When choosing a broker, there are lots of options, each offering their own tools and features that will appeal to various types of traders. The following guide to Interactive Brokers (IB) will help you to decide if IB is the right broker for you, and if you are already a client it will provide you with additional information you may not have been aware of.
Interactive Brokers offers low commissions and the ability to directly access various markets—stocks, options, futures, forex, bonds, ETFs and CFDs—without broker intervention. Commissions are based on a flat fee or “Cost Plus” model where commissions decrease the more volume is traded. Stock commission starts at $0.0035 (up to 0.5% of trade value) for U.S equities.
There are additional monthly fees for accessing market data from various exchanges, for example NYSE and Nasdaq Level II quotes.
You are able to trade markets in 23 different countries throughout North America, Europe and Asia-Pacific, with access to over 100 markets. You can also trade from your desktop with the Trader Workstation (TWS), trade on the internet using their Web Trader or trade from your Smartphone with their mobile trading software.
IB allows you to generate trading reports to see your performance over any time frame, and use risk management tools to monitor your exposure across multiple asset classes.
Interactive Brokers has an A- S&P Credit Rating, with a Stable outlook as of 2014.
Tools and Features
IB offers a load of trading tools to help traders find the investment they are looking for, or implement various strategies they may wish to deploy:
- An “Algo” feature allows you to break up buy or sell orders into small chunks at different times and prices.
- The “Merger Arbitrage” tool helps you map out your strategy for company mergers, which can cause big price moves.
- “Chart Trader” allows you to trade right from your charts with a single click.
- “Market Scanner” allows you to input criteria to find the exact stock, option, bond, ETF or futures contract that meets your trading requirements.
The “Model Portfolio” structures portfolios based on your specific goals or risk criteria.
Use the “Mutual Fund Replicator” to find an ETF that is comparable to a mutual fund you are interested in. ETFs typically offer lower fees and fewer restrictions than mutual funds.
The “Options Portfolio Highlights” tool allows you to manage options positions by defining parameters for the Greeks – Delta, Gamma, Vega and Theta. The “Options Strategy Lab” allows you to simulate simple or complex options trades.
Charts, Charts, Charts
To open a chart in Trader WorkStation (TWS) click on the “New Window” button, scroll down to “Chart” and select it. Create the exact type of chart you want using the pop-up that appears. In the “Underlying Contract” field, input the asset you wish to see a chart for and hit Enter. This produces a small box that allows you choose which exchange the asset trades on. Select the appropriate exchange.
With a chart open, quickly change timeframes, asset or add technical indicators to the chart using the toolbars. Use the timeframe drop down menu change the perspective of the chart.
Click on the Edit button and select Studies to add an indicator to the chart. Also under the Edit menu use the “Index Comparison” tool to overlay an index over any asset to compare performance. A similar tool is also available under the Edit menu for comparing different assets.
Simple drawing tools are accessible from the main toolbar:
Click the little white down arrow or the Edit menu to access other tools, such as Fibonacci lines.
To change the symbol you’re viewing type in another symbol in the upper left hand corner of the chart.
On the main TWS platform page, click New Window and select “Alerts” to manage how you want to be notified when an asset reaches a certain price. Click “New” to add a new alert, and tell the system how you’d like to be notified (email, text message, pop-up window, etc) when the alert is triggered.
Use the various menus and options to get your charts set up exactly how you like them. Then save the template for the chart using the “Save Chart Template” feature under the File menu. This will save you time when you log in next, as your charts will already be set up the way you want them. Create different templates for different asset classes or strategies.
Buy and Selling
One of the easiest ways to make trades is right from a chart. On a chart in the upper left hand corner there are Buy and Sell buttons. Clicking one of these will create a dotted horizontal line on the chart. Move the line to the price you want to take the trade at. Click again and it will set an order to execute at that price.
On the line it says “CXL” – click that to cancel the order. Click the “T” button on the line to see the parameters of the trade.
Non-chart traders who just want to enter and exit from the main TWS page can do so with ease.
The Order Entry box provides everything needed to put out market or limit orders on various assets.
Pick a symbol by typing it in the box. Choose whether the order is a limit order (different price than current) or market order (executed at current price). Choose the quantity and click Submit to see the summary of your trade. Hit Transmit in the pop-up window if you wish to execute the order in the market.
Click the “Opt Chain” to see the option chain for the selected security.
Right click on an option in the chain pop-up window to make a trade in that option.
In addition to basic tools and features, there are a number of more advanced tools. “Yield Optimizer” helps you determine the most efficient ways to utilize cash in terms of borrowing rates and lending shares for others to short.
The “Volatility Lab” allows you to analyze an asset based on volatility assessments and comparisons to other assets. The Tools within feature includes call and put open interest and implied and historical volatility.
Use the “Basket Trader” to trade multiple assets together, which is useful for pairs trading or attempting to take advantage of arbitrage opportunities.
With loads of features there is a learning curve to getting acquainted with the platform. The platform is suitable for novice and professional traders, although those new to trading should spend some time in a demo account getting used to the features and learning how to place orders and manage positions before trading live.
Alerts can be made directly from the chart, although stops and targets require a couple of more steps; go to the main TWS page, click on the current trade and select “Configure Order Preset.” Click on the “All Possible Fields” button, scroll down and input the stop loss and target price in the appropriate fields. Trailing stops are also created on this page.
While practice will make the trading process much quicker, very short-term day traders may find the platform a bit cumbersome as most of the features are designed for swing trading and investing.
The Bottom Line
Interactive Brokers, in conjunction with the Trader Workstation platform, provides traders with tools to trade and research the financial markets. Commissions are low and the company is stable financially, reducing the counterparty risk for traders. Full charting and fundamental research capabilities give all types of traders the tools they need to succeed. There is a learning curve with so many features, so a demo account is recommended for getting used to the platform