Step by Step Tutorials on Interactive Brokers Account Opening with Offer Link, and Platform Overview

Overview of Interactive Brokers (IBKR)

Interactive Brokers, Nasdaq ticker symbol IBKR, is a global online broker which offers their customers investment and trading services. Today, we would like to share with you every aspects of IBKR, including its review, the story of its founder, its advantages, how to open an IBKR account, fund your account, and start trading or investing. We would also share with you mistakes to avoid with IBKR and frequently asked questions.

My Personal Review on Interactive Brokers

As a value investor, I’ve opened my Interactive Brokers account since 2021. The main reason why I chose IBKR is because I want to invest in common stocks globally, especially US stocks. Actually, I switched from TD Ameritrade to IBKR because I couldn’t buy stocks traded at the Hong Kong Stock Exchange with a TD Ameritrade brokerage account. IBKR is more friendly in terms of investing stocks from many countries like the United States, Hong Kong, Japan, and Taiwan, and more, in one single IBKR account.

Overall, I’m very happy with a large portion of my net worth in IBKR, where I feel safe and secure. In the future, I’m very sure I’ll keep buying good cheap stocks and hold them for a long period of time with IBKR, while I practice the good habit of spending less than I earn every year. And I believe prioritizing investing over consumption is important. And remember, price is what you paid, value is what you get.

Another thing I like and use a lot with IBKR is the function of buying fractional shares. This function empowers me to invest in higher price stocks with my relatively smaller funds.

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About the Founder Thomas Peterffy

Thomas Peterffy, a billionaire businessman of Hungarian descent, is the creator, chairperson, and primary shareholder of Interactive Brokers.

Peterffy owns his IBKR stake through IBG Holdings, which controls about three-quarters of the company.

Thomas Peterffy was born in 1944 and raised in Europe, in Budapest, and he is 80 years old now. He actually started with nothing and started from scratch. It’s his passions in computer programming and trading which leads his wealth-generating career. He enjoys the process of building his company and is willing to work as long as he can.

After moving to the United States in his twenties, he initially worked as an architectural draftsman before transitioning into computer programming.

IBKR for Long-term Value Investors

For long-term value investors like me, we don’t trade day in and day out. We buy and hold good cheap stocks for years. We view stocks as real businesses. I only buy stocks less than 10 times a year with a concentrated portfolio. That’s what IBKR Lite is for. With IBKR Lite, you don’t need to pay commissions when trading US-listed stocks and ETFs, even with no minimum account requirements or inactivity fees. However, IBKR Lite is only for US retail investors, including financial advisors trading on behalf of their retail clients.

Actually, Interactive Brokers launched the Lite version in 2019. It can be seen as a strategy to compete with other free-commissions brokers. It’s a smart way to segregate different types of customers. For long-term value investors, they prefer to choose the Lite version because they value the low transactions costs which in turn can boost their returns. On the other hand, short-term traders will opt for the Pro version because they got advantages like fast speed execution, and lower cost with leverage to boost their trading performance.

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IBKR for Short-term Traders

IBKR is a platform built by traders and programmers with respect to the fact that the founder Peterffy was an options trader and market maker even before he founded Interactive Brokers.

Short-term traders’ goal is to capitalize on the volatility or price anomalies to make a profit. So they will prefer to choose the Pro account type with benefits like enhanced price execution with low costs, lower rates on margin loans, and higher interest paid on idle cash.

It means that traders with Pro accounts can buy at a lower price and sell at a higher price when the stock prices is moving fast. It’s also good to day traders because they have an advantage with fast-speed execution.

And for traders with high-risk appetites, they can achieve higher returns with a Margin account by buying or short-selling stocks on margins, or trading options as a delta, gamma or hedging strategy. However, no matter what kind of strategy you’re using, we recommend applying mostly limit orders rather than market orders. Because when the market is very volatile, market makers tend to widen the bid-ask spread and your matching price may be very bad, especially when trading with options.

One thing to note is that when day trading with IBKR, although you will be charged commissions on your trades, you get better prices and smaller spreads, which means that the bids and asks is narrower.

Imagine that you trade with a free-commission broker but you’re usually buying at a higher price and selling at a lower price. This way you’re actually paying more hidden commissions through wider spreads!

So transparency in the commissions is not a bad thing in some respects as long as you get the best execution prices.

With respect to Contract for Difference, IBKR has over 8,500 Share CFDs available to trade globally, forex pair CFD, index or metal CFDs as well. CFDs is basically like futures contracts with leverage qualities and margin requirements. Since CFD is for traders with higher risk appetite, money management is important, or you may be easily forced to close your positions by your broker.

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Does Interactive Brokers support Meta Trader 5 (MT5)?

Interactive Brokers doesn’t offer direct trading on MT5 because it provides its own trading platform, Trader Workstation (TWS). However, you can still use MT5 with Interactive Brokers, but it involves additional steps on your part. For traders who want to use MT5 with their Interactive Brokers account, follow the instructions in this link.

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Top 6 Advantages of IBKR

Advantage 1 The Biggest Online Broker in the World

Interactive Brokers LLC holds the title of the largest brokerage firm in the United States and has consistently earned the top spot as the leading online broker in the US, according to Barron’s rankings, for a remarkable 10 years in a row. Other competitors include Fidelity, Charles Schwab, and E-trade. E-trade is merged by Morgan Stanley in 2020.

Interactive Brokers is also listed on the NASDAQ stock exchange as the ticker symbol IBKR with a market cap of 50 billions. IBKR’s stock price is currently at an all-time high of 122.1, as of May 16, 2024.

Established in 1978, Interactive Brokers has a good reputation and is regulated by the Securities and Exchange Commission and Financial Industry Regulatory Authority.

IBKR on NASD Brokercheck

National Association of Securities Dealers (NASD) BrokerCheck is a FINRA (Financial Industry Regulatory Authority) tool that allows you to research the background of brokerage firms and investment professionals like stockbrokers. It provides information on their licenses, registrations, any disciplinary actions, and customer complaints.

As we can see in the Brokercheck with respect to IBKR, there have been reported 72 regulatory events and 21 arbitrations.

For instance, for the most recent regulatory event, IBKR was fined 475,000 US dollars on April 25, 2024, as a result of the fact that the firm incorrectly processed five corporate actions due to a combination of system and supervisory deficiencies, in violation of NASDAQ rule.

So, if Interactive Brokers does something wrong, regulators will punish them and all the records will be transparent on the internet, which is good for its clients and investors.

