IBKR - Interactive Brokers

[Jurgis]

Honestly I'm wondering what is so bad about the interface, because this is a relatively common complaint from others. The only thing I found annoying about IB is the security card thing, which is a pain to have to look up / enter everytime I log in. Otherwise, things may not be as colorful as other brokers, but functionally I haven't had any real issues. And regardless of anything, bought 75 shares this morning for a grand total commission of $0.25, so screw the interface  :D

 

Maybe I am looking at wrong places. This is based on their web browser interface:

- Seeing the trade history requires contortions to generate a report instead of just clicking a single button. Even then the report is almost incomprehensible.

- Going between positions and lots requires contortions.

- Exporting trades to Quicken is the same.

- Do they even support TurboTax online version? Will I have to type in all trades at tax time?

 

I'd mention more but I try to avoid going to IB as much as I can, so I'm sure I forgot some other atrocities.

 

Perhaps I should say that this is adviser managed account. I assume the interface is the same as with regular IB account, but perhaps not.

[Jurgis]

I am probably the company's target user.  But after using their demo for a few days I decided it wasn't worth the time to learn the UI.  I'm satisfied with Fidelity and have no desire to learn some warped system.  I want to switch and IB offers a lot of features I want.  But the UI holds me back.  It's like handing someone an iPhone with a rotary dial attached.  Why limit yourself like that?

 

Great post Oddball. +1 all the way.

[Jurgis]

I think the big things for IB over Fido are real easy to quantify:

1) If you trade internationally (online, not by phone)

2) If you short

3) If you borrow on margin

4) If you trade options

5) If you trade futures

6) If you trade foreign exchange

7) If you are an RIA / HF

 

Out of these, I only use 1. And Fido has it somewhat covered (not all markets, expensive commissions, no IRA support). I'd love if Fido lowered commissions on international trades and offered them in IRA, but I guess I have to keep pushing them, threatening that I will leave for IB.  :P

 

Edit: I wonder how IB handled TESB.BE rights release. I had to talk to couple Fido reps to get this through. I might have jumped the gun by calling them before things were settled. This may have worked better or much worse in IB. :)

 

Anyway, the branch and live person support is a great perk to have sometimes.

[benhacker]

Oh, Writser, to your question. :)

 

"Again, I would be quite interested in hearing anyone's opinion on a IBKR / ETFC pair trade. Seems like a decent idea at first glance."

 

The problem for me with this pair trade is that it's pretty dirty.  I think you have a lot of basis risk because IB succeeds and fails in different ways than other brokers.  Long term, I think it's an interesting bet, and both should have similar macro themes which they will correlate with (say, rising rates are good for both), but for example if we have a retail driven stock bubble, I would think ETFC would do well, and IB, maybe just ok...  The most difficult part of this kind of pair trade is that I think ETFC / SCWH etc are in good businesses, so if all goes well, IBKR goes up 12-15%, and ETFC goes up 6-10%... basically, the gross size of this position will start to suck regardless eventually, right?  But maybe you just reduce the position in the next down market? (just talking about loud).

 

But, I do hear you on wanting to participate in the goodness of IBKR, but not knowing how / wanting to swallow the valuation.  I've owned for a long time, and the position is too big, and I have begun paring it back.  I don't have a good answer, but I still like the company, and think they have a clear competitive advantage that will lead to high incremental ROIC, so I don't want to lighten up too much due to valuation alone.

 

The other thing about IB alluded to above, which is nearly completely left out of this discussion is that their story in the US is IMO quite amazing, but it looks like a sick dog compared to the story they have in the rest of the world.  In Asia and Europe, IB is like SCHW was in the US in 1992... it's just comical to see the "competition" they are up against.  Eventually, the world will get more in gear like Fidelity, but Fidelity in the US vs. Fidelity for a resident of Spain is a totally different bag (just as an example); I think IB has a huge runway.

 

I think this also addresses (kind of?) the note above by KC about how big IBKR can get, and comparing to SCHW... SCHW is primarily US domiciled investors only (last I checked), I think IB's runway overseas makes the comparison not as directly relevant.

[Jurgis]

with $1m+ you are a fool if you park the majority of your assets at a different broker.

 

Let's not start hurling insults

[benhacker]

One last thing, a few have noted that for certain transactions (high share count buys/sells) a fixed commission is better... well IB has a solution for that as well.  You can set accounts up to be able to trade awat at a different broker (this is an institutional, fund only service now I think), so you transact penny stocks or high volume blocks at ETFC, and then just bring them back to IB as your Prime broker.

 

A great thing for IB as they get to let you take advantage of other broker's loss leader pricing, and it's seamless to you. :)

 

Ok, enough from me today ...

[Packer16]

Fido offers the only international Roth IRA platform I could find.  In addition it has markets IB does not like S. Korea.  I think you cannot hold foreign currency in an IRA so the FX fees are required no matter what.

