Interactive Brokers (IBKR) is no stranger to the annual IBD Best Online Brokers survey. It popped into the five best brokers overall two years ago and returned this year, helped by its reputation for low-cost trading and technological prowess.
X The company caters to self-directed individual investors, registered investment advisors and other institutional clients. It welcomes investors of all experience levels, but doesn't aggressively market to the beginners. It's found a highly profitable niche focusing on active traders who don't need a lot of hand-holding.
Interactive Brokers scored high in this year's survey (see broker survey methodology) when it comes to Low Commissions & Fees, Trade Reliability and Mobile Trading Platforms. It also ranked among the best brokers in Low-Cost/Free ETF Trading, Options Trading Platform, Site Performance and Equity Trading Tools.
- View The Full Best Online Brokers Special Report
- See Lists Of The Best Online Brokers Overall And In Every Category
Interactive Brokers' trading fees are so low that it was basically able to watch from the sidelines in the first quarter of 2017 when a price war broke out among major brokers like Charles Schwab (SCHW), TD Ameritrade (AMTD) and Fidelity. After the dust settled, Fidelity and Schwab were at $4.95 a trade, with Ameritrade a bit higher at $6.95.
Interactive Brokers is still well below the competition with a base rate of U.S. fixed 0.5 cent per share per trade. High volume trades have a lower per-share fee. Several exchange traded funds (ETFs) are also available commission-free. For ETF investors, IBKR's Mutual Fund/ETF Replicator finds ETFs whose performance replicates a specific fund's objective with generally lower fees.
Improvements aren't always just about cost. With 483,000 client accounts in 201 countries, IB also recently expanded its mutual fund offerings to include offshore funds for overseas customers.
The company's technology expertise is one of the main reasons it can keep costs low.
"The vast majority of our executive team has some sort of programming background," said Steve Sanders, executive vice president of marketing and product development, who's been with the company for 17 years. "We're basically a technology company that happens to be in the trading business."
Interactive Brokers History
Founder, Chairman and CEO Thomas Peterffy got his start in the financial markets in the late 1970s when he bought a seat on the American Stock Exchange and became an individual market maker in equity options. T.P. & Co. soon formed and eventually morphed into Timber Hill. In 1983, Timber Hill immediately gained an edge on the competition by becoming the first company to use handheld computers for trading.
Peterffy did not have years of education in computers. He basically taught himself when he emigrated to the U.S. from Hungary in 1965. His first job was architectural draftsman for an engineering firm. The story goes that a new computer was purchased at the firm, but no one knew how to program it. Peterffy, with no programming experience at the time, volunteered to do it. The rest, as they say, is history as the experience helped spark his interest in programming and technology in general.
In 1993, Interactive Brokers was incorporated as a U.S. broker-dealer, making Timber Hill's intercontinental electronic network and trade execution services available to customers. Last year, Interactive Brokers sold its Timber Hill options market-making business to Two Sigma Securities. Terms weren't disclosed.
Interactive Brokers went public in May 2007. According to Sanders, the company was founded on three competitive advantages that Interactive Brokers still embraces after more than 10 years as a publicly traded company: Low costs, a wide range of products with access to markets around the world and a relentless focus on technology.
Interactive Traders' Cryptocurrency Market Access
Interactive Brokers' technology prowess is a big reason why it was the first online broker to offer trading in Bitcoin futures. The company said it took many man hours to make it happen, but the technology infrastructure was already in place.
According to a company news release, Bitcoin futures contracts started trading on the CBOE (CBOE) the evening of Dec. 10. By 9:15 a.m. the next day, 201 Interactive Brokers accounts had placed 1,240 trades totaling 1,429 contracts, representing about 50% of exchange-recorded volume.
"We launched Bitcoin futures in response to client requests," Sanders said. "It was in keeping with our philosophy to make products available at the best possible price."
Trading in Bitcoin futures isn't a huge revenue generator for Interactive Brokers at this point, but it's hard not to see trading in the cryptocurrency market contributing to daily average revenue trades (DARTs) for the company. DARTs are a key metric for online brokers, representing the total number of trades each day that generate revenue.
In December, DARTs totaled 699,000, up 18% from December 2016. Total customer accounts jumped 25% year over year and new accounts surged 78% to 8,900. "Our DARTs are much higher than the competition," Sanders said.
Total option contracts came in at 24 million, up 10%. Future contracts grew 11% to 9.8 million.
At the end of 2017, client equity (the value of clients' accounts) jumped 46% from the year before to $124.8 billion, while customer margin loan balance surged 52% to $29.5 billion.
Interactive Brokers Debit Card
The company's recently launched IB Debit Mastercard, the first product of its kind. The card lets clients borrow against their accounts at an extremely low interest rate. It is available as part of a new integrated financial management account that lets users invest, borrow, spend and earn from one account. Annual percentage rates range from 1.41% to 2.66%.
Account holders can take advantage of Interactive Brokers' stock yield enhancement program, where clients lend out their shares for short sales and split profits 50/50 with IB. "In cases of hard-to-borrow stock, it can be lucrative," Sanders said.
Longtime IB customer Klaus Kraemer, likes the broker's Trader's University, which offers webinars, educational videos and trader apps as well as live global trading commentary. Also, he said. "I was always impressed by the fact that the company took the best bid/ask prices from the various exchanges, information only available to brokers at the time, and eventually gave it to individual investors."
For less experienced investors who want more direction, Interactive Brokers' Investors' Marketplace is an area where users can search for an advisor, hedge fund or other provider of investment services.
Want to read more about the other top brokers, the latest commission trends and more? Check out the full IBD Best Online Brokers special report.
YOU MIGHT ALSO LIKE:
Millennial-Focused Robinhood Will Launch No-Fee Bitcoin, Cryptocurrency Trades
Find The Best Stocks To Buy And Watch Now
2018 Stock Market Forecast: Smaller Price Gains, With A Foreign Tilt
How To Invest In Stocks For Free: New Apps Aim For Beginners
