My #1 pick of trading brokers is Interactive Brokers. Before I tell you why I want to ask an important question first.
What do you look for in a financial broker?
Do you want a broker that:
- Gives broad access to world markets,
- Asks for low fees and commissions, and
- Provides a choice to use their powerful software or many other trading platforms?
If you want all these things, Interactive Brokers is the gift you want to give your trading business. They are so good at what they do I have been with them for over 20 years.
My definition of a good broker is one that enables a trader to deploy their strategies. Forget about analyst reports, pushy sales people and buy/sell recommendations. All those are peripheral considerations and fluff.
The three foundation pillars that set apart the best brokers are:
- Execution speed,
- Platform robustness, and
- Commission structure.
I’m a loyal guy. But if I found another broker as impressive as Interactive Brokers I would switch in a heartbeat. So far in my two decades of using them, others have not even come close to a tiebreaker.
Now let’s go over the four key characteristics that make Interactive Brokers a top choice.
Interactive Brokers – Characteristic #1: They have serious minimum requirements
At the time of this review, Interactive Broker’s ask for US $10,000 before you can start an account with them. That’s a serious minimum requirement.
There are countless other brokers who ask for less. Many only want US $2,000, and some fly-by-night Forex shops will go as low as US $100 to get you started. In comparison, Interactive Brokers may seem like they are asking for a lot.
But there is something important to remember. Trading is a business. It is a serious business.
Risk capital in the form of account minimums required to trade is a necessary tool. US $10,000 is not much money for serious traders. They are not even asking you to risk it all, only to put it on deposit.
Interactive Broker’s may use high account minimums to filter out less serious traders. Or think of it another way. Interactive Brokers is keeping you honest with yourself about your trading.
How do high account minimums keep you honest? The reality is that you need more than double their minimums to even day trade stocks. If you are missing the capital to trade, you are missing one of the key necessary tools.
Instead of being a downside, the high minimums can become the bar to which you can live up to. Use the US $10,000 as a litmus test to how serious a trader you are. If you can’t afford to deposit (and lose) this amount, spend some more time saving before you start.
Interactive Brokers – Characteristic #2: They have industry-leading pricing
At the time of this review, Interactive Brokers charges a US $10 fee per month. And it’s only charged if you don’t make trades that incur at least US $30 in commissions. That’s the worst of it, and that’s a pretty incredible deal for even the most casual of traders.
Some critics have complained, thinking this is unreasonable. Let’s take a closer look at an example using stocks.
Interactive Brokers has a low, penny-per-share commission structure for stocks. To generate $30 in commission, you have to trade 300 shares. That means you only need to buy and sell 100 shares each trading day to generate $30 in commissions in a month.
That amount of activity isn’t much for a serious trader. And even if you trade less than that and have to pay the $10 in a given month, think about the savings when you do trade. I’ve illustrated the comparison of Interactive Brokers to the industry average below.
Interactive Brokers
- Commission for buying 100 shares: US $1
- Commission for selling 100 shares: US $1
- Total commission impact on your trade: US $2
Approximate Industry Average For Online Brokers:
- Commission for buying 100 shares: US $9.99
- Commission for selling 100 shares: US $9.99
- Total commission impact on your trade: US $19.98
On your very first trade dealing with only 100 shares, you save $17.98 with Interactive Brokers. Every trader must make their own decision on which broker to use. But make sure you consider the costs involved with your choice. The risk of having to pay US $10 is a bargain when you get to save multiples of that each time you place a trade.
Interactive Brokers – Characteristic #3: They treat you like a trader
Full-service brokers charge a lot of money through high commissions and fees. They use that money to welcome you to a fancy office, wine and dine you, buy you gifts and educate you.
A trader who needs that kind of special treatment may not like Interactive Brokers. In comparison, they could come off as cold or uncaring. But remember that all that hand-holding costs money – your money.
For the record, I am not against education and extra services. There have been many brokers from whom I have had the privilege of learning. That considered, I would rather save money on commissions.
Interactive Brokers avoids coddling clients the way many other brokers do. Even though I sometimes miss this hand-holding service, I know that the savings get passed to me.
I can use those savings to maintain a personal office, buy trading tools, and pay for education. Best of all, the education and tools I pay for our chosen by me. I’m using my money to get exactly what I need, not having it built in for me.
And for technical inquiries and phone support, I have always been very satisfied. Interactive Brokers knows where they need to help their clients, and they do. They have always been there for me when it’s important and all issues have been well handled.
Interactive Brokers – Characteristic #4: TWS platform stands the test of time
Interactive Brokers has their own built-in software platform. That means if you don’t use a third party software, you’re still well served right through your broker. Their platform is Trader Work Station (TWS) and it’s one of the very best out there.
But although TWS is a solid platform, I myself use NinjaTrader (see my detail review here). I pair the NinjaTrader software with Interactive Brokers as my brokerage.
“Trader Work Station is a solid trading platform provided by Interactive Brokers.”
This pairing can be an easier solution than using the built-in Trader Work Station platform. I can explain why with an analogy.
Imagine wandering into a master woodworker’s workshop. The walls contain the endless, gorgeous, time-tested tools of an experienced artisan. Each one performs a specific function and compliments the craftsman’s skills.
Now compare the master’s workshop to a quality toolkit from Home Depot. This toolkit is well suited to most tasks, and it can be a lot easier to use and simple to learn.
In this analogy, Trader Work Station is the master woodworker’s workshop. Other platforms are the quality toolkit from Home Depot. Traders who need certain tools may be best served by TWS.
But most traders, myself included, will find everything they need on other platforms. Many combine quality, ease of use, and many specific tools without adding complexity. And it’s simple to pair Interactive Broker’s service with many third-party trading software.
Conclusion
If you are serious about trading, you cannot go wrong with Interactive Brokers. With so many features and benefits, there is something for every level of trader. For everyone from the beginner to the industry pro, they are a great broker to use.
I recommend Interactive Brokers and receive nothing in return for my praise. To them, I am one of many accounts and happy to be so. They do their job well, and when they do all the traders who use them benefit.
You will too.
For more day trading techniques, tools & strategies, check out these articles:
- NinjaTrader: Review Of The Software & Brokerage
- 5 Ways To Bulletproof Your Forex Entries
- Best Stock Trading Strategy Keys To Performance
Interactive Brokers is my #1 pick for the best trading brokerage. I would highly recommend it for new and professional traders alike.
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