Is Interactive Brokers a Legitimate Firm?
Do you have questions about the legitimacy of Interactive Brokers? Are you worried about the safety of the company? If so, then you have definitely come to the right place. We have performed a lot of research, and here are the results:
Is Interactive Brokers a Scam?
There are two primary securities regulators in the United States at the federal level: FINRA (http://www.finra.org/) and the SEC. Interactive Brokers is a member of both, and these memberships provide a great deal of protection for the company’s clients.
Interactive Brokers’ FINRA membership number is 36418. The company’s BrokerCheck profile reveals that it has been registered since 1994, which is a sizable amount of time compared to a lot of new entrants into the investment space these days.
On IB’s profile, there are 80 disclosures. Typically, the brokerage firm doesn’t admit or deny any wrongdoing and settles with a fine. One example is a $5.5 million fine paid in 2018 for failing to establish an internal supervisory system with written procedures.
Interactive Brokers’ SEC membership number is 8-47257. Like FINRA, the SEC enforces a variety of rules and regulations and imposes fines when broker-dealers make mistakes.
Because Interactive Brokers is registered with these federal-level organizations, it does not need to be registered with any of the state securities regulators. However, FINRA only regulates securities trading, and because Interactive Brokers provides trading in forex and futures, it needs to be registered with the National Futures Association. The firm’s NFA membership number is 0258600.
Is Interactive Brokers SIPC/FDIC Insured?
The United States Congress has also made sure that insurance is available on U.S.-based securities accounts. Notice that we said, “securities accounts.” Positions of futures, forex, and other assets that aren’t securities are not insured by SIPC (the Securities Investor Protection Corporation, http://www.sipc.org), which insures stocks, bonds, and other securities inside accounts at Interactive Brokers.
SIPC provides insurance up to $500,000 per customer at Interactive Brokers. Half of this amount can be applied to uninvested cash.
IBKR Pro customers who elect to participate in Interactive Brokers’ FDIC-sweep program are also eligible for insurance on free cash balances from the FDIC. The total coverage per customer is $2.75 million.
Large accounts at Interactive Brokers have another layer of insurance, thanks to a supplemental policy with Lloyd's of London. As with SIPC coverage, futures and options on futures are not covered. Each customer is eligible for $30 million of insurance. Of this amount, $900,000 can be applied to a free cash balance. There is a house limit of $150 million. The Lloyd’s policy kicks in only if SIPC coverage is exhausted.
Top Rated Brokers
Interactive Brokers Better Business Bureau
Besides the FINRA profile for Interactive Brokers, there is another one at the Better Business Bureau. BBB grades companies (financial and non-financial) operating in North America, so this is another way to see how Interactive Brokers is performing in the eyes of its customers.
We found a grade of A+ on Interactive Brokers’ BBB profile. This is the highest grade the agency gives out, so obviously it’s a good sign. There are several factors BBB looks at when issuing grades. The number of complaints filed and how quickly a business is able to resolve complaints are two examples.
There are currently 20 customer reviews on BBB’s profile for Interactive Brokers, and these 20 customers give the investment firm a rating of 1.2 out of 5. While this is very low, this small sample probably represents upset customers only.
Is Interactive Brokers Safe Verdict
Interactive Brokers is definitely a reliable, trustworthy, and legitimate investment firm. There are several layers of government oversight for all forms of trading, and insurance is available on positions of securities and cash. Unfortunately, investing always involves some level of risk, and no insurance available today protects against market loss. This is valid at all brokerage firms, so we judge Interactive Brokers to be as good as any.
IB Promotion
Visit IB Website
Interactive Brokers Trading Review
An IBKR Lite account from Interactive Brokers comes with some (but not all) of the broker’s trading tools and
an unbeatable low $0 pricing schedule on stocks and ETFs. Are the software sacrifices worth it? Let’s take a look.
Bulls Spotlight...
