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Save Thousands With Interactive Brokers


Okay. Maybe not thousands for everyone, but at least I will no longer have “hands in my pocket“. For the past 8 years, I’ve been paying the classic $29 per trade with one of the big banks. With a few trades here and there, the mountain of fees can easily add up to over $1,000. The more fees middlemen take, the less capital there is for future compounding. What’s a little retail investor to do?

Then came along a software-based online discount broker, Interactive Brokers. Technologies have enabled IB to run a lean and very mean operation, thus allowing them to pass on the savings to us. Each trade is only $1 for the first 100 shares, and $0.005 per share thereafter. There is a $10 per month minimum fee. However, if you’re a light trader, your annual transaction fees should amount to $120.

Although transaction fees are on everyone’s mind when choosing a discount broker, there are a couple of other less obvious culprits: the foreign exchange and margin interests.

If you want to convert your Canadian currency to purchase US securities, your broker will charge you a spread on the exchange rate. This rate varies by brokers. IB’s spread is 5 basis point, or 0.05%, while my big bank’s is 1.25%. That’s a difference of $120 when you convert $10,000 Cdn to US, each way!

IB’s margin rate calculation isn’t so straight-forward, and it depends on the balance of the margin loan and the prevailing Canadian LIBOR overnight rate. Let’s cut to the chase. For investors with margin loans less than $115,000, the current rate is 5.75%, while my big bank charges 7%. On a $10,000 margin, the difference is $125 per year. To find out more about IB’s margin rate, visit here.

Unfortunately, IB does not support mutual funds, but they do have ETFs. There have been many published studies citing that the vast majority of actively managed mutual funds under-performed their passive counterparts. Investors shouldn’t concern themselves with the lack of mutual funds support. Secondly, IB does not support RRSP. That’s why I’m keeping my non-registered account with the bank.

IB seems promising based on my research so far. I’ll write another post on this once I have a little more exprience with the platform.