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.
Interactive Brokers Alternatives
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.
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Interactive Brokers Review
Now that we have verified that Interactive Brokers is a responsible investment firm, it’s time to have a look at the performance of the company in important categories.
Investments Choices
Interactive Brokers specializes in self-directed trading for experienced investors. There is no robo service, and in fact, there are no managed accounts at all. Interactive Brokers does offer brokerage services to institutions like hedge funds and proprietary trading groups, although Interactive Brokers itself does not manage these accounts.
Retail and institutional clients have a wide variety of assets to choose from when making investment decisions. Interactive Brokers offers these products:
- ETFs
- Closed-end funds
- Mutual funds
- Stocks
- Option contracts
- Forex
- Fixed-income securities
- Precious metals
- Warrants
- Structured products
- Cryptocurrencies
- Futures and options on futures
The equity category listed above includes OTC and penny stocks. And besides all the assets trading on American exchanges, Interactive Brokers offers a huge global investing service that opens up lots of exchanges around the world.
Website
To trade and research all the asset classes Interactive Brokers offers, the company delivers a pretty good website. It does require two-factor authentication to get into, which is an advantage or disadvantage, depending on how you want to look at it.
Once inside, there are many useful tools. Charting is provided by TradingView, and this creates a high-level experience. During our probing, we found eleven plot styles. These include Kagi, Renko, and Baseline. There are roughly a hundred technical studies and tons of customization features.
The site’s trade ticket has six trade types plus bracket orders (stop loss and take profit). There is a check box for a price management algo feature.
Users who need to find something to trade will benefit from the website’s security screener, which will be found conveniently enough under the Research tab in the top menu. Besides the American exchanges, it can scan foreign markets, too.
Security profiles have tons of information on them. These data points can be found by going to an asset’s profile and clicking on the Research icon that appears in the upper-right corner.
Mobile App
Interactive Brokers clients with busy lifestyles can trade in almost any location in the world, thanks to the company’s powerful mobile app. Compatible with Android and Apple phones and tablets, the software really packs a punch.
For example, the app has two trade tickets: a horizontal ticket and a vertical one. The horizontal ticket is a wheel order-entry system that has pre-installed values for order size, limit price, and trade amount. The user simply scrolls through and selects the desired numbers and submits the order as buy or sell.
The vertical ticket is the standard ticket, although it too has pre-installed values for a limit price. A chart can be swiped from right to left on this vertical ticket just to re-check the price action before submitting an order.
Regular charts can be displayed in horizontal mode. They have many features, including indicators and three plot styles. Only 5 years of price data can be displayed for a security, which is one weakness.
Unlike the website, the mobile app has a demo mode, which makes the software really easy to practice.
Desktop Platform
IB customers who aren’t on the go might want to ditch the mobile app and use Trader Workstation instead. This is the company’s very advanced desktop software. It has many professional-level features that are sure to please the most demanding of traders.
Charting can be accomplished the entire width of the monitor. There are many features, including technical studies, drawing tools, and right-click trading.
The platform’s order ticket can be used to trade foreign securities. There are many trade types, and there’s a very extensive menu for direct-access routing.
As with the mobile app, Bloomberg TV can be streamed on Trader Workstation free of charge. Also like the mobile app, Trader Workstation includes a practice mode, which really helps to learn this robust program.
Customer Service
A company associate can be reached 24 hours a day, 5 days a week over the phone. From our experience using the broker’s phone service, agents are usually based in India, although there are some American reps.
For 24/7 service, there is the website. It has an Artificial Intelligence named iBot. During our test drive of the chat system, we found it moderately useful, but not as good as human chat, which unfortunately is unavailable.
For actual human service through the website, there is internal messaging. The link for this can be found under the Help icon, which is in the upper-right corner of the website.
Interactive Brokers has no branch locations, so the channels mentioned above are the end of the story here.
Pricing
Accounts at Interactive Brokers no longer have any fees or minimums, and commissions are quite low on several assets.
IBKR Like customers based in the United States get free trades on stocks and ETFs that trade on American exchanges. Other accounts, assets, and exchanges will carry commissions. For example, a stock trade on the Euronext Paris exchange that is directly routed on a fixed-commission schedule will cost 0.10% of trade value with a €4 minimum.
U.S.-listed options are $0.65 per contract with a $1 minimum per trade for Lite customers. Pro clients can get lower rates for high-volume trading.
Cryptocurrency trades cost anywhere from 0.12% to 0.18% of trade value, depending on the account’s monthly trade volume. There is a $1.75 minimum commission.
See IBKR Lite vs Pro comparison.
Margin Service
Interactive Brokers continues its practice of low fees with its very good margin service. IBKR Lite clients pay a flat 6.83% across all debit levels. Pro customers have a tiered schedule that ranges from 5.83% to 4.83%.
A cash account can easily be upgraded to margin status on the Interactive Brokers website. The link to do this is on the settings page, which can be found underneath the head-and-shoulders icon at the top of the site.
Trader Workstation displays margin requirements for an entered ticker symbol. To find this information, click on the advanced tab on the trade ticket and then select Check Margin.
Additional Services
Cash Management Features: Because Interactive Brokers focuses on professional-level trading services, it doesn’t have much of an emphasis on banking tools. It does have a free debit Mastercard, though.
Initial Public Offerings: Interactive Brokers accounts based in Hong Kong can trade IPOs on the Hong Kong Exchange. U.S.-based accounts have no such access anywhere.
Extended Hours Trading: Thanks to the company’s pre-market and after-hours sessions, IBKR Lite customers can trade U.S.-listed securities from 7:00 am until 8:00 pm, Eastern Standard Time. Other exchanges and asset classes will have different hours.
DRIP Availability: Stock dividends can be reinvested as additional shares inside an Interactive Brokers account. Unfortunately, the brokerage firm does not provide this service for ETFs.
Recurring Mutual Fund Purchases: Interactive Brokers does not offer autopilot mutual fund investing.
Individual Retirement Accounts: Several IRA types are available at Interactive Brokers with no ongoing account fees.
Fractional Shares: Whole-dollar trading is on tap at Interactive Brokers for stocks, ETFs, cryptocurrencies, and mutual funds.
Recommendations
Small Accounts: We suggest the IBKR Lite schedule for small accounts.
Retirement Savers and Long-Term Investors: Although Individual Retirement Accounts are available, Interactive Brokers does not have a great emphasis on long-term investing. For example, it does not offer annuities, nor does it have a screener that can look for target-date mutual funds. Schwab has both.
Beginners: As already mentioned, Interactive Brokers caters to experienced traders only. Beginning investors should open a hybrid human-robo managed account at WellsTrade.
Mutual Funds: Although Interactive Brokers does offer mutual funds, including a list of no-transaction-fee funds, its fund resources are not very good. E*Trade’s are.
ETF and Stock Trading: Hands down, Interactive Brokers is it. Trader Workstation provides a professional-level experience.
Interactive Brokers Review Judgement
Although Interactive Brokers is a legitimate brokerage firm, it doesn’t shine brightly in all areas. Nevertheless, experienced stock and options traders will find much to like about this firm, including the value it delivers.
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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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