under the ticker symbol IBKR.
Official website in English: https://www.interactivebrokers.co.uk/ , https://interactivebrokers.com/ for US clients. In general, this is one of the top brokers on the U.S. market, and in the connection with the fact that the regulation of the U.S. stock market is the most strict in the world, you can not doubt in the trustworthiness of the broker.
SIPC insurance for $500,000.
One of the benefits of Iterative Brokers is that all the brokerage accounts are insured by SIPC non-profit organization. SIPC insures an investor's brokerage account and the money in it in case of any unforeseen situations, such as bankruptcy of the broker. The sum insured is $500,000, including $250,000 in cash. You can conclude that a broker is as reliable as it can be. Even if you have doubts, there is insurance. Let me remind you that in Russia there is none at all on brokerage accounts.
How to open an account
Opening an account with Intaractive Brokers takes place exclusively online, you can do this by following this link, it is not possible to open an account in the office. In order to open an account, you need to fill out an application form, it takes about 10-15 minutes. At the end you need to attach 2 documents: proof of identity and address. If you are a Russian citizen, you can prove your identity with a passport, and your address with a Russian passport with a registration page. The account will be opened in 1-3 days, but may take up to 2 weeks. Do not worry, if something is wrong - you will be asked for clarification by e-mail.
Attention: you have to fund the account within 3 months, otherwise it will be closed.
How to refill your account
You can deposit your account by bank transfer in almost all currencies including USD, EUR and RUR.
- Important points:
- You cannot make a deposit with a bank card or Paypal;
- You must deposit from a bank account of your country;
It is much more profitable to deposit in rubles, there are no commissions for SWIFT-transfer.
To create a transfer of funds to the broker, you need to create an invoice in the broker's interface, get the details and transfer the money in your online bank.
When you make the first transfer, your bank will ask you to attach the agreement with the broker to justify the transfer. You enclose a PDF of the agreement that the broker will give you. You do not usually need to attach the agreement to all other payments.
Interactive Brokers fees and commissions
According to the latest fashion, the broker has a simple rate schedule of two rates, but there is a fee for inactivity.
If you do not make any trades the inactivity fee is $10 per month, with the first 3 months no fee is charged so you can get used to the broker.
Also keep in mind that commissions for transactions, which you have made at the brokerage rate, are deducted from 10 dollars. For example, if your trading commission was $8, you will pay only $2 for inactivity ($10-$8).
There are also other conditions on this commission:
- if you have less than $2000 in your account, your inactivity fee is $20 per month;
- if you are under 25 years old the inactivity fee is 3$ per month;
- If your assets are over $100,000 there is no inactivity fee.
There are 2 plans: Fixed and Tiered.
Minimum commission for buy or sell transaction is USD 1 per transaction.
In all other cases you will be charged $0.005 per share.
Maximum commission is 1% of the transaction amount.
That is, if you buy and sell the stock, the commission round will cost minimum 2$.
It turns out, if the share is worth 100$, you have bought it and sold it, you will pay 2$, which is 2% of the value of the share, which is a lot.
It is extremely unprofitable to buy in small amounts at this rate. But I remind you that this 2$ will be deducted from commission for inactivity, therefore if you have a small amount of transactions then you in the whole don't care, in fact you will pay 10$ a month in any case.
The minimum commission is 35 cents or $0.0035 per share, up to 1.0% of transaction.
This plan is more advantageous.
Which plan to choose?
If you have less than 10 trades per month, choose Fixed, this plan is ideal for passive long-term investors. If you have more than 10 trades per month, choose the Tiered plan.
In the USA, many brokers have even higher commissions, which is why Interactive Brokers is considered a broker with low commissions. In addition, the 10 USD does not make much difference for a US resident. It is simple - a good product (reliable broker under the US regulation) at an expensive price (10 USD per month). Also, these 10 USD may easily pay back if you invest in ETFs, because ETF commissions in the US market are much lower than in Europe.
How much does it pay to open an account?
For the year you will pay the broker at least 120$, thus it is profitable to open the account from about 12000$-14000$, in this case the commission will eat 1% or less in a year, which is bearable. In my opinion, if you have less than 900,000 or 1,000,000 euro there is no sense to open an account with Interactive Brokers.
Buying shares and ETFs
What is the main advantage of an American broker?
You can buy all the US equities traded on the NYSE and the NASDAQ over 7000 pieces, you have available over 2000 ETFs with low commissions (the commissions are 4-5 times lower than the Europe ETFs and BFIFs), all the REITs (Real Estate Funds), all the bonds. Leveraged ETFs are also available. What does it mean? For example, if the market grows by 1%, such ETF can grow by 3%. Reverse ETFs are also available here. On top of that, stocks of practically all countries are available in IB, e.g. Germany, Singapore, Australia and so on.
That said, you don't need qualified investor status to buy securities:
- you don't need qualified investor status (such status is granted from EUR 1 million);
- there is no limit on the minimum purchase amount (the minimum amount in Tinkoff Investments is 3000$/transaction, in VTB 10000$/transaction);
From bonuses: it is possible to buy fractional shares! What does this mean? You can buy 0.1 or 0.2 shares of Amazon for 3200$ (10 thousand euro) or Google for 1800$ (5 thousand euro) or just buy shares for 100$. The broker can also enable automatic reinvestment of dividends, all dividends which will come on your shares will be automatically reinvested in the same shares.
Support from the broker
A significant plus at the broker is the English language support, including phone support. Sometimes it is difficult to reach there but nevertheless I have been consulted there many times and I can appreciate the quality of the work, the support is trying hard and it seems that there is a very strict selection as opposed to our brokers support.
They also have a ticket system where they also answer in Englsih and there is an online chat room as well.
