Interactive Brokers Review: Great for Large Balances, Low Margin Rates

Interactive Brokers stands out in offering some of the lowest commissions and margin rates we've seen, which makes it a solid option to consider for stock trading. In this Interactive Brokers review, we'll explain how the online stock broker compares on key factors we think are most important to consider before opening an account. Find out more about the pros and cons below.

This stock broker is a good fit for: Some investors, and more frequently traders, trading on margin. Interactive Brokers' margin rates easily trounce much of the competition.

Top perks

Designed for active traders and sophisticated investors, Interactive Brokers may not be the best online stock broker for everyone. However, it does have some killer features that make it stand out from the pack.

Low commissions

The IBKR Lite platform offers zero-commission stock and ETF trades. Higher-volume traders on the IBKR Pro plan can enjoy a standard commission rate of $0.005 per share ($1.00 minimum per trade), or a tiered commission plan starting at just $0.0035 per share ($0.35 minimum per order). Interactive Brokers offers pricing designed for investors and traders who want to minimize the cost of trading.

Low margin rates

Interactive Brokers' margin rates are substantially lower than most of the competitors we've reviewed. While many brokers price the first dollar of margin at an interest rate in excess of 10%, margin loans from Interactive Brokers cost half as much. According to its website, IBKR's margin rates are up to 49% lower than the industry. The difference really adds up, particularly for investors who carry large margin balances for long periods of time.

International trading

While virtually all brokers enable you to buy foreign stocks that have a listing on a U.S. exchange, few enable customers to trade directly on markets outside the United States. Interactive Brokers' Trader Workstation offers access to more than 150 markets around the globe, several times more markets than any other discount brokerage firm. Investors can also trade assets in 27 different currencies.

Powerful platform

IBKR offers multiple robust trading platforms based on trading experience.

Trader Workstation is a powerful desktop trading platform, especially when you consider that it is free. It truly has something for everyone, whether you trade stocks, ETFs, options, futures, or currencies.

IBKR offers a web-based client portal as well as APIs for different programs and applications. There are also two mobile options, depending on your needs.

The flagship IBKR Mobile app is feature-rich and full of data, giving you much of the same functionality as the desktop TWS platform. The streamlined IBKR GlobalTrader mobile app offers a clean interface for simple stock and crypto trades on the go without the clutter.

No-transaction-fee mutual funds

IBKR offers thousands of U.S. mutual funds that have no transaction fees, meaning you can buy and sell without worrying about unnecessary fees. For funds that do carry fees, the cost is either $14.95 per transaction or 3% of the trade, whichever is lower. It's important to note that there is a minimum order requirement of $3,000 for the initial purchase, although subsequent orders can be as low as $100.

Competitive rate on uninvested cash

If you're like most investors, you know that having cash on the sidelines is a necessary part of any investment strategy. So it is important to have an account that is earning a competitive rate. This can ensure that your cash is working for you even when you're not actively investing. Uninvested cash balances can earn a fairly competitive rate not just for brokerage accounts, but also compared to the best high-yield savings accounts.

What could be improved

Complicated pricing structure

Interactive Brokers transparently outlines its fees for its IBKR Pro and IBKR Lite offerings, yet they are more complicated to understand than other stock brokers, regardless of trading frequency and account size. Our commission overviews below will help you decipher the fees you may encounter.

Free research

IBKR offers access to dozens of free market research and news providers. But if you want more in-depth research, you will need to purchase premium market research, which can set you back hundreds (if not thousands) of dollars a month.

Can be intimidating for beginner investors

For new investors, navigating the world of trading platforms can be daunting, especially when it comes to choosing an online broker. IBKR can be particularly intimidating for beginners, as it comes with advanced technology and a wide range of investing tools. Its website also isn't as user-friendly as others

Before we get into a discussion of Interactive Brokers' pricing, it's important to mention that there are two pricing plans from which customers can choose.

IBKR Lite: The IBKR Lite plan has commission-free trading, but is lighter on features and has higher interest rates for margin loans. For options trading, the IBKR Lite plan offers a flat commission rate of $0.65 per contract and $0.85 per futures contract. The IBKR Lite plan is sufficient to meet the needs of most U.S. investors.

IBKR Pro: The IBKR Pro plan is intended for frequent and professional traders and charges significantly lower rates on margin loans. It offers more features while also offering higher interest rates on uninvested cash. IBKR Pro users can use the fixed or tiered commission plan.

Stocks and ETFs

For the tiered plan, commissions start at $0.0035 per share with a $0.35 minimum per order for those with a monthly trade volume of 300,000 shares or less. The pricing varies based on demand, with it as low as $0.0005 per trade for monthly volume of shares exceeding 100 million.

Users with higher monthly volumes receive reduced commission rates. Only shares that are traded while under the tiered plan will count towards the monthly share volume.

