Date: 3 October 2020

I have been asked many times, which brokerage firm you use? The short answer is I use Interactive Brokers (Disclaimer: No affiliation). But the underlying question is what are the benefits of using the brokerage firm you are using.

I can only share my experience with Interactive Brokers since I haven’t used other brokerage firms. Also, there are many products in the Interactive Brokers’s platform. I just use a fraction of them. If you have different investment needs with me, you may have a different view.

My Investment Needs

I mainly use Interactive Brokers for the following:

  • Buy stocks in the U.S., China, and Hong Kong
    • ETFs, and Individual Stocks
    • Frequency: monthly
    • Amount: Choose not to disclose
  • Margin Buying
    • Currency: USD and HKD
  • Exchange HKD to USD in order to buy US stock
  • I am a fundamental investor. I don’t look at charts too often.

The Goods and Bads of IB

The Goods

  • Reasonable commission rate (I can’t say it is low because I haven’t done a comparison with other platforms)
    • The year-to-day commission plus all other fees spent is 0.235% of the cash deposited plus the ending cash balance of last year.
    • The commission rate per share of US stock is basically neglectable for me (Fee detail). If I trade less than 300,000 shares, I just need to pay USD 0.0035 per share with a minimum of USD 0.35. For HK stock, If I trade less than HKD 15,000,000, I just need to pay 0.08% of the trade value with minimum HKD 12.
    • For the PRO version, the monthly basic fee is USD 10. If commissions are more than USD 10, the monthly basic fee is waived. In simple terms, at least you need to pay USD 10 to IB every month. For the LITE version, no monthly basic fee and commission-free for US stocks and ETFs. (I will explain why I use PRO even with monthly fee later)
  • Low margin rate
    • Borrowing money in IB is relatively cheap compared with other brokers. As of today, for borrowing less than USD 100,000, the rate is 1.59%
    • I choose to use the PRO version because the margin rate is more competitive than the LITE version. There is a roughly 1% difference. If I borrowed USD 10,000, the monthly difference in interest is USD 8.3 which is similar to the monthly basic fee. So, I can save more if I borrow more than USD 10,000.
  • Use market bid-ask spread
    • IB does not make a profit by enlarging the bid-ask spread, unlike many other brokers that said commission-free but charge customers by enlarging bid-ask spread.
    • This is a more transparent approach. I want to know how much IB charge me. If brokers charge you by bid-ask spread, it is hard to tell how much they charge.
    • As IB use market bid-ask spread, currency conversion in IB is very competitive. Normally, there is a wide gap between bid and ask price in currency conversion.
  • In-dept and advance portfolio analysis tools
    • I love the portfolio analysis report so much. It offers a lot of details in terms of return, risk, distributions, each individual stock’s contribution to return, etc. You will be overwhelmed by the report when you first look at it. But it is highly valuable.

The Bads

  • Market Data (not include forex) is not live if you do not subscribe for market data
    • If you coming from other platforms, this may sound strange. IB does provide 15 mins delay data for free. But if you want the live market data, you need to subscribe to them. It can cost you another USD10 dollar or so.
    • It doesn’t matter to me since my investment style is more long term. I just put my limit order and wait for it to be fulfilled.
  • User-friendliness of Trading Platform and App
    • The AWS Tradingstation is hard to use for a newbie. You need some time to pick it up, like watching some YouTube videos.
    • The App is intuitive to use though. But, some people may not find the charting function enough for them.
  • The pricing structure is difficult to understand
    • I find it difficult to understand the pricing structure of IB when I first started. But I am used to it now.
    • It mainly contains, basic fee (USD 10, waived if the commission is more than USD 10), commission, market data fee.

Is IB Safe?

In Hong Kong, IB clients are protected by the Investor Compensation Fund (ICF) with the maximum amount of compensation is HK$500,000. That’s obviously not enough, but that is the bottom line.

As for whether IB is safe and secure, I suggest you evaluate that by looking at this link. For me, I feel comfortable putting my money in IB.

I hope this article can be your starting point to compare IB with other brokerage platforms.

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