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Financial Statement Analysis of IBKR

Since we will put money into IBKR, why don’t we take a look at IBKR’s financial statement to see if they have a strong financial condition?

First, we look at IBKR’s quarterly sales. Its revenue mainly comes from interest income, which is the interest charged when customers trade with leverage. And the second largest source of revenue is commissions charged to customers who buy and sell securities. We can see in the graph that obviously the quarterly revenue has been trending up steadily since 2010. In the most recent quarter, the first quarter of 2024, its sales hit a record high of 1.2 billion US dollars, which is astounding.

One reason why Interactive Brokers can achieve such incredible performance is that its client counts surpassed 2.5 million users in 2023. And during the first quarter of 2024, Interactive Brokers acquired 184,000 new accounts, marking the second-highest figure since the meme stock surge in the first quarter of 2021. This quarterly addition is twice the number of accounts we acquired throughout the entirety of 2019. These new accounts brought in more cash, contributing to the growth of its client credit balances, which reached a record $104.9 billion US dollars. Additionally, our client equity surged by 36% to $466 billion, indicating that they are nearing the milestone of managing half a trillion dollars in client assets.

Second, we look at the quarterly operating income over time. It is the number of Interactive Brokers’ revenue minus all related operating costs including employee compensation and benefits, clearing fees, administrative expenses, etc. The operating income hit a record high of 0.8 billion US dollars in the first quarter of 2024, which is remarkable.

Third, we look at IB’s equity lever at the end of each quarter. Their equity also hits an all-time high of 14.6 billion US dollars at the end of March this year. The company’s net worth keeps going up, as they earn more than they spend each quarter.

In conclusion, with Interactive Brokers’ exceptionally strong financial position, I feel very safe to put my money in this broker.

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Advantage 2 Low Fees, Low Margin Rates and High Cash Yield on Idle Cash

Interactive Brokers Has Lower Margin Rates Compared to Other Brokers

With Interactive Brokers, clients can borrow at the lowest rates from a single integrated account compared to other brokers like Fidelity, Schwab, First Securities, etc.

In short, margin financing refers to borrowing money from a brokerage to buy stocks. If an investor has a high risk appetite, using margin can enhance investment performance, but it also comes with higher risks. Investors need to pay attention to requirements such as maintenance margin and margin calls.

As of February 2, 2024, users can borrow USD against their account holdings at an annual rate between 5.83% to 6.83%, even lower than credit cards, personal loans and home equity lines of credit. Traders will have higher borrowing costs starting from 13% from other brokers.

Why would someone want to borrow securities?

Traders who believe they can predict market declines engage in this practice, known as “short selling.” Essentially, a “short” position involves borrowing shares from a stock lending service and paying a borrowing rate for the duration of the short position.

Borrowers can use the borrowed securities to establish a short position. In short selling, they sell the borrowed security hoping to buy it back later at a lower price and return it to the lender. They profit if the price goes down. This is a risky strategy, but potentially profitable.

In short, with Interactive Brokers, you have an edge to open an either long or short positions with low-cost leverage.

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About the Fees You Have to Pay When Trading Stocks on IBKR, Fixed Pricing or Tiered Pricing?

Interactive Brokers (IB) offers two distinct pricing structures, unlike many other brokers:

• Fixed pricing
• Tiered pricing

There’s often confusion about which one to choose, so let’s delve into a detailed comparison!

Fixed pricing is straightforward and easy to understand: you pay a fixed percentage fee with a minimum and maximum cap. This model is standard across most brokers.

On the other hand, tiered pricing consists of several sub-fees:

• Regulatory fees (only when selling)
• Exchange fees
• Clearing fees
• Pass Through fees

Some of these fees are per share, some are flat, and others are based on the total value.

Additionally, tiered pricing varies significantly between exchanges.

The key difference between the two models is that fixed pricing is simple and predictable, while tiered pricing is complex and varies greatly between exchanges.

It’s worth noting that when you switch pricing methods, it typically takes one day for the change to take effect.

Ultimately, the cost per transaction is crucial to every investor. Therefore, we will compare Fixed and Tiered pricing schemes for US stocks since the United States hosts some of the greatest companies in the world.

Another thing to note is that you only pay the regulatory fees when you sell. But you have to pay the regulatory fees no matter if you are in the Fixed or Tiered pricing schemes or Lite account.

Buying US Stocks (Remove Liquidity) – Fixed vs Tiered Pricing

Let’s examine the fee difference between Fixed pricing and Tiered pricing when buying US stocks and removing liquidity.

First, we have to understand the concept of liquidity.

Interestingly, US exchanges charges commissions per share. Assuming we buy a stock with a share price of 100 US dollars each, purchasing $1000 worth of shares would mean acquiring ten shares.

What’s also intriguing is the variation in fees between buying and selling. Let’s start with the buying fees.

Under the fixed pricing model, the fee is 0.005 USD per share, with a minimum fee of 1 USD and a maximum fee of 1% of the trade value.

For tiered pricing, the commissions fee is 0.0035 USD per share, with a minimum fee of 0.35 USD and a maximum fee of 1% of the trade value. Additionally, there’s a clearing fee of 0.0002 USD per share, an exchange fee of 0.003 USD per share, and two pass-through fees, including NYSE pass-through fees of commissions times 0.000175 and FINRA pass-through fees of commissions times 0.00056. The FINRA pass-through fee has a maximum of 8.30 USD per trade.

Summing it up, the graph shows the fees for buying US stocks when removing liquidity.

As you can see in the graph, the fee is cheaper under Tiered pricing for smaller trade value under 10,000 US dollars. On the other hand, the fee is cheaper under Fixed pricing for larger trade value above 50,000 US dollars.

You can see the calculations of commissions in this Google Sheet document.

Selling US Stocks (Remove Liquidity) – Fixed vs Tiered Pricing

For sale operations, there are two additional regulatory fees:

• First, the SEC Transaction Fee of USD 0.000008 times the Value of Aggregate Sales
• Second, the FINRA Trading Activity Fee of USD 0.000166 per share, with a maximum of 8.3 USD

For value investors like me, we tend to buy stocks and businesses rather than sell. It’s like we are net buyers of food over time. That’s good because we pay less regulatory fees.

Another thing to be aware of is that you still have to pay the regulatory fees with an IBKR Lite account when you sell.

Similarly, when you sell and remove liquidity, tiered pricing is still cheaper on a smaller transaction and fixed pricing is cheaper on a bigger transaction. Specifically, if, on average, you have sell transactions of less than 50,000 US dollars, you choose tiered pricing. On the other hand, if you’re kind of rich and generally have a selling transaction of above 50,000 US dollars, you choose fixed pricing.

