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| '''Interactive Brokers LLC''' is an online brokerage firm offering direct access trading worldwide to the professional trader. Interactive Brokers provides the ability to trade ], ], ], ], ] and ] on 60 markets worldwide from a single account. | |||
| {{Wikify|November 2006}} | |||
| == History == | |||
| Interactive Brokers Group's founding member has completed its 29th year as a Broker Dealer. The mission remains unchanged: "Create technology to provide liquidity on better terms. Compete on price, speed, size, diversity of global products and advanced trading tools." | |||
| In 1983 Timber Hill (part of IBG) created the first handheld computers used for trading. Their ability to track positions and continually re-price options on one stock quickly gives Timber Hill traders an advantage over their counterparts at the exchange, who continued to use fair value pricing sheets that were updated only once or twice a day. | |||
| '''Interactive Brokers LLC''' is a ]-based online brokerage firm, operating on most major worldwide ], ], ], ], and ] markets. Its official abbreviation is IB. | |||
| Today IBG executes 19% of the world’s options (where IBG actively trades) and 22% of the US options. | |||
| ==Characteristics== | |||
| Interactive Brokers is a ]. It aims to suit active, self-help and online traders, in contrast to ] and non-active or helpless traders. It claims to offer discounted fee structure, high-level trading software. | |||
| It requires high reliance on electronic methods for order entry, processing, statement delivery and account management. Nearly every issue can be done via ]. Verbal or telephone orders are at substantial surcharges based on commissions, and for close positions only, to discourage users from non-online trading. | |||
| == New Business == | |||
| It takes a strict and conservative approach on ] policy. Unlike other firms, no margin calls will be issued. Positions will be liquidated quick once accounts fall below the maintenance levels. On one hand, it lowers the risks of bankruptcy from customer default. On the other, it may lose some customers who like better and more flexible margin arrangements. | |||
| IB provides direct access ("online") trade execution and clearing services to institutional and professional traders for a wide variety of electronically traded products including options, futures, stocks, ETFs, forex, and bonds worldwide. | |||
| Customer services are rather limited, not meant to be comprehensive. Research and help is limited either. It is not a firm for hand-holding. | |||
| Interactive Brokers' headquarters are in Greenwich, Connecticut, and it has about 500 employees in its offices there and in Chicago, Switzerland, Canada, Hong Kong, London and Sydney. IB is regulated by the SEC, NASD, NYSE, SFA and other regulatory agencies around the world. | |||
| == Account minimums == | |||
| * Strengths | |||
| In order to open a new account, one must deposit $5,000. A minimum commission of $10/month is normally charged, and strict account eligibility criteria are enforced. | |||
| * Low Trading Costs | |||
| * Smart Routing | |||
| * Cutting Edge Technology | |||
| == Awards == | |||
| Any fees charged (not interest received) in IB are not across evenly on a '''pro-rata''' basis. For example, a customer opens its account at 20th. The whole sum of any monthly charges will still be applied. | |||
| Five Star Rating for Cost from Barron’s 2006 Review of Online Brokers | |||
| Four and a half Star Overall Rating from Barron’s 2006 Review of Online Brokers | |||
| IB Group Ranked 16th largest securities firm by Institutional Investor, 2005 | |||
| == Commission and fees == | |||
| == Current Events == | |||
| Interactive Brokers has different plans for different products. There are 2 commission plans - unbundled and bundled plans - for US ] and ]. For others, only the unbundled plan is offered. | |||
| Penny Priced Options Now Available in the U.S. Interactive Brokers Group ("IBG") has developed a system to allow customers and liquidity providers to display penny prices in the IB system and to try to trade against other participants' penny prices displayed in the IB system. IB will attempt to match penny-priced bids and offers and send them to an option exchange for execution. | |||
| As to ''bundled'' plans, it is usually '''flat-rate'''. As to ''unbundled'' plans, commissions are based on volume. Discounts are given in '''pro-rata''' basis. The fees are applied on a marginal basis for a given calendar month. For example, a customer executes 1,500 ] ] in a month, the IB execution costs would be: | |||
| * the first 300 contracts at $0.90 | |||
| * the second 700 contracts at $0.70 | |||
| * the third 500 contracts at $0.45 | |||
| Nevertheless any fees in IB are not '''pro-rata''' basis as far as time is concerned. For example, a customer opens its account at 20th. The whole sum of any monthly charges will still be applied. | |||