It's also worth noting that both the fixed and tiered IBKR Pro plans offer access to the company's SmartRouting order system. IBKR's "SmartRouting" algorithm searches for the best stock, option, and combination prices available at the time and immediately executes the order at the best available price.

Mutual fund commissions

IBKR offers investors worldwide access to over 48,000 mutual funds. Over 19,000 of those funds have no transaction fee. For mutual funds with a fee, the commission is either $14.95 or 3% of the trade value, whichever is less.

IBKR also offers a no transaction fee (NTF) program for over 150 exchange-traded funds (ETFs). As part of this "fee waived" program, IBKR Pro clients are reimbursed for commissions paid on ETF shares held for at least 30 days. IBKR Lite clients pay no fees at all for ETFs.

Options commissions

IBKR Lite users pay a flat $0.65 fee per contract with a $1 per-order minimum.

IBKR Pro users have a variable pricing structure based on monthly contract volume. IBKR Pro users who have a monthly volume of over 100,000 contracts will pay fees as low as $0.15. The following table shows commissions based on monthly volume of 10,000 or less.

Cryptocurrency commissions

Cryptocurrency trades are provided by Paxos Trust Company on IBKR's platform. You can open a Paxos account and trade a variety of currencies, including Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin Cash (BCH). With their Paxos account, users can trade crypto 24/7, hold both cash (in USD) and crypto, and access additional order types. Commission fees operate on a tiered scale based on your monthly trade value.

While Paxos operates as the crypto exchange, customers can access their crypto and make trades from within their Interactive Brokers trading platform of choice. This includes IBKR GlobalTrader, Interactive Brokers' mobile app. You can also choose to trade through the Paxos web application.

Paxos charges a commission on every trade of 18 basis points of trade value, subject to a $1.75 minimum commission on any order. IBKR receives a portion of that commission as a referral fee from Paxos. These rates are fairly competitive with most other crypto exchanges, especially in the high value tiers. Investors who trade crypto at lower volumes, however, may end up paying more with Paxos on Interactive Brokers due to the minimum $1.75 commission per order.

While there is a minimum per order fee, there is also a maximum per order fee of 1%. Should you be charged a commission exceeding 1% of the trade value, you'll receive a rebate from Interactive Brokers to reduce your effective commission rate to the lesser of the rate in the table or 1% of the trade value.

Because Interactive Brokers is designed for active traders and sophisticated investors, it has a few quirks in its list of fees that warrant additional discussion.

Options exercise and assignment fees: The best options trading brokers should help active traders cut costs. Interactive Brokers delivers on this front and doesn't charge an extra fee to exercise an option you own, nor does it charge a fee if an option you sold is assigned. Many brokers charge for options exercise and assignment. Interactive Brokers options fees are among the best for people who expect to exercise options, or have them assigned.

Research fees: We'll address this later in more detail, but for now, we should note that Interactive Brokers has a la carte and bundled pricing for many popular research and news tools. Though some are offered for free, many more come with a monthly subscription fee.

Interactive Brokers offers a range of trading platforms tailored to meet the requirements of active traders and long-term investors. Its platform receives high acclaim from active traders who value the comprehensive features available on the desktop trading platform.

Here are the platforms Interactive Brokers has to offer:

Client Portal: Interactive Brokers' modern and user-friendly desktop trading platform. This is the easiest way for an investor to log in and place a trade on the platform. But all clients (IBKR Pro and Lite) have access to all three of these.

IB Trader Workstation (TWS): TWS is a fully featured desktop trading platform that offers all the functionality (and more!) that investors have come to expect from desktop solutions. Fully customizable, you can design your screen how you want to. Its watch list feature can include an extraordinary amount of information on every stock, from its P/E ratio to how many days it takes the company to sell its inventory, on average. TWS is chock full of screeners, stock option analysis tools, and backtesting options.

Mobile platforms: Interactive Brokers also offers IBKR Mobile, a powerful mobile application for iOS and Android devices. The app offers streaming data, charting tools, and the ability to place even the most complex trades from a mobile device. With access to over 150 worldwide markets, mobile users will find that there are no limitations on their ability to trade from the palm of their hand.

For a more streamlined mobile experience, the newer IBKR GlobalTrader app provides a clean interface with minimal data overload. Users can access more than 90 worldwide stock exchanges, as well as trade options in more than 30 market centers. There's also the ability to trade cryptocurrencies -- including Bitcoin, Ethereum, and Litecoin -- from anywhere, 24/7.

New investors seeking a good stock broker for beginners may be put off by all the moving parts of its desktop platform. Even the basics can be overwhelming since the platform is built to offer access to so many different markets. For example, after entering a ticker symbol for a popular ETF, the platform prompted us to select whether we wanted a quote for the stock, options, or futures contracts based on its value. It's simple to navigate, but new investors may be lost in the shuffle.