Buying US Stocks (Add Liquidity) – Fixed vs Tiered Pricing

It’s a totally different story when you add liquidity to the market because exchanges give you rebates. The exchanges pay you some cash when you make other buyers easier to buy and other sellers easier to sell.

Under fixed pricing, the fees you pay is the same between adding or removing liquidity because there is no exchange fees under fixed pricing, thus no rebates incurred with exchange fees.

Under tiered pricing, you save much when adding liquidity. For instance, when you buy 100,000 US dollars of stocks, if you are in a rush and buy on the ask, you have to pay a fee of 6.7 US dollars. If you can be patient and place a limit buy order on the bid, you only have to pay a fee of 1.6 US dollars when your order is being filled by another rich trader who is eager to sell.

So, as you can see in the graph, when you buy US stocks and add liquidity, it’s always cheaper under tiered pricing compared to fixed pricing, no matter how big or small your trade value is. That’s mainly due to the rebates you get when you add liquidity to the market.

Selling US Stocks (Add Liquidity) – Fixed vs Tiered Pricing

Next, we compare the fees you have to pay between fixed pricing and tiered pricing when you sell and add liquidity. Similarly, it’s always cheaper for tiered pricing under all ranges of trade value if you can be patient and place your sell limit order on the ask.

As a result, if on average, your trade value is less than 10,000 US dollars, I’ll suggest you to switch tiered pricing for cost optimization. One thing to note is that IBKR sets its default to fixed pricing. So we’re going to tell how to switch to tiered pricing from fixed pricing.

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How to Switch to Tiered Pricing from Fixed Pricing

First, we log in to the IBKR web portal, and click the User menu, which is the head and shoulders icon in the top right corner.

Next, click Settings.

Scroll down to find the “IBKR Pricing Plan” under Account Configuration.

The default is fixed pricing, we switch to tiered pricing. And click continue.

Success! It may take one business day for the change to take effect.

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Interactive Brokers Market Data Subscriptions/Fees

As a value investor, I don’t pay these market data fees. When I buy stocks a few times a year, I use Webull to check real-time stock quotes, which is free and enjoyable.

Once before I bought stocks, I mistakenly clicked a button called “snapshot” which cost me 0.01 USD. I don’t want to pay that fee either. It just shows me a one-time real-time quote. In Taiwan, it’s free to have real-time quotes like the 5 best bids and offers, and transaction details including the time, bid, ask, matching price, and quantity.

If you want to trade actively, there is one thing to know first. There is a minimum equity requirement for the market data subscription, which is 500 US dollars or non-USD equivalent. Another thing to be aware of is that you should set your “Market Data Subscriber Status” to “Non-Professional”, as “Professional” is for advisors who manage other people’s money. “Professional” advisors have a higher cost of market data. For instance, the “US Equity and Options Add-On Streaming Bundle” for “Professional” costs 125 US dollars per month, which is pretty high. However, for retailer traders, the “Non-Professionals”, it only costs 4.5 US dollars per month for the same bundle.

if you want the streaming from Interactive Brokers, in my opinion, it is best to just get the “US Equity and Options Add-On Streaming Bundle” because it includes all three exchanges, the New York Stock Exchange, NASDAQ, AMEX, and options exchange OPRA. It’s 4.5 US dollars a month. But the catch is that, in order to get this you need to subscribe to the “US Securities Snapshot and Futures Value Bundle”, which is ten dollars a month but the $10 gets waived off when you do more than thirty dollars in commissions which is not hard to do.

So, if you’re trading US stocks actively and you want your live streaming data from Interactive Brokers for all three exchanges, then you probably want the “US Equity and Options Add-On Streaming Bundle”. That’s probably what you want.

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What is the Stock Yield Enhancement Program?

The Stock Yield Enhancement Program offered by Interactive Brokers is a feature designed to boost the returns on your securities holdings.

Here’s how it works in simple terms:

1. You own shares.
2. You allow IBKR to lend these shares to other traders who are willing to pay interest for them.
3. IBKR pays you 50% of the interest they earn.

About the Pros and Cons of the Stock Yield Enhancement Program

The Stock Yield Enhancement Program allows you to generate extra income from your fully paid shares. By loaning your shares to IBKR and receiving cash collateral, other traders can short-sell them. And you can earn interest. You can choose to opt out of the program and sell your shares whenever you want, without needing to be concerned about potential risks, as IBKR assumes all the risks if the shares are not returned because your loan is to IBKR.

From experience, the interest earned from lending stocks is determined by market demand and supply. If more traders want to short-sell one stock, the interest you can earn is higher, such as high volatility stocks or meme stocks.

On the other side, if a stock is easy to borrow to short-sell, the owners of these stocks earn low interest, such as low volatility index ETFs.

Is there a catch or risk involved in the Stock Yield Enhancement Program?

While it may sound too good to be true, there are risks associated with this program, as IBKR is transparent about.

The primary risk is that the borrower of your shares may not return them for various reasons. It’s important to note that the SIPC (Securities Investor Protection Corporation), which guarantees the stock portfolio of each investor via an American broker up to 500k USD, does not cover potential losses related to stock loans via the IBKR program. This means that this risk is real.

However, the SEC (U.S. Securities and Exchange Commission) requires Interactive Brokers to have a backup plan if a borrower fails to return the shares. IBKR’s plan is straightforward: for every loan of a certain amount of stock, IBKR matches it with the same amount in cash or U.S. government bonds. This ensures that if you lend, for example, 100 US dollars through this program, IBKR must have 100 US dollars in cash or US bonds in case the borrower defaults, guaranteeing that you will get your money back.

Another risk to consider is if Interactive Brokers were to go bankrupt, they might not be able to repay you for the shares you’ve lent but not been returned. This risk is also significant.

To mitigate this risk, it’s advisable to analyze IBKR’s financial health and its risk of bankruptcy.

Interactive Brokers’ Financial Stability

While I’m not an expert in due diligence, several factors contribute to my confidence in IBKR’s financial health, beyond just its yield enhancement program:

• 1. IBKR holds US$10.4 billion more than the regulatory requirements.
• 2. 75.5% of the Interactive Brokers group is owned by its employees, indicating a strong internal commitment to the company’s success.
• 3. Thomas Peterffy, the founder, remains the chairman of the board and the largest shareholder, aligning his interests with the company’s long-term success.
• 4. IBKR has built a strong reputation since its inception in 1977.

