Interactive Brokers - Experience, Learning,... but not yet dare to invest

Dear all (especially _MP^^)
I am still hesitation with IB since a lot of stuff is going on and presented to me that I do not (yet) understand. This is no the besst circumstances to start putting my money there! But maybe some of you mustachians knows.

First i open a paper account (practice account with fake money for trying out), and it appears like

Ok as MP pointd out in his blog entry, the UI is not the most appealing one, but anyways, we mustachians look for different stuff than “Klickibunti” :wink:
pretty much everything besides the top-left window “Order Entry” is not so interesting to me. so I go there and start looking fr the Vanguard all world ETF by typing "vanguard all world in the small search fiel at the very top left. then a window pops up:

here i am not sure what i need - i go back and enter the ISIN IE00B3RBWM25 into the same search bar. then the following window pos up:

now i guess this asks me for via which stock exchange i want to by. I wnat USD so the top 3 options are left. I understand the three options mean selectiong london stock exchange (LSE), another one or a “smart” way to chose from them. I have no Idea on the consequences and go for LSE, the third option.

I select BUY (not SELL), leave QTY with 100 (the amount of shares i want) and select MARKET because i want to buy now and not wait…

An Audio message updates me on the duccessful purchase and VWRD and it appears in the portfolio window in the middle right.

so I kind of get it, but i still need to get more comfortable and find out what these other options mean :slight_smile:

Hi Nugget,

I have never used Interactive Brokers.
However, it would be interesting to know from your experience what is the spread used by IB for forex conversion.
I tend to think that currency conversion is often the biggest hidden cost.
Brokers usually advertise their low commission fees but not forex conversion cost.

For instance, one of my former broker in France would have an advertised commission of 0.1% of transaction amount.
However, when buying stocks in another currency (let’s face it, we are a lot to buy stocks/ETFs in USD) they would apply a spread of 25bips (0.25%) or higher. This leads to way more costs than expected!

Ihave not looked into forex so far - to me it sounded the same “casino trading” like CFDs and other leveraged stuff. So technically, you say i should buy USD via forex and obtain the shares with these dollars?

No, not at all! Sorry if my message was not clear.

What i am saying is : a lot of us have a brokerage account whose currency is CHF.
But often we want to buy stocks quoting in a foreign currency (USD for instance).
So you pay in CHF and get US stocks, but the broker has applied a in-house conversion rate between USD and CHF.
How is this homemade conversion rate different from the official rate? The difference is called the spread. And it is usually higher that the commission fee.

Let’s take a simple example :
Your account is in CHF. You want to buy 100 stocks of company ABC, quoting currently at 100 USD.
The official currency rate between USD and CHF at purchase time is 1,05.
Le’s simplify and say that there is no commission fee. The total amount that you should pay is 1001001.05 = 10500 CHF.
But, when you look at what has been charged, you find out that you paid in fact 10’525 CHF! So the real rate applied was 1.0525 and the spread was 0.25%. This amount is an additional fee of 0.25% on your investment, much higher that the usual advertised commission of around 0.1%.
This is even more visible if you sell immediately! The price of the stock has not changed (it is still 100 USD), the official forex rate neither (it is still 1.05), but the applied in-house forex rate is now 1.05 minus the spread : 1.0475
So you sell 1001001.0475 = 10’475 CHF.
The spread on the forex cost you 0.5% between opening and closing a position.

I am not saying that we should directly buy currencies ( i have not dived deep yet in that direction), but I am saying that when choosing a broker, we should look closely to the forex spread when buying equities, because they are usually not advertised and much higher that the brokerage fees.

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Hi @Julianek,
thanks for your elaborate post, I think i got it.
let me guess, the the next concept is buying the ETF that is listed in USD in it’s CHF version, because iShares and Vanguard probably impose a smaller curency spread as the broker, right?
Then, next aspect: dividends will be distributed in USD rgardless, no? so I can “directly” reinvest them in the USD fund or convert and feed them to the CHF version of the fund?

Yes, I think, all things being equal it would be better to use an ETF quoting in CHF, because the institutional investors suffer much less fees.
I have never thought about currency conversion fees for dividend, but i think if the ETF is in CHF, it will pay dividends in CHF, so the conversion is made before the broker.

To illustrate what i am saying : Saxo Bank is a very bad example :
They advertise very reasonable transaction fees when you go on their stocks prices page :
http://ch.saxobank.com/prices/stocks/commissions
For USD, it is 0.02 CHF per share, which, if the stock is quoting between 50 and 100 USD, between 0.02% and 0.04%of commission. So far, so good!