IBKR Lite customers now have access to Trader Workstation. When Interactive Brokers launched IBKR
Lite, they didn’t include their desktop platform in the low-cost package. But the firm recently added it.
The lowest margin rates in the industry.
Bears Spotlight...
Terrible policies. The company is notorious for implementing shocking policies that cost a fortune to
some customers.
No FDIC-sweep program. Interactive Brokers does offer FDIC insurance for IBKR Pro clients.
Extended hours are shorter. The pre-market session for IBKR Lite is 3 hours shorter than for Pro clients.
Interactive Brokers Pricing and Minimum Deposit
| Product | Price |
|---|
| Stocks and ETFs | $0 for IBKR Lite account; $0.005 per share with $1 minimum, 0.5% of trade value maximum for SMART routed orders for IBKR Pro account. For either Fixed or Tiered schedule, max=1% of trade value. |
| Options | $0.65 per contract if premium => $0.10; $0.50 per contract if $0.05 =< premium < USD 0.10; $0.25 per contract if premium < $0.05 + exchange fees. Minimum $1 per order. |
| Mutual funds | Lesser of $14.95 (minimum size on initial fund order is $3,000, subsequent minimum order size is $100) or 3%*Trade Value. |
| Corporate and municipal bonds |
10bps is for first $10k, then 2.5bps* Face Value thereafter. But has min of $1.00 and max of lesser of $250 or 1%*Trade Value.
Munis – 0.05% of first $10k (5bps), then 0.025% (2.5bps)*Face Value thereafter, with $1.00 min and max of lesser of $125 or 1%*Trade Value.
|
| Treasuries (bills, notes, bonds) | First USD 1,000,000 in Face Value is 0.002%* Face Value (0.2 bps). Additional Face Value > USD 1,000,000 is 0.0001%* Face Value (0.01 bps). $5 minimum. Thereafter, 0.0001%* Face Value (0.001bps). No maximums. |
| Metals | 0.15 basis point * trade value; minimum $2; storage cost 0.10% per annum |
| US-future and future options | $0.85 per contract |
| Forex | 0.20 basis point * trade value if monthly volume<= $1,000,000,000; minimum $2 |
| Investments | stocks, options, mutual funds, ETFs, bonds, futures, currency transactions, US SSFs, EFPs, metals, CFDs, warrants, futures options |
| IB minimum deposit to open account | $0 for cash account, $2,000 for margin account |
| Fees | Interactive Brokers fees |
| Promotion link | Interactive Brokers promotions |
Customer Service
Interactive Brokers has associates on the phone from 8 o’clock in the morning until 8 o’clock in
the evening, Eastern Standard Time. These hours are for the weekday only. On Sunday, the broker
has a shorter session (1 pm till 7 pm); and the broker is closed on Saturday. 24 hour weekday
service is available through regional centers.
Inside our IBKR Lite test account, we found a human chat link. However, every time we tried it (and we tried on multiple days at different times), no one was available. A chat service with greater uptime is iBot, a robo chat system. It is always ready to answer questions, but when we asked it “does interactive brokers offer level ii quotes?” it didn’t understand the question.
Interactive Brokers does not have any branch locations, but there is a messaging hub on the website.
Available Investments
IBKR Lite clients get the same lineup of investments that IBKR Pro clients get. This smorgasbord
includes forex, stocks, options, futures (including bitcoin futures and options on futures),
exchange-traded funds, closed-end funds, mutual funds, contracts for difference, precious metals, CFDs,
equity options, warrants, crypto-currencies, and bonds.
Interactive Brokers Promotion
Visit IB Website
Website Portal
The first trading platform Lite customers get is the client portal. Accessed through a browser window, Interactive Brokers does require a one-time access code sent to a mobile phone (in addition to a user ID and password).
Inside our test account, we found a small watchlist in a compact window on the dashboard. This can be expanded into its own page with many more listings and more watchlists. There are account management tools, such as transaction history and a funds transfer tool.