Given these factors, I’ve decided to trust IBKR and plan to test their stock yield enhancement program with large proportion of my personal wealth.

Requirements of the Stock Yield Enhancement Program

Cash accounts with equity over 50,000 US dollars at the time of application are eligible for the Stock Yield Enhancement Program. IRA accounts are also eligible to enroll.

So if you don’t have over 50,000 US dollars in your cash account, you can switch to a margin account and enroll in the Stock Yield Enhancement Program. The following are the steps to do it:

How to Switch from Cash accounts to Margin Accounts and Turn on the Stock Yield Enhancement Program

First, go the the IBKR web portal, and click Settings.

Click on the “Account Type”.

Select “Margin” Account from the drop-down menu.

Review the related agreements.

And sign your name.

And then we wait for the review process.

Swiftly, my request to change the account type to “margin” was approved within 2 minutes!

With a margin account, we can enable the Stock Yield Enhancement Program now by clicking on it.

Check the box of the SYEP.

Review the documents.

And sign your name.

Wait for the review process.

Surprisingly, my Stock Yield Enhancement Program Enrollment was Approved within only 2 hours!

I’ll update in the future on how much interest I earned in this program.

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Earn Interests on Your Idle Cash with Interactive Brokers

With IBKR, you have the opportunity to earn interest at market rates on your immediately accessible cash balances. Key points about IBKR interest rates are as follows:

• Accounts with a Net Asset Value (NAV) of USD 100,000 or higher earn the full interest rate.
• Accounts with a Net Asset Value below USD 100,000 earn interest on a proportional basis.
• No interest is accrued on the initial USD 10,000 of cash.
• Interest is only earned on settled cash balances in the securities segment, not in the commodities segment.
• IBKR Pro and IBKR Lite offer different interest rates.

The rate of 4.83% is as of May 19, 2024, for Pro client, which is the benchmark rate of 5.33% minus 0.5%. It basically means you can earn the returns of the one-year treasury rate for only rich people because you need to have more than 10,000 US dollars of cash and a net asset value of higher than 100,000 US dollars to earn the full treasury rate, which is not an easy threshold for average people.

So, I would suggest if you want to earn yourself the high one-year treasury rate of 5.137%, just put your idle cash into a treasury note, as the short-term rates is higher than long-term rates of 4.5% now. This is also what Warren Buffett does with their piles of cash now.

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Advantage 3 Multi-national Assets to Invest in, even Cryptos

Interactive Brokers allows the purchase of stocks from 150 stock markets in 200 countries/regions and 27 different currencies, without time zone restrictions. You can trade stocks, ETFs, bonds, mutual funds, options, warrants, futures, CFDs, forex, metals, and cryptocurrencies. It includes stocks from countries such as the United States, China, Hong Kong, Japan, Germany, France, Canada, Australia, Italy, Russia, and more.

In September 2021, IB announced the introduction of cryptocurrency trading and custody services, enabling users to buy and sell cryptocurrencies including Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), and Litecoin (LTC).

Cryptocurrency trade execution and custody are handled by either Paxos Trust Company or Zero Hash LLC, depending on your account type and your country of legal residence. And Paxos is a cryptocurrency exchange and the issuer of the USDP stablecoin.

In 2023, IBKR added access to the Taiwan Stock Exchange, where it hosts some of the most valuable semiconductor companies in the world like TSMC, MediaTek, etc.

Additionally, Interactive Brokers also allows the purchase of warrants from countries such as France, Germany, Italy, the Netherlands, and Switzerland.

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Advantage 4 One Free Withdrawal every Month

There is no charge for the first withdrawal of any kind per calendar month; however, Interactive Brokers will charge withdrawal fees of 10 US dollars by bank wire for any subsequent withdrawal. The average withdrawal fee for other US stock brokers is at least 25 US dollars.

All withdrawals will be sent in the name of the account holder. You can not withdraw money to an account that is not the same name as your IBKR account.

Accounts that do not participate in the Secure Login System are limited in the amount of money that can be withdrawn. Account holders without a security device are limited to a maximum withdrawal of 50,000 USD per day and a maximum withdrawal of 100,000 USD in five business days.

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Advantage 5 Safe and Secure

Interactive Brokers is Audited by FINRA

FINRA, the Financial Industry Regulatory Authority, is a self-regulatory organization in the United States that oversees brokerage firms and their registered representatives. Its primary mission is to protect investors by ensuring the securities industry operates fairly and honestly.

Here are key reasons why Interactive Brokers audited by FINRA are important:

1. Investor Protection: FINRA sets rules and standards that brokerage firms must follow, which helps protect investors from fraud and unethical practices.
2. Compliance and Enforcement: Brokers audited by FINRA are regularly monitored for compliance with federal securities laws and FINRA’s rules. This ensures that they maintain high standards of conduct and transparency.
3. Dispute Resolution: FINRA provides a forum for resolving disputes between investors and brokers, which can help investors recover losses or address grievances.
4. Education and Resources: FINRA offers educational resources and tools to help investors make informed decisions and understand the risks involved in investing.
5. Market Integrity: By enforcing rules and regulations, FINRA helps maintain the integrity and stability of financial markets, which benefits all participants.

Choosing a broker audited by FINRA gives investors confidence that the broker is subject to stringent oversight and regulatory requirements, enhancing trust in the broker’s operations and practices.

SIPC 500K USD Protections

Regarding fund security, accounts are insured up to 500,000 US dollars to protect consumers against losses if the brokerage firm encounters financial issues. Interactive Brokers is a member of the Securities Investor Protection Corporation (SIPC). Securities in customer accounts are covered by SIPC with a basic insurance limit of $500,000, including a cash insurance limit of up to $250,000. Money market funds in the account are considered securities.

Secure your Interactive Brokers Account by Mobile Two-factor Authentication

Let’s take a look at how to secure your funds on IBKR. Basically, Interactive Brokers protects your account by making it difficult for others to log into your account by having to verify your face, fingerprint, or phone number text message authentication.

Regarding transaction security, both the mobile and desktop versions use Apple’s Face ID for authentication when logging in, or SMS for verification, which is very secure. However, you should also be cautious of SIM card hacking attacks.

The following is how two-factor authentication works in Interactive Brokers.

When we want to sign in to the web portal, we enter the username and password.

After entering the correct password, a message from IBKR will show up instantly on your phone where you have to click on it to verify yourself.