 

Packer

[philly value]

On valuation, depending on your assumptions about how to treat the market making business and corporate overhead, if you assume $600M after-tax 2015 net income from the brokerage business I get it trading at a low-20s forward multiple of brokerage net income. The stock is up more than 40% over the past 6 months, which never feels good, but the valuation still does not seem that expensive for a business with the growth trajectory, runway, and competitive advantages.

[benhacker]

Packer,

 

it's true that certain markets IB doesn't support (yet), but their IRAs are fully international, and I can (and have) held currency other than USD in them.

[Jurgis]

Fido offers the only international Roth IRA platform I could find.  In addition it has markets IB does not like S. Korea.  I think you cannot hold foreign currency in an IRA so the FX fees are required no matter what.

 

Packer

 

Yeah, I think you mentioned this before. I have talked with Fido reps couple of times and they always say that you cannot do international trades in IRAs... I guess I just don't feel the need for it enough to push them to acknowledge that it's possible. I'd hate to call for trades anyway and they don't support online IRA international trades I believe (I think you said it too).

[writser]

Benhacker: thanks for your considerations. More or less matches with my own thoughts - I haven't pulled the trigger despite my religious zeal for their brokerage accounts.

 

with $1m+ you are a fool if you park the majority of your assets at a different broker.

 

Let's not start hurling insults

 

I only insulted millionaires. They should be able to withstand some criticism from a random troll. I still stand by my statement but to please you I will make two exceptions: you are not a fool if 1) you are not in the slightest bit tech-savvy or 2) you understand that IB is much cheaper but you invest the majority of your assets in markets they do not offer. The third argument, which is: "I understand it is cheaper but I don't like the interface" is just nonsense if you have a 7-digit account. Spend one day getting used to it and you save a ~$1000 / year or more.

 

Though granted, people also like to pay 1%+ p.a. for the 'right' to invest in an arbitrary horrible mutual fund so perhaps this isn't the largest investment sin possible!

[KCLarkin]

On valuation, depending on your assumptions about how to treat the market making business and corporate overhead, if you assume $600M after-tax 2015 net income from the brokerage business I get it trading at a low-20s forward multiple of brokerage net income. The stock is up more than 40% over the past 6 months, which never feels good, but the valuation still does not seem that expensive for a business with the growth trajectory, runway, and competitive advantages.

 

My estimate for the brokerage business is 22.6x 2015E. I value MM at book. Expensive but not so outrageous that I would feel the need to hedge with a pair trade.

[Packer16]

Packer,

 

it's true that certain markets IB doesn't support (yet), but their IRAs are fully international, and I can (and have) held currency other than USD in them.

 

Unless I am reading something wrong on the IB site - "IRA accounts may be opened in any base currency, but when trading in a non-base currency product a currency trade must be executed first as you cannot borrow currencies."

 

Packer

[leeway]

I for one likes IB more and more as I started to use it more in the last 1.5 years. I hated the interface initially, but as I am getting more used to it, it starts to make more sense. I think the basic idea is similar to Reuters screens that are used widely on wall street. Maybe just by chance my IB account has performed much better than my TD and Fido accounts, so I have been shifting money over to IB from other accounts (ie doing more that has been working).

[benhacker]

Packer, yes, you are confused as the wording you are reading.

 

What IB is saying could be rewritten as this:

 

***You can't borrow foreign currencies.***

 

If you have $100k USD in an IRA, and you want to buy XYZ on the Spanish exchange, XYZ trades in Euro, so you can't buy it without Euro.  So at IB (in an IRA) it's two steps, you "buy" Euro vs. USD, and then you buy XYZ (with the Euros).

 

In a taxable account, IB allows margin, so they can combine the forex / XYZ purchase into an attached order (they can, it's not the default) where the buy / borrow happen simultaneously.  I think the reason they can't attach the forex order in an IRA is that there is no guarantee on pricing since forex and equity moves could theoretically gap between purchases... because IB is not acting as a forex dealer (like Fidelity is... charging 1%), they are just executing forex at the best bid/ask on the OTC market, they can't "guarantee" that a simultaneous dual trade like this would be limited to a specific value.  (This is probably why Fido just says "they can't do this in an IRA" which is total BS, it's just that they can't guarantee you won't use margin if you executed badly in a volatile market... I wonder if Fido let's you trade overseas if your taxable account isn't a margin account?  Anybody know?)

 

Does that make sense?

 

Thanks,

[thepupil]

Packer,

 

it's true that certain markets IB doesn't support (yet), but their IRAs are fully international, and I can (and have) held currency other than USD in them.

 

Unless I am reading something wrong on the IB site - "IRA accounts may be opened in any base currency, but when trading in a non-base currency product a currency trade must be executed first as you cannot borrow currencies."