How to withdraw money
You may withdraw your money for free once a month and you will have to pay $10 for the second withdrawal. Such an approach is very disciplined and makes you not have to transfer money back and forth a hundred times. Money reach Europe very fast, on average, for me it takes 4 hours.
Attention: you can withdraw money only to the bank account from which you deposited the money. If you want to withdraw to another bank, you have to fund the brokerage account with any amount first.
Attention, the money is withdrawn to your bank account, not to your card. (To be fair, a bank account almost always has a card tied to it)
Taxes via Interactive Brokers
The broker is not your tax agent in Europe. You have to pay your taxes yourself.
You must pay:
- the tax depends on your country ;
- 25% on dividends if you have signed form W8-BEN, this form is signed at registration;
In this case, the broker will take 10% from the dividends and you have to pay 3% yourself. In total you have to pay 13% on the income and 3% on the dividends yourself.
Reviews of Interactive Brokers
In the AppStore and Google Play reviews of the application are quite low, the rating is 3.4. In my opinion deservedly, the application is quite difficult to understand on the fly.
Important point: In Russia IBKR Mobile broker's app was removed from AppStore. It happened because such software in Europe must be approved by the Central Bank. IB did not want to do this and the app was removed.
However, the broker released a clone application for iOS: Handy Trader and Handy Key, these applications are fully similar to those that were removed so you can easily use them to trade on iPhone.
For Android the IBKR Mobile app remains.
A list of the broker's main products Interactive Brokers:
- Spot Currencies
- US Spot Gold
- Mutual Funds
- Hedge Funds
- Investment Products
IBKR Trading Platforms
How to buy shares in Interactive Brokers
There are 3 ways to buy stocks, ETFs and other instruments:
Mobile phone app;
Trader Workstation (TWS) proprietary terminal software;
The most convenient way to buy through the app, the website is also very handy, but only traders will like the terminal because it is too crowded with unnecessary sections.
How much money should I transfer to Interactive Brokers?
Interestingly enough, amounts less than $10,000 are not suitable for transferring, especially if you transfer them frequently. The amount of $10000 is considered as high value in many countries and is subject to exchange control. IB is aware of this and watch it closely.
It is also not advisable to make many small payments as they also raise suspicion of the broker.
Frequent questions about Interactive Brokers
The most common questions investors have are as follows:
What will happen to my brokerage account if my country is subject to severe US sanctions?
Every investor is afraid that his account at an American broker will be frozen, seized, written off in favor of the USA and so on. You do not have to worry. There is an example of such sanctions - Iran. This country has fallen under sanctions, Interactive Brokers has notified all clients from this country about the impossibility to work further and gave time to either withdraw money or transfer their shares to another broker.
US inheritance tax of 40%: does it apply to Europe?
The US inheritance tax is 40% and you can read on the internet that it applies to Europeans as well. This is not true, this tax only applies to US citizens. Inheritance is issued by the broker according to the domestic laws of each country in which he works, for Europe in case of inheritance you need a death certificate and a document of right of succession, after that the money will be withdrawn.
I heard that Interactive Brokers is closing accounts to users from Eastern European countries, is this true?
In the summer of 2020 the broker received a fine from the US Securities Commission and had to close some suspicious accounts from different countries including Russia, some clients were asked by SOW (Source of Wealth) about the origin of the funds. It was a one-off action and everything is quiet now. It is worth noting that 99% of clients have nothing to fear. Who should be worried: if a person says that he is from Russia, but comes from Ukraine (and vice versa), investor often withdraws funds to other countries, investor lives in the peninsula of Crimea, the client often enters from VPN services, on the account for a long time is a small amount of money and low activity.
Features and personal experience of using the broker
Many who use the broker note the following positive aspects of the platform:
- Great broker reports in the portfolio analyst section, you can really understand how much you have earned, unlike Europe brokers reports (our brokers are not profitable for you to really know how much you have earned). With Interactive Brokers you do not need any third-party services for analyzing your portfolio, there is more than enough analytics in the reports;
- A complete set of all investment tools, I can buy any stock from almost any country in the world, ETFs including leveraged ETFs;
- The main screen of the mobile app can be customised and display only what you need there, it's very convenient;
- Very good web interface, the best I've seen, I like to buy stocks there;
- Very good functionality of the platform itself, there is everything even I would say in excess;
- You don't need to be a qualified investor to buy securities and you can buy them with any lot;
And now the disadvantages, the broker has them, you should not think that if the broker is from the U.S., he is infallible and works without problems (as beginner investors often think).
- One of the major and not obvious disadvantages is that the stock quotes are provided to you with a 15 minute delay, in order to get the latest quotes you have to pay. A very strange limitation. Connection for NYSE and NASDAQ exchanges costs 3$ in total, but there is a solution - you can request current quotation with "refresh" button for 1 cent, free requests can be made up to 1$ per month. In general, if you're not a trader, you don't have to worry about delays;
- In general, if you are not a trader, you should not bother with such delays; - The broker's interfaces are quite confusing and it takes time to understand them, it will not be easy for beginners;
- Registration of the brokerage account is complicated;
- Once a year they ask if your income structure has changed;
- Web-version is sometimes down, especially during opening hours, that's where the mobile app or TWS terminal comes in handy.
|Pros of the broker:||Cons:|
|Don't need qualified investor status to buy stocks and ETFs||Inactivity fee of $10/month|
|Insurance for $500,000||Confusing interfaces, takes some getting used to|
|Highest reliability of the broker under US jurisdiction||Tax has to be paid by yourself|
|Huge selection of US stocks and ETFs with low commissions||Data is delayed by 15 minutes|
|Fractional share purchases|
|Great broker reports|