In my case with an iPhone, I have to verify myself with the Face ID. You can also verify by SMS or fingerprint.

In short, the two-step verification process makes your account safe, but not difficult to log in.

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Consider Adding a Trusted Contact to Your Account

A Trusted Contact is someone Interactive Brokers can contact in the unlikely event that the broker is unable to reach you for an extended period. Interactive Brokers do not share account details with the Trusted Contact and the Trusted Contact cannot transact on your behalf. Your trusted contact person must be age 18 or older.

Why would you add a “trusted contact person” to your brokerage account?

Adding a trusted contact person to your brokerage account can be very helpful. If your brokerage firm can’t reach you, this person can help ensure your contact details are correct. They can also assist if there’s a suspicion of financial exploitation or fraud, confirm your health status if there are concerns, and verify the identity of any legal guardian, executor, trustee, or power of attorney holder related to your account.

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Advantage 6 Fractional Shares (Suitable for High Price Stocks)

Fractional shares refer to purchasing less than one full share, which is suitable for high-priced stocks like Berkshire Hathaway (BRKA), which costs around $620,000 US dollars per share. Interactive Brokers allows you to set how much money you want to spend without buying a whole share. For example, you can set a purchase of $200 US dollars worth of Berkshire Hathaway, which would buy you approximately 0.0003 shares of BRKA.

With fractional shares, no stock is too expensive because you can buy as little as 0.0001 share, up to 4 decimal places, or buy as little as 1 US dollar.

You can also buy fractional shares from US, Canadian, or European stocks or ETFs where available.

With respect to the fees associated with fractional shares, it’s basically the same as regular stock trading, 0.0035 US dollars per share under tiered pricing and 0.005 US dollars per share under fixed pricing. The only difference is that the minimum commission per order for fractional shares is 0.01 US dollars rather than 0.35 US dollars under tiered pricing and 1 US dollars under fixed pricing.

For example, under tiered pricing, a purchase to buy 0.5 shares of APYX at a stock price of 1.6 US dollars will be charged only $0.01 US dollars, calculated as follows:

• commissions: 0.5 share x 0.0035 per share = 0.00175 USD
• max (trade value x 0.01): 1.6 x 0.5 x 0.01 = 0.008 USD
• min: 0.01 USD

The commissions is 0.00175 US dollars, calculated as 0.5 shares times 0.0035 US dollars per share.

The maximum fee is 0.008 US dollars, calculated as 1.6 share price times 0.5 share, times one percent.

Since 0.00175 is smaller than 0.01, the minimum fee of 0.01 US dollars will be used as commissions.

For the second example, under tiered pricing, a purchase to buy 0.5 shares of AAPL at a stock price of 164 US dollars will be charged only $0.01 US dollars, calculated as follows:

• commissions: 0.5 share x 0.0035 per share = 0.00175 USD
• max (trade value x 0.01): 164 x 0.5 x 0.01 = 0.82 USD
• min: 0.01 USD

The commissions is 0.00175 US dollars, calculated as 0.5 shares times 0.0035 US dollars per share.

The maximum fee is 0.82 US dollars, calculated as 164 share price times 0.5 share, times one percent.

Since 0.00175 is smaller than 0.01, the minimum fee of 0.01 US dollars will be used as commissions.

The downside of fractional shares is that they do not come with voting rights, but you still receive dividends on fractional shares. Another important point is that if you want to transfer fractional shares to another brokerage, you must first sell them and convert them to cash.

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Step by Step Tutorials on Interactive Brokers Account Opening Process

Here is a summary of the IBKR account opening process:

• Step 1: Prepare what you need.
• Step 2: Get a bonus from the referral code.
• Step 3: Provide your email address, and create a username and password.
• Step 4: Select the appropriate account type which aligns with your brokerage needs.
• Step 5: Complete a basic information questionnaire, including personal information, employment status, and source of wealth.
• Step 6: Verify your phone number
• Step 7: Configure your trading account (Cash or Margin), investment objectives, and choose what investment products you want to trade.
• Step 8: Review the provided information and sign an electronic contract after agreeing to the broker’s terms and conditions.
• Step 9: Verify your identity and address by scanning and uploading a proof of identity and address document, such as a government-issued ID card, driver’s license, or passport.
• Step 10: Fund your account.
• Step 11: Begin investing or trading.

IBKR does not have a minimum account balance requirement and has also eliminated account maintenance fees since 2021. In the past, the minimum deposit requirement is ten thousand US dollars. So, nowadays, it’s more friendly to retail investors.

Step 1: Prepare what you need.

The following are needed when opening an Interactive Brokers account:

• Name
• Email
• Phone number
• Address
• Social Security Numbers for Americans
• Document to prove your identity and residential address like a government-issued  ID card or driver’s license, etc

About the minimum age requirements, you have to be above 18 years old to open a Cash account and above 21 years old to open a Margin account.

Step 2: Get a bonus from the referral code.

Interactive Brokers Inclusive Account Opening Offer Link

Before opening an account, remember to use the referral link here to open your account in order to receive the offer. For every 100 US dollars deposited, you can receive 1 US dollar worth of IBKR stock, up to a maximum of 1,000 US dollars worth of IBKR stock!

I’ve opened my Interactive Brokers account since 2021, and the table shows the free IBKR stocks I got when depositing money. As you can see in the table, I’ve accumulated around 1.85 IBKR stocks. The stock price of IBKR reached an all-time high of 128 US dollars as of May 24, 2024, which means that the total value of my IBKR stocks is worth around 236 US dollars now.

The vesting date indicates the date upon which restrictions on transfer or sale of awarded shares expires.

We strongly recommend that investors who take their investments seriously deposit more than 10,000 US dollars within 30 days of opening the account, and buy good cheap stocks at appropriate times to hold for at least a year. As Warren Buffett said, one of the most important things about investing is to start early. Buffett bought his first stock at around the age of ten and has since accumulated wealth like a snowball, reaching his current achievements while continuously learning and growing.

Additionally, to avoid having to sell stocks due to a lack of money, it is recommended that everyone prepare extra cash equivalent to six months to a year of basic living expenses, to guard against emergency cash needs such as those arising from car accidents or serious physical injuries.

Step 3: Provide your email address, and create a username and password.

First things first, input your valid email, and define your username and password. And select your country.

Step 4: Select the appropriate account type which aligns with your brokerage needs.

Generally, we select an Individual account for general purposes since this is the most independent and flexible one.

However, if you want to manage your “mutual” funds with your spouse, you can select a “Joint” account. That’s a healthy way to strengthen a long-term relationship.