| Interactive Brokers has added new tools for options traders. An Options Intelligence Report is now available for all customers as well as volatility trading functionality. | |||
| == |
== External Links == | ||
| * Interactive Brokers Home Page | |||
| Interactive Brokers offers apparently one of the most attractive ] in the industry. It is charged at the ] rates minus 50 ] for accounts over $10,000 in USD (Tier I threshold amount) and ] rates minus 25 ] for accounts over $100,000 in USD as of 1 Aug ]. | |||
| * Interactive Brokers Trader Workstation Demo | |||
| Nevertheless one should pay attention to other direct factors which may undermine interest receivables or rates. Since Interactive Brokers applies a few "tricks", so to speak, to offset parts of the benefits; its '''real''' interest rates are lower than its advertised ones. The point is it uses pro-rata basis to calculate ] earned and ] charges, which is very unusual in the industry. This is to encourage clients with larger balances, while discouraging clients with small balances. As IB's target client is the active, semi-pro or full-time trader, the exclusion on the first 10K deters clients with little capital to trade. | |||
| In the following paragraph, it is going to explain how this policy affect the interest calculation, and how it affects '''real''' interest rates.<br> | |||
| ('''Note''': ''The following has no implications on whether the interest rates are high or low, acceptable or not. One should not judge simply based on the size of the passage.'') | |||
| ===Adverse effects of interest policy=== | |||
| The ] benefits are somewhat offset in several ways: | |||
| * There is '''<u>never</u> any ]''' for the first specified amount in "Tier I", even if your total sum of money is over "Tier I" threshold. For example, 'customers '''never gain any ]''' for the first $10,000 in USD in that case, over if they deposit more than $10,000 | |||
| * Different ] are attached to different tiers/parts of the whole sum of money, ie some money will earn more ], some less | |||
| * Each sum of money <u>per sub-accounts</u> (ie ] & ] accounts) and <u>per ]</u> is counted separately in interest calculations. For example, if you have 2 sums of money in AUD and HKD, each sum has to surpass its own "Tier I" threshold in order to start earning ] for any <u>extra money</u> | |||
| * Due to the fact each sector (divided by sub-accounts and then by ]) has its own balance, you may be charged ] payments in the end even if your total balance is positive (since you may have negatives in sub-balances). | |||
| The '''real''' ], after consideration of the above factors, are much lower than expected. | |||
| ===Total actual losses explained=== | |||
| The following are ] lost for the specified amount in the first tier in different currencies. Add up the losses if you hold more than one currency (valid up till 18 July 2006): | |||
| {| border="1" cellpadding="2" style="background:#F5FFFF" | |||
| !width="100" style="background:#FFFF99"|Currency Base | |||
| !width="120" style="background:#FFFF99"|Interest-Free Amount in Tier I | |||
| !width="150" style="background:#FFFF99"|interest Lost Per Year | |||
| |- | |||
| |AUD | |||
| |<center>'''15,000''' </center> | |||
| |<center><font color="red">'''-863.70 '''</font></center> | |||
| |- | |||
| |CAD | |||
| |<center>'''14,000''' </center> | |||
| |<center><font color="red">'''-597.10 '''</font></center> | |||
| |- | |||
| |CHF | |||
| |<center>'''13,000''' </center> | |||
| |<center><font color="red">'''-179.40 '''</font></center> | |||
| |- | |||
| |EUR | |||
| |<center>'''8,000''' </center> | |||
| |<center><font color="red">'''-224.80 '''</font></center> | |||
| |- | |||
| |GBP | |||
| |<center>'''6,000''' </center> | |||
| |<center><font color="red">'''-272.88 '''</font></center> | |||
| |- | |||
| |HKD | |||
| |<center>'''78,000''' </center> | |||
| |<center><font color="red">'''-3,099.72 '''</font></center> | |||
| |- | |||
| |JPY | |||
| |<center>'''1,190,000''' </center> | |||
| |<center><font color="red">'''-1,309.00 '''</font></center> | |||
| |- | |||
| |KRW | |||
| |<center>'''10,000,000''' </center> | |||
| |<center><font color="red">'''-420,000.00 '''</font></center> | |||
| |- | |||
| |MXN | |||
| |<center>'''100,000''' </center> | |||
| |<center><font color="red">'''-6,850.00 '''</font></center> | |||
| |- | |||
| |SEK | |||
| |<center>'''80,000''' </center> | |||
| |<center><font color="red">'''-1,880.00 '''</font></center> | |||
| |- | |||
| |USD | |||
| |<center>'''10,000''' </center> | |||
| |<center><font color="red">'''-529.80 '''</font></center> | |||
| |} | |||
| It may cost you more if you have multiple sums of money in terms of ] or sub-accounts (ie ] & ] accounts). For easy understanding and illustration, you may treat IB actually charging you (by taking your interest away) per year per '''sub-accounts''' AND per '''currency'''. You are being charged 2 times if you hold both securities and commodities sub-accounts, which is about US$530/year per sub-account. If you hold 2 currencies in 2 sub-accounts, you are being charged 4 times. | |||
