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How Competitive is Interactive Brokers Commissions Pricing?

This post explores how competitive Interactive Brokers is when it comes to commissions for trading stocks.

Specifically, my focus will be on the trading cost if you wish to do it yourself to create a low-cost, passive portfolio with exchange-traded funds.

If you are less interested in exploring Interactive Brokers as a platform for that but to trade or invest in a portfolio of individual stocks, I am sure there are some useful takeaways as well.

This post will not explore the trading cost for options, futures, forex, spot currencies, fixed income, fixed income (which should be just as competitive)

Interactive Brokers have eliminated its $10 a month Inactivity Fee

Interactive Brokers used to have a US$10 monthly inactivity fee if the amount in your Interactive Brokers account is less than US$100,000.

This US$10 fee has been a source of distress for young investors who wish to get on the platform but are not sure if it is a good idea. There are also investors who wish to get on the platform but are not willing to commit such a sum of money.

The good news is as of 1st July 2021, Interactive Brokers have eliminated this monthly inactivity fee.

You can read my post on this announcement here.

What this means that a major negative consideration for some investors has been eliminated.

It also drastically changes the comparison we will have subsequently.

The original comparison with Standard Chartered Online trading factors in a scenario where your amount is less than US$100,000.

With this change, some of the comparisons will change, to the advantage of Interactive Brokers over its competitors.

Understand the Cost Stack

If you would like to compare the cost between different brokers, it can be very daunting because you do not know what are the costs to consider.

The cost stack from my Dimensional Fund Advisers article

Just like in my comprehensive guide to investing in Dimensional Fund Advisors, you should look at what you need to pay as a “cost stack”. This is a set of costs that you would have to pay.

In general, the cost stack would look like this:

  1. Broker commission. What your broker charges you to make the transaction
  2. Exchange and Clearing fees. The exchange where the shares are listed would typically charge a clearing fee. Some exchanges such as Hong Kong will have stamp duty fees. Some exchanges will have exchange fees.
  3. Forex conversion cost. if you are purchasing shares in a currency different from your home currency, someone would have to help you convert the money in your home currency to that of the foreign currency. This can be done by your bank, a third party agent like Transferwise, or your broker

This does not include a few other costs that you should think about if you are a fund investor such as bid/ask spread, tracking error, dividend withholding charges.

As an investor, you are trying to find a cost-efficient platform to execute your strategy.

And so you cannot just base your decision only on the broker commission or adviser/access fee. The cost stack showed us that your decisions would have to include which stocks and ETFs are more efficient to execute your strategy.

But for this article to be more general, I will not go too deep and factor in every aspect of this cost stack.

Total Cost Comparison Between Interactive Brokers and Standard Chartered Online Trading

We decide to compare Interactive Brokers to Standard Chartered Online Trading (SCB) because there are many readers who are trying to identify a platform that is the most cost-effective for them to buy-and-hold low-cost, broadly diversified, tax-efficient UCITS ETFs listed on the London Stock Exchange.

There are other platforms like:

  1. DBS Vickers
  2. Saxo

That will give you access to UCITS ETFs

There are other brokers now that are cheaper than SCB. Two that you can consider is FSMOne and the new Tiger Broker (which ironically Interactive Brokers have a stake in it)

SCB’s overseas commission rate is 0.25% with a minimum commission of $10.70 with GST. With FSMOne and Tiger Brokers, they can reach 0.08% with a minimum commission of roughly SG$10.

So clearly FSMOne and Tiger Brokers can be as competitive as Interactive Brokers. The issue is that both Tiger Brokers and FSMOne currently do not allow you to trade on the London Stock Exchange (where the UCTIS ETF is listed) but if you wish to have low-cost general trading options, those two platforms are worth considering.

I decided to put in some capital balance at a different frequency to evaluate the difference in cost:

Interactive Broker annual investment cost for Tiered and Fixed commission structure versus SCB

There are two sets of commission structures for Interactive Brokers:

  1. Tiered – The commission charged depends on your trade size. If the size is smaller the commission is lower and as it goes up the commission is higher. Clearing and Exchange fees are separated from the commission. For some who starts off smaller, this one would be more ideal.
  2. Fixed – Interactive brokers charged a fixed commission. This commission factors in clearing and exchange fees.

Whether it is Tiered or Fixed, Interactive Brokers has a much cheaper commission per trade compared to SCB.

IB Tiered commission is better if the invested amount is smaller while IB Fixed may be better if you are executing a larger transaction size.