And the main benefit of a Retirement Account is its low tax advantage.

If you have kids and you want to plan their investment early on and avoid the heritage tax, you can open a Custodian Account for your children.

A Trust account serves as a way for a third party to manage your money after you die.

There is also an Advisor account where a company manages other people’s money on their behalf.

IBKR Pro vs IBKR Lite account type

Next, there are two account types to select, Lite and Pro.

IBKR Lite offers $0 commissions on trading US-listed stocks and ETFs for retail clients. However, it’s Only for US residents. This is also Interactive Broker’s strategy to compete with other free-commissions competitors.

IBKR Pro is the plan for experienced investors and active traders. Pro account offers enhanced price execution with low costs, lower rates on margin loans, and higher interest paid on idle cash.

Open your email to confirm your email.

Click the confirmation link, you will see that your email is confirmed.

Step 5: Complete a basic information questionnaire, including personal information, employment status, and source of wealth.

Fill in your personal information with honesty.

Input your social security number if you are an American. If you are from other countries, you will have to key in your government-issued ID.

Fill in the information about your employment.

As required by regulations, select all categories that contribute to your net worth.

Define 3 of your securities questions. Make it simple and write it down somewhere. It serves as a secondary method to verify yourself online or when speaking with client services.

Step 6: Verify your phone number

Next, verify your phone number by entering the confirmation code that is sent to your mobile number. This is important because you can not proceed with the application without verifying your phone number.

Step 7: Configure your trading account (Cash or Margin), investment objectives, and choose what investment products you want to trade.

There are 3 account types to select, Cash, Margin, or Portfolio Margin.

If you plan not to trade with leverage or sophisticated products like Options, but buy simple stocks or ETFs, just go for a Cash account.

If you are willing to lose more for higher returns, have a high-risk tolerance, and trade actively with leverage, futures and options, etc, choose the Margin account.

What are the requirements of margin accounts?

In effect, you can apply for a margin account without a minimum deposit requirement. However, there is some restrictions when you start to actually trade with margins.

All long transactions in margin accounts are subject to a minimum initial margin requirement of 2,000 US dollars or 100% of the purchase price, whichever is less. All short transactions in margin accounts are subject to a minimum initial margin requirement of 2,000 US dollars.

And margin requirements quoted in US or CA dollars may be satisfied with the equivalent amount in another currency.

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Lastly, there is the Portfolio Margin account. The advantage of a Portfolio Margin account is that your margin would be much less when your stocks positions and options positions is delta neutral in some degree, making your capital more efficient.

However, your Portfolio Margin account must have at least 110,000 US dollars or equivalent in Net Liquidation Value to be eligible.

In terms of your annual net income, net worth and liquid net worth, basically, you need to input a higher number to be able to invest in more kinds of assets. However, if your financial information is way higher than your actual situation according to your age and employment history, Interactive Brokers may ask you to prove it.

The Net Worth is the total value of all assets you own, less what you owe, including all mortgages and debts. Your Net Worth cannot be less than your Liquid Net Worth. Liquid net worth is the total value of any assets you own that can be quickly converted into cash.

In conclusion, net worth should be greater than liquid net worth, and liquid net worth should be greater than annual net income.

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With respect to investment objectives and intended purpose of trading, if you want to trade actively, we suggest you select Growth, Hedging and Profits from Active Trading and Speculation.

Basically, you have to select items which align with a high-risk appetite to be able to trade with leverages and options.

The advantage of this is that even if you are not familiar with investment methods such as margins or options now, you can directly trade in the future when you are ready, without having to change your account settings again.

Next, let’s select the investment products you want to engage, and share your investment experience in each category.

Basically, I select all investment products that are applicable, and make my experience more professional.

Remember to select the “Global (Trade in Fractions)” item in the Stocks section.

Noted how many countries you can buy stocks from, even Taiwan.

Select the Global (Trade in Fractions).

Select the level of Options trading you wish to engage in.

As you learn more about options, you will know things like greeks, delta, gamma, the importance of implied volatility and delta neutral, etc.

Define your bonds category and experience.

There are multiple countries where you can invest in bonds.

And there are warrants and futures.

For traders who opt in professional futures and options trade, you may have to take a quiz to get qualified, we show you the right answers.

Question 1

A futures contract is a standardized agreement traded on an organized exchange to buy or sell underlying assets, especially commodities or shares or indexes, at a fixed price determined at trade time but with the asset to be delivered in the future.

Question 2

The “specifications” of a standardized futures contract describe the commodity or other asset covered by the contract and the amount of such commodity or asset to be delivered by the seller at expiration. The specifications can always be found at the websites of the exchange or clearing house.

Question 3

Speculators don’t need a special license.

Question 4

When an importer of Japanese cars buys yen futures against its yen liability, it is initiating a hedge.

Question 5

The buyer of a futures contract is said to have a long position in futures and the seller of a futures contract is said to have a short position in futures.

Question 6

The clearing house ultimately guarantees that the obligations of buyers and sellers under a futures contract will be fulfilled.

Question 7

When you buy or sell a futures contract, you will put “margin” (a security deposit) with the broker. The amount of the margin will be adjusted at least daily.

Question 8

The futures settlement price is the price, set at the end of each trading day, that is used to mark futures contracts to the market and therefore determine the amount of margin to be paid and collected by buyers and sellers.

Question 9

Futures contracts can be settled either by delivery or cash settlement.

Question 10

Your futures broker is not entitled to a small percentage of the profits of your futures trades.

Question 11

None of the above is true.

Question 12

When you trade futures, you may lose more than you deposit with your broker.

Congratulations! You have finished the exam.

Select the countries where you want to trade futures options.

 

There are also Metals, Mutual Funds, and NextShares.

Also cryptocurrencies.

Next, it is required to state if you are the management or decision maker who controls a publicly traded company, especially if you own more than a 10% stake in the company.

The management or big shareholders of publicly-traded companies may be monitored to prevent insider trading.

We suggest you enroll in the stock yield enhancement program because you can earn 50% of the interest Interactive Brokers collects when you lend your shares for other traders to short sell.

Next, confirm your tax residence.

 

If you are an American, check the two to be qualified for Australian and Canadian treaty benefits.

Check your tax information and sign the contract electronically.

Step 8: Review the provided information and sign an electronic contract after agreeing to the broker’s terms and conditions.

 

 

Some agreements must be reviewed in full by downloading and opening the file.

 

 

Sign your name.