With so many features, tools, and options available, things can easily get overwhelming. This is where the simplified GlobalTrader app comes in handy. It offers a straightforward and easy-to-use interface that is a good complement to IBKR's other platforms.

Interactive Brokers' margin rates are some of the lowest we've come across. Here's a rundown of its effective margin rates by margin balance. Note that "BM" stands for "benchmark rate."

Margin lending is one of the key features that sets Interactive Brokers apart from its competitors. With low interest rates that are two to three times less than other discount brokers, it's safe to say that margin lending is Interactive Brokers' special sauce. For those who rely on margin as a central element of their trading or investing strategy, Interactive Brokers is definitely worth considering.

The cost savings on margin loans alone may be a compelling reason to add it to your short list of brokers. This feature, combined with its reputation for reliability and its robust platform, make IBKR a top choice for traders and investors looking to maximize their profits and minimize their costs.

With IBKR Pro, margin rates decrease as you borrow more, and IBKR Pro customers receive lower margin rates than IBKR Lite customers do at all balance levels.

Interactive Brokers clearly sets itself apart from the competition with its focus on high value accounts, financial professionals, and active traders. It's no wonder that few brokers publish margin rates for loans in excess of $2 million to $5 million, but Interactive Brokers is not afraid to do so. This speaks volumes about the level of service that clients can expect from the platform.

Interactive Brokers also deserves some praise for using a clear and easy-to-understand method for calculating its margin interest rates. The brokerage uses the Federal Funds Effective Overnight Rate as its benchmark rate before adding a marginal spread. In comparison, many other brokers substitute their own proprietary benchmark to calculate interest charged to customers who have a debit balance.

By going the extra mile and providing transparent, competitive rates for these types of loans, the brokerage demonstrates its commitment to serving the needs of its most discerning clients. Whether you're an experienced investor looking to grow your portfolio, or a financial professional seeking a reliable platform for your clients, Interactive Brokers is definitely a name to keep in mind.

Primarily an online brokerage, Interactive Brokers doesn't have a large branch footprint like many of the largest retail discount broker firms. That said, it offers support 24 hours a day by phone, chat, or a secure message through its account center.

This brokerage offers a wealth of research, with a catch: Not all of it is free, as certain research providers charge a flat-rate monthly subscription fee for access. We'll explain in more detail. For now, we'll focus on what is free:

• News: Interactive Brokers offers news and reports from 24/7 Wall Street, a daily brief from Dow Jones, and reports from Market Realist, just to name a few news and research providers. It also offers Social Sentiment data from MediaSentiment, showing you whether investors are bullish or bearish about particular stocks or events on social media platforms. You can even get real-time updated crypto news from The Tie, Coin Metrics, and Benzinga.
• Mutual fund/ETF replicator: This tool is really valuable for fund investors. It enables you to enter a ticker symbol to find mutual funds and ETFs that offer a similar performance profile. For example, I typed in a ticker symbol for an actively managed mutual fund, and it suggested an index fund with similar performance at a lower expense ratio.
• Market scanner: This tool is excellent for finding investments based on fundamental and technical parameters. If you want to find stocks that pay a dividend of more than 2%, have a P/E ratio under 20, and are based in Angola, you can do it with a few clicks. The depth of its screening tools is really remarkable.

We haven't even scratched the surface of what Interactive Brokers has to offer in free news and screeners -- going through every tool would take hours, if not days -- but it's certain that it ranks among the top of the list as far as its screening tools go.

Of course, there's a downside: Research you might expect to receive for free at other brokers isn't free at Interactive Brokers. For example, many brokers offer Morningstar equity research reports for free, but Interactive Brokers' non-professional customers pay per month for the service. That said, a la carte research and news options are plentiful, and many offer a free trial so you can see what you'll get before you commit to a monthly charge for access.

IBKR does offer The Research Data Bundle for each region. It includes the following: Region Specific Dow Jones Trader News, Briefing.com, MT Newswires, The Fly, and Trading Central.

If the following statements apply to you, Interactive Brokers should make your short list of places to open a brokerage account.

• You want to keep expenses low. Low commissions make IBKR Pro a compelling value for people who make frequent stock and options trades and want premium pro-oriented features. And the no-commission IBKR Lite plan is a great fit for less-active investors as well.
• You use margin. Low margin rates are one of Interactive Brokers' biggest strengths. It's no surprise that Interactive Brokers has the largest number of margin loans outstanding of any discount broker we've seen -- the savings are simply too big to ignore.
• You want strong investment tools and a robust trading platform. IBKR is known for its advanced platform for experienced traders. IBKR also has a wide range of tradable assets, including international stocks, currencies, and foreign markets.
• You don't need hand holding or vast (and free) research. Interactive Brokers is unapologetic about catering to active traders, financial professionals, and sophisticated individual investors, which is reflected in its a la carte options for paid research. That its average client trades more than 300 times per year says a lot about the kinds of traders and investors who tend to gravitate toward Interactive Brokers.