BUT, if you read everything in their general conditions (around the bottom of the page, section “Currency conversion fee”):
http://ch.saxobank.com/prices/general/?int_cmpid=ch:prices:fx-options:default_general_1

You realize that the spread is 0.5% ! So without doing anything, only by buying assets quoting in USD, you lose 1% in fees! This is very different from the 0.02/0.04% advertised!

So, to come back to Interactive Brokers, I cannot find their fees for currency conversion as it is usually well hidden.
But, if they have a simulation tool, perhaps you can deduce the spread by looking at the official fx rate and looking at what you would have been charged.

wow, you nailed it!
totally important stuff to know.
The only thing i could find so far here is 0.2 base points comission for forex or in real time, but i will keep my eyes open.
@_MP, you are a known IB investor, do you know some details on the currency spreads?

Hi guys I can chime in with my experience with postfinance etrading (pre-swissquote collaboration) and cornertrader.

Dividend are usually distributed in USD. It is the case for the vanguard all-world etf that you can buy in chf on the six.
Then one of two things may happen:

  1. your deposit account has a USD account. You receive your dividend as USD and have to manually convert them to chf. In the past with postfinance this was outrageously expensive, 2% conversion spread. It was one of the reason I change away from postfinance e-trading.
  2. your broker as chf-only account, so he converts the USD automatically to chf. This is the corner trader approach. The exchange rate is published in your dividend statement and to my surprise he was practically the spot price. I didn’t actually calculate the real spread but is probably less then 0.1% last time I’ve checked. Fair enough to me. I will have to check again more thoroughly, what I did was using Google currentcy converter for the chf to USD and calculated the dividend back in USD with Google and it was the same amount up to the cent as the published USD dividend from vanguard.

So i played a little with currency conversion in the paper version of IB. have a look:

this is one random screenshot around 10pm. to me this looks like a spread of 0.00007, or 0.07%

i observed it a couple of minutes, it reached 0.16% when I looked once. I ordered 1000 (At that point I was actually not sure if i bought CHF from USD or vice versa…)

then, pressing the buy

then, doing the same with 100’000:

now, trading CHF 1000 and 100000 back and forth, starting with

after buying 1000 I end up with::

after selling 1000 I end up with

after buing 100’000, i end up with

and arter selling again, I end up with

so the back and forth of CHF 1000 did cost $4, and the the same with CHF 100’000 was $19. looks like 0.4% and 0.019% of 2-way spread including commissions of 2x $2, modulo a small change in exchange rate during the 2 minutes of the transactions. If this is the same fpr the real as for the paper account, why not?

here the log:

(I cancelled the Limit order)

what du you think?

HI Nugget, this is interesting to know.
Could you also do the following experience :
-Look at the current price of an USD asset (AAPL for instance)
-Look at the current official USD/CHF rate (on yahoo for instance)
We know that on a short enough timespan, these price should not move too much.
Then, simulate a buy of 100 AAPL.
Compare the charged price in CHF to Price of stocks * 100 units * official rate + commission
That would be also a good indicator of the spread used for buying stocks.

If I insist on that it is because brokers usually don´t use the same spread if you are trading specifically FX or buying stocks.
To retake the example of Saxo Bank, when you trade specifically FX, their spread is very low (less than 5bps, else it would be suicidal for their business), but when you buy foreign stocks they rip you off with their currency conversion fee (0,5%).

Basically if you trade full lots or multiples of them (i.e. 25K USD, 17K GBP) then you pay about $2, and the spreads are very tight as you have already seen (this can vary based on market conditions). If you trade odd lots, you will pay about $4, and the spreads are marginally wider, but even then this is still one of the cheapest ways to do FX transfers available to retail customers. The commissions come out of your $10 account minimum if it’s not already been hit with other trading costs.

For the latest information I suggest you check the IB web site - try googling “interactivebrokers fx fees”

Also this about odd lots: https://ibkb.interactivebrokers.com/node/1459

There is a lot of information on the IB web site. IB is by far the best retail broker out there (I do not work for them or have any affiliation - just a happy customer). My only gripe is they won’t allow non US residents to open an account protected by SIPC and instead force it to the UK subsidiary which is only covered under the FSCS.

One other point to note is that if you perform more than one withdrawal from your account per month, you will be charged about $10 per withdrawal (the first one per month is free).