Step 9: Verify your identity and address by scanning and uploading a proof of identity and address document, such as a government-issued ID card, driver’s license, or passport.

Most financial institutions have an obligation to perform a Know Your Customer (KYC) check on new customers. This will typically involve validating your identity via some Government-issued ID and validating your address via a bank statement or similar.

When it comes to validating your identity and address, it is most efficient to submit a high-quality document that provides both Proof of Identity and Proof of Residential Address.

For instance, a government-issued ID or a driver’s license can validate your name, birth date, and address simultaneously.

The address on the document must be the same as the address you enter in your account application.

IB isn’t trying to be difficult, they are simply fulfilling their legal obligations.

For US Residents, Interactive Brokers generally verifies the names and addresses of its US-resident applicants electronically, usually even without the need to upload a copy of your government-issued documents.

Basically, for Americans, you just need to provide your social security number and address to verify yourself.

If Interactive Brokers is unable to verify your identity electronically, you will be asked to provide additional documents.

And I personally find it difficult to verify my identity and address using their mobile way to detect my location while taking a picture with a smartphone. I just give up the mobile way and simply upload my document, which is faster.

Remember not to upload a document which is already expired.

If you follow the steps correctly, you will be notified by email within several days, in my case 4 days, that your account is approved.

If you are an American with a valid social security number and follow the steps correctly, your account may be opened instantly within the same day.

Sometimes if the Interactive Brokers’ new account team is having high demand while you are waiting, you may want to create a notification of an intent to fund the account to speed up the account opening process.

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How to Fund Your IBKR Account

There are several ways to fund your Interactive Brokers account:

• ACH or RFP with your US Bank Account
• Bank Wire
• Online Bill Pay
• Mail a Check
• Scan a Check
• Transfer from Wise Balance

You can also transfer your securities from other brokers.

If you have a US bank account like Chase, Bank of America, or Wells Fargo, especially if you are an American or work in the United States, linking your US bank and depositing via ACH (Automated Clearing House) or RFP (Request For Payment) is the best way because there is no fee incurred, as Interactive Brokers’ settlement bank resides in the US as well.

For non-US residents like me, Bank Wire is the major option. Basically, your money from a non-US bank will be transferred into Interactive Brokers’ US bank and some fees will incur, usually around 30 US dollars for each Bank Wire, charged by your initiating bank and intermediary bank.

In some circumstances, transferring your balance from Wise to Interactive Brokers would be a good option. For instance, for a non-US resident, if you have already funded another broker like First Securities by bank wire, and you want to transfer your money from First Securities to Interactive Brokers, Wise is a good way to do so.

From my experience, in October 2021, to transfer my US dollars from TD Ameritrade to Interactive Brokers through the Wise ACH method, Wise only charged me 0.51 US dollars. By the way, Wise charges for currency conversion if you do so.

In fact, at the final steps of the account opening process, you can click the “Fund Your Account” to prepare for your financial journey. Interactive Brokers review funded account applications first. If for any reason your application does not get approved, they will send your money back.

Next, you’ll see many options for depositing.

 

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How to Fund Your IBKR Account by ACH (US Banks)

1. Step 1: Log in to your Interactive Brokers website
2. Step 2: Click “Deposit”
3. Step 3: Click “Use a new deposit method”
4. Step 4: Select the currency you want to deposit
5. Step 5: Get ACH Instructions or Link your Bank Account

There are some rules with respect to Automated Clearing House, ACH, and Request For Payment, RFP. The first is the Trading Hold, how many days you can trade your funds after you deposit. The second is the Withdrawal Hold, how many days you can transfer your funds out of Interactive Brokers after you deposit.

ACH Trading Hold and Withdrawal Hold

For ACH, the first deposit is available to trade 4 business days after initiating the deposit in Client Portal. Subsequent deposits may be available immediately to trade depending on tenure, deposit history and account balance. Otherwise, 4 business days to trade.

And funds are available for withdrawal to the originating bank account after 5 business days. If you wish to withdraw the funds to an account other than the originating bank account, the hold period is 44 business days.

For RFP, funds are immediately available for trading after confirming in your bank portal or mobile app. And funds are immediately available for withdrawal to the originating bank account. If you wish to withdraw the funds to an account other than the originating bank account, the hold period is 10 business days.

To deposit by ACH, log in to your Interactive Brokers’ website first, and click “Deposit”.

Click the “Use a new deposit method”.

Select the currency you want to deposit. This is based on what countries of stocks you want to invest in. If you want to invest in US stocks, deposit US dollars. Actually, Interactive Brokers also offer currency exchange services on their platform.

And then, you can either get ACH instructions or directly link your bank account inside the Interactive Brokers website.

Be aware that your bank account must be held at a bank in the United States.

Let’s try to link your bank account. Just type in your bank account type, routing number, and bank account number. And then some windows will pop up. Interactive Brokers will talk to your bank and you have to confirm some information, sign your name, verify by SMS, and then you can deposit.

You can also get ACH instructions and initiate the deposit from your US bank.

You will have the routing number and a virtual account number from Interactive Brokers. Note that the name of your US bank and Interactive Brokers account should be the same.

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How to Fund Your IBKR Account by Bank Wire

1. Step 1: Log in to your Interactive Brokers website to create a deposit notification
2. Step 2: Initiate the deposit from your local bank with a first-time one-time setup
3. Step 3: Log in to your local bank online to make the bank wire

Step 1: Log in to your Interactive Brokers website to create a deposit notification

First, we log in to the Interactive Brokers’ website, hover over the “Transfer and Pay” and click “Transfer Funds”.

Select “Deposit Funds”.

Select “Use a new deposit method”.

Select the currency you want to deposit. I usually deposit US dollars. Under the Bank Wire method, click “Get Instructions”.

This form is to notify Interactive Brokers from which bank you will send money and how much you will deposit. In my case, I use First Bank. So I type in the swift code of First Bank, which is FCBKTWTP under the “Sending Institution” field. Next, input the amount you want to deposit.

It is advised to create a deposit intent each time you make a deposit to ensure proper routing of your funds.

After clicking “Get Wire Instructions”, you can screenshot this page to have the necessary information to initiate the bank wire from your local bank.

Be aware that the Bank Wire instructions may differ between countries and currencies. The example here is sending US dollars from a local Taiwanese bank. So be sure to check your own instructions from Interactive Brokers if you live in a different country. Sometimes the address of the beneficiary bank will be different even if you deposit from the same country and the same currency. So it is best to check the instructions each time you make a deposit.

