Review: Interactive Brokers online share trading broker
Its brokerage fees are among the lowest on the market, however the platform will be tricky for new investors to pick up.
Interactive Brokers’ share trading platform offers an impressive range of tools for active or professional investors. While its bottom of the market fees are attractive, the complex layout will make it a challenge for beginners to master and there are caveats to be wary of.
That being said, if you’re an experienced trader looking for a fully customisable service, this platform is worth looking at. Check out my views on the platform below.
$5 or 0.08% (whichever is higher)
London Stock Exchange
|Type of broker||
Exchange traded options
Company issued options
London Stock Exchange
|Standard brokerage||$5 or 0.08% (whichever is higher)|
- Active or professional traders
- Low brokerage fees
- Portfolio tracking, live updates and company notifications
- Australian and international share trading
- Fractional investing
Not so great for
- Not for beginners
- Monthly inactivity fee
- Some features not offered to Australian users
Interactive Brokers Group was launched in the United States over 40 years ago and opened offices in Australia in 1997. Today, it’s one of the oldest share trading platforms on the market, servicing 125 global markets markets.
Its suite of products include stocks, options, futures, forex and fixed income. It’s fully licensed and regulated by the Australian Securities and Investments Commission (ASIC) and is a participant of ASX, ASX 24 and Chi-X Australia.
Rundown of the Interactive Brokers platform
Interactive Brokers' (IB) trading platform, the Traders Workstation (TWS), can be used on both desktop and mobile. New investors may find IB's platform overwhelming, but the positive here is that almost everything on Interactive Brokers is customisable to suit your personal trading style, whether you're trading shares, options, futures, forex or a mix of the above.
Unfortunately, to optimise your account through TWS, you’ll need to really understand what you want to get out of it – no easy task for beginners. On top of this, I found the set-up complex enough that even advanced traders will find the process takes some time to get right. For example, when you place a trade, this is your list of options:
Source: Interactive Brokers Portfolio Builder | July 2019
If you don’t understand how the trading terms shown above can be applied, you're probably not ready to use TWS. As Interactive Brokers states on its website, this platform is targeted toward advanced investors. Make sure to check out the trial version of TWS to test whether you’re ready to launch the real deal.
What are the key features of IB share trading?
If you're thinking of opening an Interactive Broker account from Australia, here are some of the features you can expect:
Single account for stocks, forex and CFDs
Unlike other trading platforms where you need multiple accounts to trade different products, IB allows you to access Australian stocks, international stocks, futures, options, fixed income, CFDs and ETFs all from the one account.
Invest in global markets
You can buy and sell stocks and other securities from 26 different countries from the one account 24 hours a day, 6 days a week. Unfortunately, IB does not list its conversion rates on the website. To find out what rate IB is offering for each currency, you’ll need to manually enter the details into the trading platform.
Interactive Brokers now offers fractional investing for US stocks, with no minimal trade requirement. This means you can trade in dollar amounts, instead of individual shares. So, say you want to invest in Google shares – which trade for around $1,300 each – you can invest just $100 of the stock instead.
Earn interest on idle cash
Interactive Brokers says it pays 1.9% interest on cash sitting in your account. That’s a great selling point, but there are some big caveats. First, that rate only applies to US currency and you must have at least US$100,000 sitting in your account before the full rate applies. For Australian dollars, you earn just 0.609% from cash of$14,000 onwards once your balance hits $100,000.
Very low brokerage fees
Interactive Brokers offers brokerage fees starting from $1 for Australian stocks. While that’s incredibly low, that fee only kicks in once you start trading amounts of $300,000,000 or more, which makes it seem like more of a marketing angle than anything else. That being said, the fees are still very low, starting from $5 or 0.08% (whichever is higher) on trades of less than $300,000 per month.
Wide range of order types
On basic retail trading platforms, investors are usually presented with one or two order types: limit orders or market orders. Interactive Brokers offers a much wider selection to suit professional traders. Along with limit and market orders, you can choose from the following:
- Stop limit
- Limit on close
- Market on close
- Trailing stop
- Trailing stop limit
Confused? Interactive Brokers has a great video explaining what these order types mean and how to use them on the platform.
Portfolio builder to track investments
Portfolio builder is an additional tool that allows you to create custom portfolio strategies using historical data and research. Here are some of the main features:
- Allows you to easily compare and test your portfolio against a benchmark index.
- Gives you a live news feed and real-time notifications of takeovers, earnings, options expirations and more.
- Lets you compare your portfolio and strategy with other leading investors.
- You can adjust your strategy until the historical performance meets your standards.
Source: Interactive Brokers Portfolio Builder | July 2019
What are the fees?
Interactive Brokers markets itself as having the lowest cost trading platform on the market. That may be true, but there are loopholes that you need to be wary of.
Broker or commission fees
While the brokerage (commission) fees are low, you’ll also be charged a small clearing fee, an exchange fee, a monthly inactivity fee and a subscription fee to access live data. On top of that, the fees vary depending on which fee structure you choose (tiered or fixed), which products you’re investing in and the country those products are listed in.