| It was once small losses when the ] were low in the past, so few would care. Now the interest rates have been rising a lot. These losses become more serious. | |||
| Your own sum of money is divided by sub-accounts first and then ]. Even if your total sum of money is positive, you are charged ] payment since one or several sub-balances are negative. | |||
| ===Formula of interest losses calculation=== | |||
| To sum up, the formula of calculating the total interest losses :<br> | |||
| = interest losses incurred in <u>securities</u> account + interest losses incurred in <u>commodities</u> account | |||
| For '''interest losses incurred in <u>securities</u> account''', | |||
| = interest losses incurred per currency | |||
| = actual interest losses incurred from each balance of USD, HKD, AUD and so on | |||
| For '''interest losses incurred in <u>commodities</u> account''', | |||
| = interest losses incurred per currency | |||
| = actual interest losses incurred from each balance of USD, HKD, AUD and so on | |||
| ===Opinions on policy=== | |||
| '''Note''': ''Everything below is summarized from various investment forums.'' | |||
| Interactive Brokers claim they do not have any hidden costs <ref>Interactive Brokers makes its claims in an e-brochure titled </ref>. The interest method is described on | |||
| and . However it does not explain the full impacts of this interest policy. These are the hidden costs people tend to forget. | |||
| There are different opinions on the interest policy, like on and IB's own forum: | |||
| * Some do not care since they are dominated by margin interest rather than credit interest; | |||
| * Some care about the interest rates but think it is acceptable. After all, life is full of compromise. Nothing is perfect; | |||
| * Some care about the interest rates and think it is unacceptable. They complain about the fairness of the interest policy. | |||
| * Some find the fee is hidden or its weird calculation policy dishonest or deceitful. | |||
| IB claims that the fee is already advertised on the website, so they can't see why complainants called it hidden, nor find any dishonesty in its policy. IB ironically says why they don't complain at 1 free bank wire per month, lower commissions, higher interest rates earned over US$10,000 and so on, implicitly challenging why they make selective complains<ref name="ibnve"> | |||
| From threads in IB forums of and | |||
| </ref>. | |||
| A few main reasons why people are angry at their policy are probably due to its weirdness and unfairness. They feel the adoption of this weird policy is to take advantage of the public ignorance or misunderstanding. Imagine if people are comparing interest rates of different firms, what impressions they will get. | |||
| Another reason is unfairness. It is thought to be unfair to charge from no interest to varying interest rates on different amounts. One flat rate should be used across the whole amounts. One says IB should rightfully pay interest on balances below $10,000. Otherwise, they are, quite frankly, being cheated.<ref name="ibnve"/> | |||
| ===Are people well-notified of effects of policy=== | |||
| If one goes deep on its website, Interactive Brokers documents its calculation method with examples in a separate page. However there is a difference between realising the calculation method and understanding the full impacts of this method. | |||
| In fact most underestimate the ]<ref>Most people only point out the US$500 something dollar loss in the forum. They forget all others like sub-account and sub-currency effects and so on</ref>. | |||
| One existing customer comments it is how easy to miss the impact of the interest calculation. He simply thought the loss was US$500 at first, but he later realized that figure is not correct. It should be at least double since he uses 2 sub-accounts. He deems this policy is here for marketing purposes and misleading careless customers<ref name="ibnve"/>. | |||
| ===Summary=== | |||
| Next time, one should consider all these factors when comparing its ] with others. Simply comparing interest rates straightforwardly is wrong. You need to look at other related hidden costs/fees or unusual practices which will affect the interest receivables offered in each firm. | |||
| Nevertheless most third-party sources (eg in financial magazines) still do not learn from mistakes. They keep comparing interest rates among different brokerage firms on their "face" value which is very distorting. | |||
| == Margin lending & short-selling rates == | |||
| ] lending rates are lower on outstanding debit balances with progressive discounts for larger balances. Interest credit is made for cash pledged as ] for ]. However the credits are very limited because the rates are usually benchmark rates minus 225 ], and for balances of considerably large size only (eg the threshold of receiving short-sell credits is US$100,000). Similarly it is credited on a pro-rata basis. That means there is '''<u>never</u> any ]''' for the first specified amount threshold, ie US$100,000 in this case. | |||
