Guide Finances includes Interactive Brokers (IB or IBKR) in its very short list of investment tools for international investors: IB is a leading online brokerage company where you can buy shares (incl. ETFs), derivatives, bonds and perform forex transaction at very attractive prices. Here you will find essential information on the benefits, conditions and use of IB for your private wealth management.
What is Interactive Brokers?
Thomas Peterffy, a pioneer in the US stockbroking industry, founded the company in 1978. You may have seen him on CNBC or CNN and noticed his pragmatic and personable approach to communication, which contrasts with the sometimes-aggressive sales style seen in financial services.
According to its website, Interactive Brokers operates as a broker/dealer in over 135 market destinations worldwide. The company has offices in the US, Switzerland, Canada, Hong Kong, the UK, Australia, Hungary, Russia, Japan, India, China, Luxembourg, Singapore, Ireland and Estonia. IBKR is regulated by the SEC, FINRA, NYSE, FCA and other regulatory bodies around the world.
Key aspects of opening an account at Interactive Brokers
Most aspects are intuitive for opening a private account (although a corporate account requires more paperwork and involves a more tedious process at first). The IB is very responsive if you have a problem. So here you will only see the critical steps or aspects that you need to pay attention to:
1. You can create your own account by starting an application by following this link and providing your email address and a made-up username;
2. Under regulatory information, check at least the following categories: “Equities”, “Bonds” and “Currency Conversion” in order to trade ETFs in different currencies.
3. For geographies, select only what you need or think you need at first: you can change later in your account setup.
4. For shares, also select the performance improvement programme: You should be able to rent your shares, as this is common practice in the industry, so you can sign up for this programme.
5. Secure Login System for mobile and TWS: This dual authentication system is important to ensure that your account is secure from external attackers. This improves the security of your account, which is welcome.
Key steps for your first transaction with Interactive Brokers
1. In order to invest in USD or a foreign currency, you will need to convert your home currency to USD in a very intuitive way by clicking on “Convert Currency” from EUR/CHF to USD. If you are using TWS, you have to be careful: you will have to set the parameter to FXCON instead of IDEALPRO, otherwise you will end up with a virtual speculative position that you cannot use to invest or transfer.
3. Next, look at the amount of cash you have available and decide how much to invest.
4. To do this, calculate the total number of shares you can afford by simply calculating the cash available / the price of a stock. You can then round down the amount.
5. Set the limit price (i.e. the maximum price you are willing to pay) and avoid the market price to avoid an unfavourable execution.
6. Set the validity period of your trade order. Choose a daily order that will be valid for one day only (until the stock market closes). If your order is not executed, you can revise your order or cancel it. If you set a limit close to the offer price, you should be filled and own the selected number of ETFs.
Reporting tools to track your investments
You should use the “Reports” (formerly “Statements”) feature of the Interactive Brokers client portal to track your holdings, value and dividends to see how you are doing and, most importantly, to complete your tax forms.
Under Reports, go to the ‘Activity’ section and under Activity, click on NAV.
For your tax return, you will need to retrieve the following information:
– The “Net Asset Value” shows you the summary information of your assets that you can report on your tax return;
– Dividends are the total of all dividends you have received during this period that you can report on your tax return;
– Withholding tax is the amount of withholding tax levied on your dividends that you can report on your tax return; you should check the amount per country as you can claim them when you report your assets to your tax authority;
This additional information will also be useful:
– Performance will show you by what percentage your portfolio has increased (or decreased) from your initial investment or the amount at the start of the comparison period.
– You will see the increase in the market value of your investment (such as an ETF) in the “Unrealised” column (unrealized gain means that it would give you a gain if you sold it). The “realised” profit or loss is the amount of profit or loss when you have sold a security.
Swiss tax return in 2022
For your 2021 tax return for your IB account:
– Go to declaration, activity (annual, 2021) :
– Then select Net Asset Value, Open Positions, Dividends and Withholding Tax.
– Then print the report for reference. If in doubt, select “expand all” a PDF, so that you can search for any information offline and use it for reference. However, for filling out your tax form, the responsive online version of your account is more convenient.
Swiss tax return in 2023
For your 2022 tax return for your IB account:
Go to Performance and Report,
=> Performance report
=> Statements
=> Activity period annual => download in PDF activity (annual, 2022) :
You can then retrieve the Net Asset Value, Open Positions, Dividends and Withholding Tax.
For more convenience on return, you can also retrieve the Dividend report under:
Go to Performance and Report,
=> Tax documents
=> Dividend report HTML
Advantages and disadvantages of Interactive Broker
Advantages:
- For non-US customers, there is wide accessibility (135 markets) as other good platforms often only accept US residents.
- Interactive Brokers’ parent company is publicly traded and is subject to oversight by several regulatory authorities (e.g. SEC, FINRA, FCA).
- Investor interest in mind: The only recent material changes in fees were in the interest of investors, such as the cancellation of fees for small accounts from July 2021.
- Do it yourself brokers popular on many financial blogs.
- Broad access to international products and markets
- Very competitive transaction fees: no account opening fees, no closing fees, no in-flow fees and no out-flow fees (unless you transfer more than once a month, which costs USD 10).
- Very competitive forex prices: Interactive Brokers uses the real time interbank exchange rate and adds a very reasonable and transparent charge.
Potential issues
- The platform is complicated and the different ways to access your account add to the complexity.
- The tools available are numerous and can be overwhelming. We like to use the application for information purposes but for trading we prefer the desktop application “Trader Workstation” or “TWS”) with its more advanced features. Moreover, investing should be a serious business: sitting in front of a desktop computer is more conducive to good trading than playing with an application on the coach (Robinhood investors in Gamestop shops may disagree). TWS is java based and generally provides excellent execution speed. You will avoid handling errors with the mobile due to fat fingers. In any case, you can choose the one that suits you best according to your taste.
Fees at IB
There are no custody fees or inactivity fees (abolished for small accounts in summer 2021), regardless of where you live or the size of your account.
Interactive Brokers offers two fee systems to apply the fees: Fixed fee and tiered fee:
- Fixed pricing is simple: Depending on the exchange you trade on, a percentage of the total transaction will be charged, with a minimum (and usually maximum) fee. This option is rarely the most attractive. IB charges a minimum of 1 USD of the transaction value. For other currencies, the fee may be higher (e.g. about EUR 3 or more in Swiss francs);
- The tiered system is more complicated: Depending on your region and exchange, IB will charge you a fee that includes a transaction fee, a clearing fee, a reporting fee (in some cases) and an exchange fee (usually fixed). Despite its complexity, the transaction fees are lower than in the fixed model. In any case, you will see the cost before you trade to avoid any surprises, with a minimum of USD 0.35 for example in case of USD transactions.
For both types of account, you will also pay a limited fee for currency exchange in USD (about USD 1 to 2) and a little more in EUR or other currencies for the purchase of ETFs not denominated in your home currency.
Three things to remember for future IB clients
If you are considering investing through Interactive Brokers and trust the company to trade ETFs profitably (see account opening), please remember the following key aspects:
- Under your account setup, you need to select Fee structure, then Setup: multi-level.
- Choose the “Stocks” and “Currency Conversion” categories in order to trade ETFs globally.
- Choose the “stocks” and “currency conversion” categories in order to trade ETFs worldwide.
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