As an Interactive Brokers client, you can go to the account setting and switch between these two modes. They will need one day to be activated.

To allow you to compare against other prospective brokers, I have compiled the annual investment cost as a percentage of the annual amount to invest.

Interactive Broker annual investment cost for Tiered and Fixed commission structure versus SCB

In this way, I think it is clearer.

With this annual investment cost, you can compare against other brokers.

Interactive Broker’s Near Spot Currency Conversion Gives the Broker a Big Advantage over Competitors.

The biggest advantage of IBKR or IBSG is their currency conversion rate.

If you wish to invest overseas, it is likely you will need to convert your SGD to USD, EUR, HKD or GBP.

There is a one-time or many-time currency conversion fee levied.

  1. Local brokers typically will have a spread of 0.30 – 0.60% over the rates you see if you check the forex rates at an independent site.
  2. For SCB, their Live FX allows me to get a spread closer to 0.20 – 0.30%. (See my experience here)

Interactive Brokers have a currency advantage in that the conversion cost is about S$2.80 flat plus a rate of 0.2 basis points (this reads 0.00002% vs the 0.30% of SCB and 0.50% of some traditional brokers)

The currency conversion advantage helps extend IBSG and IBKR’s lead in their overall cost stack over other competitors.

Interactive Brokers Tiered Commission Structure

In the tier commission structure, you are charged based on your trade size. Different markets have different tiers.

You can review the commission pricing here. You can also find the exchange and clearing fees there.

Let me highlight some common ones:

Most of us should trade with a volume of fewer than 300k shares. The minimum commission is US$0.35 which is very cheap.

The report above shows the tiered commission. The report typically separates exchange and clearing fees from commissions. In this case, there aren’t any fees.

US$0.35 is less than the US$1 fixed commission if you choose the tiered pricing.

Based on my trade size the commission rate is 0.01%. If you include a $2 currency conversion charge, this becomes 0.07%.

If you invest in low-cost UCITS ETF listed in the London Stock Exchange, and they are denominated in USD, then your cost would be between US$1.70 to US$39.0. The fee works out to be 0.05%.

In the above transaction, the tiered commission works out to be US$4.63. This is lower than the US$5.00 fixed commission but barely.

This works out to be 0.055%. If you include a $2 currency conversion, this becomes 0.08%.

Here is the Australian tiered fees.

Finally here is the tiered fee structure if you trade the Hong Kong markets. In general, the fee is 0.08%.

In general, my commission will hit 0.09%. However, with the exchange fees (under the fee), my average cost comes up to 0.19%.

I realize we cannot reduce this.

The bulk of the cost is a 0.10% stamp duty.

However, if we are purchasing ETF listed on the Hong Kong stock exchange, the 0.10% stamp duty goes away. This becomes much cheaper.

Interactive Brokers Fixed Commission Structure

Here is the various commission pricing under the fixed commission structure:

I find that if your account balance is more than US$100,000 and your trade size is more than $1000, the difference between Tiered and Fixed is not a lot.

How to Switch from Fixed Pricing Structure to Tiered Pricing Structure

You are not tied to one standard commission structure. You can switch between the two when your needs change.

The change should take 1 day.

Login to your Interactive Brokers on your Desktop.

Go to Account Settings > IBKR Pricing Plan.

The interface is a bit of a problem. It does not tell you this is where you change the pricing structure.

It just reads IBKR Pro!

If you manage to get in, then you can change accordingly.

Conclusion

In general, I feel that if we considered all the forex, exchange, and clearing, broker commission fees, Interactive Brokers is very compelling.

The cost should be an important part of the consideration but other aspects matter as well. You would want a platform that you know has been around for a long time, more consistent than not, have a breath of markets to trade, and a breath of products available to you.

Interactive brokers are very cost-competitive to trade other financial instruments as well (that I have failed to explain here)

At the end of the day, don’t spend all the time saving on commission, focusing on the trees and not see the forest.

Eventually, your asset allocation, stock selection, and execution may outweigh the importance of cost.

Try your best to get an acceptable overall cost, then focus on investing.

For those who are interested to sign up to try the Interactive Brokers account, I have a limited set of referral links that I can extend to you.

With my referral link, you can get up to US$1,000 worth of Interactive Brokers shares if you maintain US$100,000 for one year. Here is how it works: for each US$100 net deposit in cash (in equivalent currency) into your Interactive Brokers account, you will be given US$1 worth of Interactive Brokers shares.