Charting on the client portal is on a very elementary level. A graph cannot be displayed the width of the monitor, and there are less than 20 technical studies. There is no comparison tool, and 5 years is the maximum timeframe.
Mobile App
IBKR Lite traders also get to use the broker’s mobile app. The order ticket offers some really
nice features, including a chart on the side that can be swiped over the ticket. The chart shows
up to 6 months of price history with 3 graph styles. Technical studies can be shown here as well.
Clicking the configure wheel lets users view up to 5 years of price data.
Order types include limit, market, stop, stop limit, trailing, on-the-close, relative, and adaptive. Advanced order types are bracket, stop loss, and profit taker. Missing on the ticket is direct-access routing.
Charting on the mobile platform comes in wide-screen mode and actually provides more technical studies than the client portal.
Both Bloomberg US and Asia video streams are available on Mobile. Traders’ Insight video commentary
and RealVision video are also active.
One feature we really like about IB’s mobile app is that there is a simulated trading mode where
beginners can get lots of extra practice. What we don’t like about it is the lack of mobile check
deposit.
Web Trader
Although direct-access routing is missing on both the mobile app and client portal, it is available on WebTrader, another browser-based platform at Interactive Brokers. Unfortunately, IBKR Lite clients can’t use it.
Desktop Software
Although IBKR Lite accounts don’t get Web Trader, they do get Trader Workstation, IB’s best software program. It offers a lot of powerful trading features, not least of which is direct-access routing (finally). Other features available on the platform include Level II data, forex trading, time & sales info, iBot, and many other features too many to mention.
Very advanced charting is finally available to Lite clients. Up to 40 years of price history can be shown. We counted no less than 100 studies. Drawing tools include arrows, Fibonacci lines, and text boxes.
The order ticket appears in the top-left corner of the platform. There are many advanced features here, including OCO (one cancels other) orders and hedge preferences.
A “check margin” button is on the order ticket under the “advanced” menu. This is how you can find initial and maintenance margin requirements for any ticker symbol.
Other Tools
Interactive Brokers offers API functionality for Pro customers only. Lite customers do get a smartwatch platform for Apple phones. However, iMessaging is not possible.
iBot is available on Amazon Echo devices as a skill. It can read business summaries of stocks, give quotes, tell you how to open an IB account, and provide dates of upcoming company events.
There is no IB app for Apple TV.
Option Tools
Option tools on the client portal are pretty crummy. There are no pre-installed multi-leg strategies.
On the mobile app it’s possible to build your own multi-leg strategies. There is an option Spread
template on the app.
On Trader Workstation, it’s a different story altogether. OptionTrader is a window (launched from the blue “New Window” button in the upper-left corner) that delivers a lot of useful tools. One is option chains; another is multi-leg strategies, such as iron condors and boxes. Greek values and profit & loss diagrams are other highlights.
Investment Research
There are some good security research features at Interactive Brokers. An ETF screener is on the client portal. Separate searches must be performed for bond ETF’s and stock ETF’s. Volume and price are searchable criteria. A drop-down menu provides many more variables. The same tool can be used to scan for U.S. stocks and foreign investments.
The Interactive Brokers website has an educational hub (found in the top menu). During our snooping, we found a lot of articles, webinars, videos, and courses. Topics covered include options pricing, how to place a short sale, and generating income in a retirement account.
On the client portal, stocks have a good amount of information. To find the details, we first had to enter a ticker symbol and then click on “Fundamentals” on the stock’s front profile. Once we got to the particulars, we found information on dividend payments, analyst ratings with price targets, ownership by funds, EPS history with estimates and actual numbers, SEC statements, key ratios such as price/book in both numerical and colored chart format, and a company profile.
The one feature we wanted to see here but couldn’t find is stock reports in pdf format from third-party analysts.
