Interactive Brokers is not only a reliable and quality contact, but it also offers a very complete service, which can be adapted to the needs of the investor and is very inexpensive. It will only cost you 1$ for an order of up to 200 shares.
Opening an account takes a good forty minutes. Don't worry, if you can't finish everything in one go, you can do it in several steps and you can pick up where you left off later. You are guided through the process and the user interface is well done.
With Interactive Brokers, you have a plethora of choices in terms of account types, instruments, markets, data, fee structures, etc. This is obviously one of the big advantages of this broker, even if it can also be disconcerting at first. Rest assured, your initial choices are not set in stone and you can change them easily and quickly later. The best thing is to start with a basic configuration, then add options as needed.
Account selection
Unless you are using it for business purposes, opt for an individual account (trader/investor). You can then choose between a standard cash account or margin accounts (Reg T Margin or Portfolio Margin).
Cash account
In a cash account, the account balance must be sufficient to cover the cost of the stock, including commissions. Short selling is not permitted. Cash from the sale of shares is available within three business days of the trade date. A minimum of USD 10,000 is required to open an account.
Starting with a cash account allows you to get familiar with Interactive Brokers without having to commit too much financial resources. Although short selling is not allowed, you can use short ETFs (such as SH on NYSE Arca).
The cash account has only one drawback: the cash from closing a position is only available three business days after the transaction date.
Margin Accounts
Reg T Margin Account: Margin is updated in real time. If the maintenance margin requirement is not met, positions are immediately liquidated. Proceeds from purchases and sales are available immediately. A minimum capital of USD 25,000 is theoretically required to open an account.
Margin Portfolio Account: Margin is calculated based on real-time exposures. If the maintenance margin requirement is not met, positions are immediately liquidated. Proceeds from purchases and sales are available immediately. A minimum capital of USD 110,000 is required to open an account.
The only real difference between these two variants is the more flexible assessment of risk in the calculation of the margin for the Portfolio Margin account. The Reg T account is more than sufficient. Above all, it allows you to immediately benefit from the liquidity of closed positions.
Another advantage of margin accounts is that they allow short selling. This is of course not a necessity, since you can use short ETFs instead. Since Interactive Brokers' transaction fees are proportional to the number of shares, you pay less fees when trading high-priced stocks. By shorting SPY instead of buying SH you can save some money. The difference is zero or very small when you start with small amounts, but it becomes quite obvious after a while.
Example 1:
Purchase of 200 SH at 22.68 USD for a total of 4,536 USD. Transaction fee 0.005 USD per share: total 1 USD.
Short sale of 25 SPY at 186.63 USD for a total of 4,665 USD. Transaction fee 0.005 USD per share: total 0.125 USD => application of the minimum rate of 1 USD.
Example 2:
Purchase of 800 SH at 22.68 USD for a total of 18,144 USD. Transaction fee 0.005 USD per share: total 4 USD.
Short sale of 100 SPY at 186.63 USD for a total of 18,663 USD. Transaction fee 0.005 USD per share: total 0.5 USD => application of the minimum rate of 1 USD.
By short selling with a margin account, you can further halve transaction costs, thanks to a little trick: instead of having to close a position in an ETF and buy the opposite ETF, you simply buy or sell the SPY by doubling the number of positions. For example, if you have 100 long SPY positions, rather than closing the position and short selling 100 other SPYs (or worse buying the equivalent in SH), you can directly sell 200 positions (so you end up in a short position of 100 stocks), all for 1$ of transaction costs. Same thing in the other direction, you buy back 200 stocks, still for 1$.
We will discuss the Interactive Brokers pricing structure and the different choices available to us below.
Transaction fees are not the only thing you can save on by shorting compared to buying a short ETF. You can also make some small savings on management fees, since SPY's are 0.1% while SH's are 0.9%. Even if you add the fees inherent to shorting for SPY (0.6%), you arrive at a total fee of 0.7%, a saving of 0.2% compared to SH. In the long run, this matters.
Investment objectives, experience, liquidity and income
You need to specify to Interactive Brokers your investment objectives. Typically, you choose income, growth, trading profits and hedging.
Your experience with stocks must be at least 100 trades in total and you must have at least a good level of knowledge with this type of assets.
Your liquidity must be at least USD 20,000. For the Reg T margin account your annual income must be at least USD 40,000.
Instruments
There is really a lot to choose from among the choices available. Limit yourself to what you really need. You can always (and very easily) add more later. Note that IB is one of the few financial intermediaries to offer the Japanese stock market.
Market Data Subscription
Interactive Brokers offers you the possibility to register directly through their platform to a fairly impressive amount of market data. This is especially useful for day traders. The information ranges from news to numerical data such as stock prices, ratios, signals, etc. The vast majority of this data is of course paid for and it can even be quite expensive in some cases.
Pricing structure
The fixed fee structure is the easiest to understand. It's very simple: 0.005 USD per share traded, minimum 1$ and maximum 0.5% of the transaction value. So up to 200 shares, it's 1$. After that it remains very modest. The higher the share price, the more interesting it is. Even for European and Swiss shares, the fixed fee structure is interesting, with 0.05% of the transaction value (minimum 5.-).
Once you have some experience with Interactive Brokers, I recommend switching to the sliding scale fee structure which is usually cheaper than the fixed fee structure. You can experiment, as it is easy to switch between them.
There are no custody fees.
Using the trading platform
As you will see right away, web platforms (html) or desktop (java) are not very welcoming. Once again, we are rather in the domain of day-traders here. No matter, we do not need it. You can do it if you really want to, but it is by far not mandatory.
The smartphone application for Android And iPhone is simple, intuitive and fast. It allows you to place orders in seconds, wherever you are.
=> Interactive Brokers account opening request <=
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