 

Packer

 

All that means is that you have to execute the currency trade first before buying the stock. You can hold currencies in the IRA; you just can't hedge out the currency by being short it.

 

In my taxable account at IB, if I buy a foreign stock, with one click it basically shorts out the currency and buys the stock. It executes the currency trade using a normal bid-ask spread which for most currencies is measured in pips; they don't not rape you by charging you 1% like Fido. In an IRA you just have to swap into currency first and then you buy the stock with that currency. You wear the currency risk (unless you do what I do and short the corresponding amount of currency in the taxable account).

 

My dad has Fido. I have IB. On the same trade we did recently, he underperformed by several percentage points since he had to got jammed by Fido's currency bid offer through which you can fit a double wide. The difference amounted to about $2K. That's a lot of monthly minimums.

[Jurgis]

"I understand it is cheaper but I don't like the interface" is just nonsense if you have a 7-digit account. Spend one day getting used to it and you save a ~$1000 / year or more.

 

This is not true. Productivity loss may cost more than savings. You also just picked $1000 number out of thin air.

 

Peace

[oddballstocks]

Packer, yes, you are confused as the wording you are reading.

 

What IB is saying could be rewritten as this:

 

***You can't borrow foreign currencies.***

 

If you have $100k USD in an IRA, and you want to buy XYZ on the Spanish exchange, XYZ trades in Euro, so you can't buy it without Euro.  So at IB (in an IRA) it's two steps, you "buy" Euro vs. USD, and then you buy XYZ (with the Euros).

 

In a taxable account, IB allows margin, so they can combine the forex / XYZ purchase into an attached order (they can, it's not the default) where the buy / borrow happen simultaneously.  I think the reason they can't attach the forex order in an IRA is that there is no guarantee on pricing since forex and equity moves could theoretically gap between purchases... because IB is not acting as a forex dealer (like Fidelity is... charging 1%), they are just executing forex at the best bid/ask on the OTC market, they can't "guarantee" that a simultaneous dual trade like this would be limited to a specific value.  (This is probably why Fido just says "they can't do this in an IRA" which is total BS, it's just that they can't guarantee you won't use margin if you executed badly in a volatile market... I wonder if Fido let's you trade overseas if your taxable account isn't a margin account?  Anybody know?)

 

Does that make sense?

 

Thanks,

 

I don't have margin and purchase foreign stocks at Fidelity.  I have also purchased foreign stocks in a Roth at Fidelity.  I had to call to execute the order but it worked out fine.  Broker executed orders cost more but if you call they can execute almost anything on the phone.  I was told I could trade anywhere in the world except Africa (South Africa excluded) through the phone.  They first look for a US market maker with the foreign stock then go directly to the foreign market makers.  At one point I called about a Danish stock in the morning, maybe 8am.  While I was on the call they pulled the ask from the Danish market maker directly.  They gave me a good quote although I ultimately never executed.

 

Fidelity claims they can't execute foreign trades on a foreign exchange for amounts less than $50k, but that's not true.  They will execute orders for $5k or less if you ask.  The $50k is some boilerplate language they must need to read to clients on the phone.

 

Simply calling the international desk on a few occasions has been very instructional.  I get the feeling these guys are bored.  They'll do a lot of digging for you if asked.  At one point I called about a stock and mentioned that IB could do the trade and the broker was doing backflips to keep me happy.

 

This is anecdotal but when Fidelity came out with their international platform they had a limited market offering.  I kept emailing them with additional markets I wanted to see supported and in v2.0 of their international offering everything I had requested was available.  I don't know if this is coincidence or not, just an anecdotal story.

 

Compared to Europeans I think we have it great on commissions!

[Jurgis]

I wonder if Fido let's you trade overseas if your taxable account isn't a margin account?  Anybody know?

 

Yes, they do.

[benhacker]

Thanks for the additional color on Fido!

[Liberty]

http://alphavulture.com/2015/03/27/interactive-brokers-as-a-garp-investment/

[merkhet]

I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

 

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

[frommi]

I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

 

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

 

He probably added the day in january when the swiss central bank depegged CHF from the €. That was at 30% lower prices and at the moment the business is growing faster than 10%.

[merkhet]

I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

 

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

 

He probably added the day in january when the swiss central bank depegged CHF from the €. That was at 30% lower prices and at the moment the business is growing faster than 10%.

 

Ah, that would make sense.

 

As far as I can tell, the account adds are increasing greater than 10% but the revenue is not necessarily growing at greater than 10% -- but I could be wrong...

[kab60]

I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

 

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

 

He probably added the day in january when the swiss central bank depegged CHF from the €. That was at 30% lower prices and at the moment the business is growing faster than 10%.

But he initiated his position before that - in Q4. Where it wasn't "cheap" either. I've been wondering what he sees as well.