This is ideal for serious investors or traders looking to switch and make Interactive Broker your trading home. To sign up, send an email to [email protected] with the title “Interactive Broker Referral Program Sign Up” and register your interest today. (Unfortunately, this is not available to residents of Spain, Japan and Isreal.)

My Comprehensive Interactive Brokers How-to Guides

Here are some of my past articles on wealth building with Interactive Brokers. I hope it makes your life easier and brighter.

  1. An Easy Step-By-Step Guide to Setup Interactive Brokers (IBKR)
  2. How to Fund & Withdraw Funds from Your Interactive Brokers Account
  3. How to Convert Currencies in Interactive Brokers
  4. How to Buy and Sell Stocks and Securities on Interactive Brokers
  5. How Competitive are Interactive Brokers Commissions Pricing?
  6. Interactive Brokers have Eliminated the US$10 monthly inactivity fee. More details here.
  7. How to Transfer your shares from Standard Chartered Online Trading to Interactive Brokers
  8. How to trade after-hours and premarket
  9. How to create customized reports and automatically send to your email
  10. Send Money from TransferWise to Interactive Brokers

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CH

Saturday 30th of January 2021

Hi Kyith, thank you so much for the guide. It is really well-explained and this is one of the few guide that I found really helpful!

Question regarding the Standard Activity Fee = USD10 - Commissions, does the commission include the USD2 Forex fee? I.e. If I made convert SGD to USD (incurring a USD2 forex fee) and buy a stock (incurring a USD1 transaction fee), is the activity fee USD8 or USD7?

Kyith

Saturday 30th of January 2021

The USD 2 is a commission, so it should be counted in the computation. You can refer to this page here: https://www.interactivebrokers.com/en/index.php?f=1590&p=fx

IW

Wednesday 20th of January 2021

Great article, thank you! Very useful info.

I started using IBKR and realized a number of LSE ETFs are not available - I'd have to buy through other exchanges such as in Switzerland. e.g. for iShares Core S&P 500 UCITS ETF, 'CSPX' on the LSE is not available, but there is 'CSSPX' which is in Switzerland. e.g. for iShares NASDAQ 100 UCITS ETF, 'CNDX' on the LSE is not available, but there is 'CSNDX' which is in Switzerland. Did you come across this issue (you mentioned investing in LSE ETF)? I would think there might be a differences in costs / liquidity / bid-ask spreads when having to go through a non-London exchange.

Thanks!

Kyith

Thursday 21st of January 2021

HI IW, the symbols are called different names on the LSE. You can refer to this IBKR LSE List here. CSPX is CSSPX and CNDX is CSNDX.Bot seem to be listed on LSE leh

J

Monday 4th of January 2021

how about the market data subscriptions? do u use a free version of trading view for eg? IBKR charges quite alot for market data

Kyith

Monday 4th of January 2021

Hi J,

I make use of the Snapshot functionality to get the most up-to-date prices before I place an order. I do not trade so much so I make use of Trading View or other platforms to look at the prices.

Ethan

Tuesday 15th of December 2020

Hi Kyith, I would appreciate your advice on whether it makes sense for an investor to switch to IBKR from DBS VB if holding about $100K of accumulated foreign shares on NYSE, LSE and HKSE. VB does offer the seamless interface with the DBS MCA that allows for conversion of SGD into other currencies. However, the custodian fees are $2 per stock per month on the VB platform unless there are 6 trades per quarter.

Kyith

Saturday 19th of December 2020

HI Ethan, in my series of articles, I have tried to provide the strengths and weakness of interactive brokers. You would have sub accounts of different currency, low commissions, no custody charges, no dividend handling fees, low currency conversion, access to various exchange. Each of us will have a different idea how we think about security when comparing DBS Vickers and interactive brokers. To make such a big switch, we will have to think about what are the advantages. It could be that I would like to invest in smaller amounts but I do not want to be penalize with high commission. Or that in the future the currency conversion is more optimize.

I think I feel better with the currency conversion costs, commission costs and the reporting. But that is for myself.

Tony

Tuesday 8th of December 2020

You forgot to mention the buggy software the non existent customer service and terrible reporting which makes it practically impossible to track anything without downloading it to a spreadsheet all the time. Basically you waste a lot of time doing things that on other brokerages are done for free and properly.

Kyith

Tuesday 8th of December 2020

Hi Tony, what do you mean by the terrible reporting? I can probably agree with the customer service portion but I thought the reporting is pretty alright.

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