Getting started with Interactive Brokers (IB)

Interactive Brokers is one of my favourite online brokerages for buying overseas stocks. Its low cost, great platform and excellent FX rates means that I can build an overseas portfolio easily without paying too much commissions on local brokerages like Standard Chartered and DBS.

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A quick introduction

Interactive Brokers (IB) is based in the US and is one of the world’s largest online brokerage along the likes of T.D. Ameritrade and Saxo. Among these 3, IB is my favourite as it offers the lowest trade commissions and even pays interest on your idle cash in your account.

It was founded in 1978 with its headquarters in Connecticut, employing more than 1400 employees across the world. It is also regulated by various regulatory bodies around the world including the SEC, FINRA and FCA.

IB commissions are low

The reason why I love IB is because it offers industry-leading low commissions for trades on its platform. It offers two types of commission structures, fixed and tiered. Fixed charges a fixed-rate low commission per share or a set percent of trade value while tiered commissions decreases depending on volume, plus exchange, regulatory, and clearing fees. If you take the comparison they provided on their site, their fees are way lower than competitors.

Commission rates by US Broker

Why commissions matter

Commissions matter because they represent a cost of acquiring assets and hence directly impacting on your returns. With lower commissions, you effectively allow your money to work harder for you. If you compare StanChart’s US$10 per trade on their platform, IB’s commissions are only 1/10th the cost. Compound this cost over a decade and you are losing probably tens of thousands worth of returns to your broker.

Cheapest FX brokerage in the market

Have you ever experienced exorbitant FX charges when converting your SGD to USD, probably in the form of an unfavourable exchange rate? It’s because your bank charged a spread on top of the interbank quotes as commissions for executing the trade. IB offers the cheapest FX commissions with no hidden spreads and markups. This means IB can act as your cheap money changer when converting one currency to another!

Wide range of investment products

You can buy and sell tons of investment products from stocks, bonds, ETFs, options, futures, foreign exchange, commodities, mutual funds, CFDs etc on their platform. Personally, I buy most of my ETFs on their platform.

Creating an account

Start by clicking here, then follow the steps in the following screens. You’d be asked if you would like a cash or margin account. A margin account allows you to borrow in order to fund your purchases – allowing you to gain leverage – amplifying both returns and losses in the process. The selection is completely up to you – I chose margin.

Select open an account and start application to begin the account opening process

Funding an account

In order to purchase a security – especially so for cash accounts – you’d need to fund your account first using a bank transfer. To do so, head over to account management and log into the client portal.

For Singaporeans, you need to first initiate a transfer by going to the sidebar, select Transfer & Pay and then select Transfer Funds.

You can initiate transfer notifications by going to transfer & pay

In the transfer funds window, select Deposit Funds and fill in the deposit transaction information – your bank name, account number, amount to be transferred and whether you’d like to make it a recurring transaction. For ETF purchases, I like it to be a monthly recurring transaction with a start date 2 days before my standing instruction from my bank account because on sometimes during public holidays, the SI might be processed early and IB has some issues reconciling the deposit.

In my case, I set this deposit notification from IB to be on the 21st of the month. My pay comes in between the 21st to 24th of the month (depending whether it falls on a working day, public holiday etc) and my outgoing SI is set to transfer on the 22nd from DBS into InteractiveBroker’s local Citibank account.

The funds are usually received by IB on the same day and it will be reflected in your client portal (usually within 1 hour).

You can also set to transfer USD, through the same method above, but the receiving account might be different – please check clearly before sending.

Buying shares / ETFs / bonds etc

There are a couple of ways you can initiate a position on IB – from simple ones to complex algorithms via APIs.

Instruments availability by trading platform
Trading options by trading platform

I usually use the client portal, desktop app, web trader or mobile app – the order screens are usually rather intuitive – just search for the stock/ETF, select the correct instrument (usually ‘stock’), enter your bid price, order type (usually ‘limit’) and hit submit!

The order screen in client portal

Wrapping up

From here, you’re pretty much free to explore the deeper functionalities within IB – I especially like the portfolio analyst function to do a deep dive on my portfolio (post here). You may also leverage on their data points captured to slice and dice your portfolio performance – benchmark against market indices and evaluate metrics such as your max drawdown (peak-to-valley), sharpe ratios, time-to-recover etc.

If you’re interested in opening an account with IB, you can do so from their account opening page.

To read more about funding your Interactive Brokers account, you can head over to this tutorial on funding your account with SGD or USD.

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  1. Hi, thanks for your introduction on IB.

    Have you gotten any change to take a look at IBSG, looks they recently started accepting account open, the account will be under IB Singapore.

    > Please Note: Singapore residents having an existing account under Interactive Brokers LLC are not able to trade Singapore stocks. Singapore residents can open an account under Interactive Brokers Singapore Pte. Ltd. to trade Singapore stocks.

    I am wondering, which IB I should use to open my first IB account, under normal IB LLC, or open account under IBSG?

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