| ==Trading platforms and software== | |||
| === Traders Workstation === | |||
| The Interactive Brokers interface, ''Traders Workstation'' (abbreviated TWS) is primarily designed for experienced and active ]. Inexperienced users/investors will be faced with a significant learning curve. Free demo accounts and ] accounts are available, but the demo accounts have all sort of bugs and errors. It is highly unstable. As the interface software is coded in ], it is highly portable. The same version and interface runs on ], ], and ]-based computers. | |||
| Nevertheless the charting is limited and lack many useful functions. It lags far behind other charting companies like QuoteTracker, Sierra charts etc. | |||
| === PaperTrader === | |||
| Like many other firms, IB also offers the capability to ]. ] is to help traders to practice trading without risking one's actual capital. As suggest by IB, one may use this test environment to: | |||
| * Familiarize the platforms and features without risk | |||
| * Learn market dynamics in new exchanges and products | |||
| * Simulate and test trading strategies | |||
| * Test ] (API) applications | |||
| If people would like to learn trading, do not use the free demo accounts, use the paper trader. They have all sort of bugs and errors which make it highly unstable to test reliably. The demo is best served for learning the basics of ''Traders Workstation'', while the paper trader should be used to test strategies in a real time environment. | |||
| === WebTrader === | |||
| WebTrader is an ] based trading screen for use behind a ]. It can be said as a very lite version of Traders Workstation, in which it offers very limited features and simple ways to manage your accounts and trades. | |||
| === MobileTrader === | |||
| MobileTrader, as its name might suggest, offer the capability to execute orders when you are not at the ]. You can access from any ] device to manage your accounts and trades. | |||
| ==Notes and references== | |||
| <references/> | |||
| ==External links== | |||
| ===Third-party reviews of Interactive Brokers=== | |||
| * | |||
| * Many other reviews | |||
| ===Comparison=== | |||
| * at Business Week | |||
| ===Others=== | |||
| * Consumer Search | |||
| * | |||
| ] | |||
Revision as of 15:35, 16 November 2006
Interactive Brokers LLC is an online brokerage firm offering direct access trading worldwide to the professional trader. Interactive Brokers provides the ability to trade options, futures, forex, stocks, ETFs and bonds on 60 markets worldwide from a single account.
History
Interactive Brokers Group's founding member has completed its 29th year as a Broker Dealer. The mission remains unchanged: "Create technology to provide liquidity on better terms. Compete on price, speed, size, diversity of global products and advanced trading tools." In 1983 Timber Hill (part of IBG) created the first handheld computers used for trading. Their ability to track positions and continually re-price options on one stock quickly gives Timber Hill traders an advantage over their counterparts at the exchange, who continued to use fair value pricing sheets that were updated only once or twice a day.
Today IBG executes 19% of the world’s options (where IBG actively trades) and 22% of the US options.
New Business
IB provides direct access ("online") trade execution and clearing services to institutional and professional traders for a wide variety of electronically traded products including options, futures, stocks, ETFs, forex, and bonds worldwide.
Interactive Brokers' headquarters are in Greenwich, Connecticut, and it has about 500 employees in its offices there and in Chicago, Switzerland, Canada, Hong Kong, London and Sydney. IB is regulated by the SEC, NASD, NYSE, SFA and other regulatory agencies around the world.
- Strengths
- Low Trading Costs
- Smart Routing
- Cutting Edge Technology
Awards
Five Star Rating for Cost from Barron’s 2006 Review of Online Brokers Four and a half Star Overall Rating from Barron’s 2006 Review of Online Brokers IB Group Ranked 16th largest securities firm by Institutional Investor, 2005
Current Events
Penny Priced Options Now Available in the U.S. Interactive Brokers Group ("IBG") has developed a system to allow customers and liquidity providers to display penny prices in the IB system and to try to trade against other participants' penny prices displayed in the IB system. IB will attempt to match penny-priced bids and offers and send them to an option exchange for execution.
Interactive Brokers has added new tools for options traders. An Options Intelligence Report is now available for all customers as well as volatility trading functionality.
External Links
- Interactive Brokers Home Page Interactive Brokers
- Interactive Brokers Trader Workstation Demo Interactive Brokers TWS Demo