Australia brokerage fees
If you choose the tiered fee structure, your brokerage fee becomes lower the more your trade per month. As you can see in the table below, this will only affect investors that plan to trade more than $3,000,000 per month. Additional clearing and exchange fees depend on which exchange the security is listed on. To trade stocks listed on the ASX, the clearing fee is 0.011695% of the trade value plus an exchange fee of 0.00165% of the trade value. Telephone orders are $40 per order.
|Monthly trade value (Tiered fee structure)||Online broker fee|
|First $3,000,000||$5 or 0.08% (whichever is higher)|
|$3,000,000 - $30,000,000||$4 or 0.05% of trade value|
|$30,000,000 - $100,000,000||$3 or 0.03% of trade value|
|$100,000,000 - $300,000,000||$2 or 0.025% of trade value|
|> $300,000,000||$1 or 0.015% of trade value|
|Monthly trade value (Fixed fee structure)||Online broker fee|
|All||0.08% or $6 (whichever is higher)|
There’s an inactivity fee of $10 per month if your brokerage fees on trades are less than US$10. It’s a tiered system where the inactivity fee is equal to US$10 minus broker commissions. For example, if your commissions equal US$6 in one month, your activity fee would be US$4 (US$10 - US$6). Annoyingly, this fee increases to US$20 per month if your account falls below $2,000 – a point that isn’t clear before signup.
International share trading fees
IB’s fees on international stocks depend on which country the stock is listed and which fee structure you’ve chosen (tiered or structured). Stocks listed in the US, Canada and Mexico charge brokerage fees per stock rather than value – making it difficult to predict how much you’ll be charged for future purchases or sales of US stocks. Stocks listed in Europe use trade value to set the fees. Here are some of the fees on international stocks:
|US (<= 300,000 shares per month)||Tiered: $0.0035 per share capped at 1.0% of trade value|
|Fixed: $0.005 capped at 1% of trade value|
|UK (up to GBP£50,000 trade value)||Tiered: GBP£1.00 per order or 0.05% of trade value|
|UK (over GBP£50,000 trade value)||Tiered: GBP£1.00 per order or 0.05% of trade value up to GBP£40,000,000|
|Fixed: 6.00 + 0.05% (of incremental trade value > GBP£50,000)|
How do you pay?
You can transfer money into your Interactive Broker account via a bank transfer or using BPAY.
How do I open an Interactive Broker account?
It’s relatively simple to open an Interactive Broker account; however, there are a few interesting challenges. First, you’ll need to confirm that you’re an experienced investor with more than 100 trades under your belt. If you can’t confirm this, IB asks you to conduct simulated trades using the demo version first. It also requires you to have liquid net assets of at least $20,000.
When you’re ready, you’ll need to provide the following information:
- Your name
- Date of birth (you must be 18 years or over)
- Contact details and residential address
- Asset and income details
- Employer name and address
- Proof of identification - e.g. passport, driver’s licence or ID card number
- Bank details for funding purposes
- Investment objectives and experience details
There are five main account profiles that you could qualify for depending on whether you’re a professional or an amateur trader.
- Investment account. This is the most basic account for individual or company investors. To open an investment account, you’ll need a $2,000 minimum deposit and minimum liquid net worth of $20,000. Your options are limited here for leveraged products. You’ll only have access to some low-leverage derivatives and unleveraged spot forex. You won’t have access to margin lending.
- Trading account. This is similar to the investment account but with less restrictions. You’ll also need a higher minimum deposit of $10,000 and a minimum liquid net worth of $20,000 plus an income over $50,000 or a total liquid net worth of $100,000. You still don’t get margin trading using this account, but you can trade spot forex unleveraged.
- Leveraged Trading account. This is only available for company or wholesale investors and requires a minimum of $10,000 and a minimum liquid net worth of $100,000. This account allows trading on margin.
- Professional Trading. Available for professional traders with a minimum deposit of $100,000 and a liquid net worth of more than $1 million. It offers leveraged sport forex trading, margin trading and a wider range of options-trading strategies.
- Self Managed Superannuation Funds (SMSFs). This is only available to SMSF trustees, and you don’t have access to margin selling, limited options trading or unleveraged forex trading.
- Brokerage fees are very low. Interactive Brokers fees are among the lowest on the market.
- Extensive range of trading options. Offers a broad selection of order types including market, stop, stop/loss and bracket orders when trading shares.
- Margin lending rates are low. IB's rates for margin lending are around half the price of others on the market at 3.02-3.9%.
- Earn interest on idle cash. IB pays 1.9% interest on any US cash sitting in your broker account. Interest on AUD is 0.609% from $14,000 onwards.
- Ibot feature. The trading platform includes an easy-to-use chat-bot with voice activation that responds quickly to market and company queries and can even place orders for you.
- All products in one account. You can trade Australian stocks, global stocks, CFDs and forex all from the one account.
- This isn't for new investors. The set-up is more complicated than many retail platforms because it's geared towards professional or active traders.
- You need at least $20,000. Interactive Brokers requires you to have a minimum $20,000 in liquid assets before you open an account with them.
- It's a US-targeted platform. You'll need to scroll through a lot of US data to get to the relevant Australian information and many of the features advertised are for US clients only.
- Real-time data isn't free. IB boasts extensive live data feeds and customisable company notifications – however, you'll need to pay an additional monthly fee of $25 for the privilege (on ASX data).
- The fee structure is complicated. While IB has some of the lowest fees on the market, there are additional costs that aren't immediately obvious, such as the tiered inactivity fee.