Mutual Funds and ETF’s
IBKR Lite customers can buy and sell roughly 26,450 mutual funds from around 285 fund families. About 7,000 of these have no load, and about 8,300 have no transaction fee. Non-U.S. residents can trade a smaller list of mutual funds.
The mutual fund scanner in desktop TWS and client portal offers a lot of functionality and allows to
sort on things like Lipper ratings, yield, returns, expense ratios, etc.
Money market funds have a minimum investment of $10,000, while other funds are at $3,000. Transaction-fee funds are $14.95 per trade or 3% of trade value, whichever is smaller.
Account Types
A few account types can be opened with the IBKR Lite commission schedule. These include individual, joint, UGMA/UTMA, trusts, and IRA’s. IRA types include traditional, Roth, rollover, SEP, and inherited. There is no SIMPLE account.
Other account types that Interactive Brokers offers for institutional investors cannot use IBKR Lite.
Banking Features
IBKR Lite customers can sign up for the firm’s FDIC-sweep program. It offers up to $2,500,000 worth of government insurance, which is 5 times the normal level. As already mentioned, IB pays interest on free cash balances. Bill pay is available; however there are per-transaction charges.
A debit card from Mastercard can be attached to an IBKR Lite account free of charge. It functions with Android, Apple, and Samsung Pay. There are no ATM refunds, however; and IB doesn’t offer checkwriting.
Foreign Stocks
IBKR Lite accounts have the same access to international markets that other IBKR PRO customers have. This great service includes not just international stocks, but other financial products like bonds and options. The assets can be traded on foreign exchanges with Trader Workstation. Even better, commissions are very reasonable.
Day Trading
IBKR Lite offers several trading services day traders will appreciate. Some of them we have already seen, namely the desktop software. The following should also be noted:
Short Locate
Interactive Brokers offers a convenient short locate feature on its website. You simply need to enter a ticker symbol, and the tool will show how many shares are available for shorting and—perhaps more importantly—the cost to short the stock.
Level II Quotes
Available on Trader Workstation, Level II quotes show the bid and ask prices that are available through specific market venues.
Direct-Access Routing
Also available on Trader Workstation, it’s possible to send orders to specific exchanges.
Margin
Both initial and maintenance margin requirements for IBKR Lite clients are 25% for long stock positions. The end-of-day margin requirement is 50%.
IBKR Lite Margin Rates
|
Debit Balance
|
IBKR Margin Rates
|
|
$0 - $100,000
|
7.83%
|
|
$100,001 - $1,000,000
|
7.83%
|
|
$1,000,001 - $50,000,000
|
7.83%
|
|
$50,000,001+
|
7.83%
|
IBKR Pro Margin Rates
|
Debit Balance
|
IBKR Margin Rates
|
|
$0 - $100,000
|
6.83%
|
|
$100,001 - $1,000,000
|
6.33%
|
|
$1,000,001 - $50,000,000
|
6.03%
|
|
$50,500,001+
|
5.83%
|
Other Services
IBKR Lite customers can enroll an entire account (but not individual securities) for automatic dividend reinvesting. IB does not offer periodic investments into mutual funds.
Recommendations
Mutual Fund Investors:
With the best selection of mutual funds in the industry, IB is now a great broker for mutual funds
investing.
Individual Retirement Accounts:
Charles Schwab offers a larger selection of IRA’s than Interactive Brokers; so it gets our stamp of approval.
Beginners: Interactive Brokers is designed
for experienced traders, and nothing about IBKR Lite changes that school of thought.
Robinhood would be good for new
traders.
Active ETF and Stock Trading:
IB is one of the best brokers for active traders.
Long-Term Investors and Retirement Savers: Fidelity and
Charles Schwab are our picks.
Small Accounts: Because IBKR Lite comes with neither fees nor minimums, we can endorse it for
small traders.
Interactive Brokers Review Summary
IBKR Lite does offer a good value with low prices and advanced features.
Interactive Brokers Promotion
Visit IB Website
Updated on 4/15/2024.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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