This is the info currently on their page regarding FX pricing:

Forex - Pricing Structure

Our tight spreads and substantial liquidity are a result of combining quotation streams from 14 of the world’s largest foreign exchange dealers which constitute more than 70%1 of the market share in the global interbank market. This results in displayed quotes as small as 0.1 PIP. IB passes through the prices that it receives and charges a separate low commission. We do this in the interest of providing a transparent pricing structure instead of marking up our quotes and charging nothing in commissions as is the practice with many forex brokers. Tiers are based on the combined Monthly Trade Value of Forex CFD and Spot Forex trades

Monthly Trade Amount 2 Commissions Minimum per Order 2
USD <= 1,000,000,000 0.20 basis point 3 * Trade Value 4 USD 2.00
USD 1,000,000,001 - 2,000,000,000 0.15basis point 3 * Trade Value 4 USD 1.50
USD 2,000,000,001 - 5,000,000,000 0.10basis point 3 * Trade Value 4 USD 1.25
USD > 5,000,000,000 0.08basis point 3 * Trade Value 4 USD 1.00

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Thanks a lot, I had overlooked this little glitch but I believe this is only for cash deposits. Though it would be nice to confirm it.

@Julianek, I had to convert some 10k CHF to USD yesterday (the 28.12.2016 @ 20:07:16 CET to be precise and allow comparisons)
The wire transfer from Postfinance took 6 CHF out of the 10k CHF (-> 9994 CHF).
To convert CHF to USD you need to buy the currency pair USD.CHF or sell the CHF.USD (if it exists).
If your goal is to convert USD to CHF, you’re doing the opposite, sell USD.CHF or buy CHF.USD

CURRENCY1.CURRENCY2 as a currency pair means that you are buying/selling the CURRENCY1.
CURRENCY2 is used to pay or be paid on the transaction.

I then asked the trade to execute @ 1.02970 but got a 1.02964 rate as it was routed as an odd lot order (< 25k USD being converted). The commission was 2.06 USD.

Once the trade executed, the USD were available instantly on my account.

So here are some screenshots from Trader Workstation.



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One more data point. Yesterday I did a 30000.- transfer from PostFinance to Interactive Brokers. 10.- were taken out:

Does anyone have concrete experience with the fixed vs tiered fee model on IBKR?

Fixed gave me a 5$ minimum for trading ETFs in the worth of ~5k USD on LSE. Would tiered haven been better?

Also about my experience with IBKR: So far everything has been good. I contacted the Chat customer service multiple times with minor issues (to test them) and they were all friendly and always helped. You just need to wait 5-10 minutes to get a free agent, and in the evenings there aren’t any German speaking available.

Yes.
It’s about 0.3$ for trades on NYSE and 1-2 GBP/EUR/CHF for trades on LSE/XETRA/SIX.

Is there any case where the fixed is better? I can’t imagine any situation… unless some exchanges randomly put on high fees sometimes?

I agree with 0.3$ on NYSE, but for me the others are a bit more expensive:

  • SIX: 3.88+ CHF (around 0.1% for bigger amounts)
  • AEX: 3.09+ EUR (around 0.09% for bigger amounts)

Still cheaper than the fixed or most (all?) other brokers

I realize the reply comes very late but maybe it helps some one:

The main difference is that flat rate has a higher minimum per order and charges per trade value (USD,CHF,etc.) while tiered has a lower minimum per order but charges per number of shares being traded (not the value of the order) plus some other factors which are hard to understand. Also tiered model still has a maximum of 1% of trade value.

My understanding is that flat would be better than tiered when you are buying tons of cheap stocks. Example: you are investing 20k USD on a stock which is only a few cents per share. Then:

  1. With the flat rate the 20k will cost 20,000 * 0.1% = 20 USD. The minimum would have been 10 USD so investing 20k, the minimum makes no difference. If you were investing less than 10k you would be paying 10 USD anyway.

  2. Now with tiered, the same investment of 20k will depend on the price of the shares. As mentioned above, if the shares would be really cheap it means you could be buying a lot of shares. For example: let’s say the shares were only 2 cents and you are investing 20k. This means you are trading 1 million shares.
    The cost will then be: 0.002 per share plus the additional factors but let’s ignore them for now. 0.002*1,000,000 = 2000, so this would end up costing 2k :scream:.

The exact values might not be 100% correct but I hope this gives an idea of when flat could be better although I think tiered would most of the time be better for us in this forum :slight_smile:

Cheers,

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