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.
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.
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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.
Interactive Brokers fees and account rulesImprovements 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.