Step 2: Initiate the deposit from your local bank with a first-time one-time setup

To set up a bank wire, you may have to visit your local bank in person. The good thing is that you only have to visit your local bank in person once. In the future, you can make a deposit online every time. Or you can log in to your online banking to see if you can set this bank wire online first.

In my case, I need to visit my local bank First Bank in person to set up the Bank Wire.

For Beneficiary’s Country, input United States.

For Beneficiary’s Name and Address, input Interactive Brokers LLC, One Pickwick Plaza, Greenwich, Connecticut 06830, United States.

For Beneficiary’s Account Number, input 40806826.

For Swift Code, input CITIUS33XXX.

For Beneficiary Bank’s Name and Address, input Citibank N. A., 388 Greenwich Street, New York, 10013, United States.

Step 3: Log in to your local bank online to make the bank wire

After setting up the Bank Wire, let’s make our first deposit. First, log in to your local bank, which, in my case, is First Bank. Since bank wire may require manual review internally in the bank, it is advised to do it during working hours, which is 9 AM to 5 PM in my case.

If I do this step during non-working hours, I always get no response from my bank. I guess my bank may have some problems with their banking systems.

Second, go to the Bank Wire section, in my case, Foreign Outward Remittance under the “Foreign Currency” section.

A form will show up, and you can confirm your personal information like name, address, ID, and phone number. Next, select USD as the currency of payment and select the account you want to pay. For fees, you can also select the currency of payment and account of your choice. The fee for me would be 400 Taiwanese dollars.

Make sure you are sending to Interactive Brokers, the same as you set it up the first time. Select US dollars and type in how much you want to send. The minimum amount of bank wire is 100 US dollars in my case.

Next, this step is important. You have to tell your bank the payment reference in the format of account number and account name. For instance, input “U12345678 / DA MING WANG“. So Interactive Brokers knows which customer the money belongs to.

Here, the bank charges 400 Taiwanese dollars. Additionally, the intermediary bank will charge 18 US dollars in my case.

Click on the folder icon to specify the type of bank wire.

Choose “outflow of domestic funds” as the type of bank wire.

Set the “nature of bank wire” as “Investments in overseas equity stocks”.

Hit Confirm and your local bank will begin processing your bank wire. The funds will arrive at your Interactive Brokers’ account within a timespan of the same working day to 4 working days. From my experience, my deposit usually arrives at my IBKR on the same working day when I make the deposit.

Common Mistakes when Funding with Bank Wire

Here are some common mistakes to be aware of:

Mistake 1: Write your name as the beneficiary’s name. The beneficiary should be Interactive Brokers, not you. I made this mistake before; I filled in the wrong information when funding the account. The money left my account, but it took 10 days to return, resulting in a loss of 400 Taiwanese dollars in fees and an additional 18 US dollars in intermediary bank charges.

Mistake 2: Write your Interactive Brokers account number as the beneficiary’s account number. The beneficiary’s account number is Interactive Brokers’ account at the beneficiary bank, which is 40806826. This is the same for everyone who sends US dollars from a Taiwanese bank.

Mistake 3: Didn’t include your payment reference like U12345678 / DA MING WANG. The payment reference is the only way to verify your identity, or Interactive Brokers wouldn’t know who the money is further credited to.

Mistake 4: Make the bank wire from a bank account under another person’s name like your parents or spouse. The remitter must be yourself. You cannot ask someone else to remit on your behalf, as it will be returned to prevent money laundering.

If you have any questions, feel free to send us a direct message on Instagram @sunforzone.

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How to Fund Your IBKR Account by Wise

1. Step 1: Open a Wise account (referral code)
2. Step 2: Fund your Wise account
3. Step 3: Link your Wise account to Interactive Brokers
4. Step 4: Transfer your money from Wise to Interactive Brokers

Can I use a debit card with Interactive Brokers?

Deposit by debit cards is only available to US customers.

Can I use PayPal to fund Interactive Brokers?

No, you can’t use PayPal to fund your Interactive Brokers account.

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Interactive Brokers Platforms: Web, Mobile and Desktop

Interactive Brokers offers 3 platforms when it comes to buying and selling stocks, specifically, the desktop Trader Workstation application, the website, and the mobile app IBKR. Since I am a long-term value investor, I usually do very simple practice of buying stocks. So there is not much difference in using which platforms to buy stocks.

However, if you are a short-term trader, I would suggest you use the desktop version Trader Workstation because you have a bigger screen to monitor the market including the bids, asks, the quantity of bids and asks. You can also easily open multiple windows with multiple monitors to watch the candle graph, do market research, keep an eye on related news, etc. Most importantly, you are able to place your order fast directly on the chart like lightning orders.

And you can only watch options’ implied volatilities on the Trader Workstation, especially bid implied volatility and ask implied volatility. Neither do the mobile and website platforms can you see implied volatilities of options.

Trader Workstation is for professional sophisticated traders. With this platform, you can easily drag and drop orders right on the chart.

Another thing I like about Trader Workstation is that you can read related news on individual stocks. For instance, if you want to check the news related to General Motors stock, right-click on the symbol “GM”, click “Fundamentals Explorers”, and then click on the “News” tab, and you can see all the related news about General Motors.

On the other hand, the mobile and website app is relatively concise and simple, which is very suitable for inactive value investors like me.

In conclusion, the platforms Interactive Brokers provide are very convenient. You can buy stocks anywhere on the go as long as there is an internet connection. And they’re improving the platforms as time goes by. For instance, you can now place orders in the Trading View app, which is great for people already familiar with Trading View.

How to Buy Fractional Shares on IBKR

With the fractional shares function, you can make your own stock splits when the price of a stock is too high for you to buy a share.

You can buy fractional shares on either the mobile app, website, or the desktop Trader Workstation. Here, we show you how to buy fractional shares on the Interactive Brokers website. First, click “Trade” in the top right corner.

Enter the stock ticker symbol you want to buy fractional shares. Today, we want to buy TSM, Taiwan Semiconductor Manufacturing Company, the world’s best chip producer.

TSM’s stock price is 164 US dollars now. Let’s say we only have a budget of 100 US dollars to buy. In the quantity field, we select USD and key in 100 US dollars. This is the cash quantity.

After setting a limit order with a limit price of 150 US dollars. Interactive Brokers automatically calculated that we would buy approximately 0.6667 shares. I usually like to set a limit price lower than the asking price and wait for the price to go down, making my order being filled at a cheaper price. If you feel the price is moving up and you want to buy the stock quickly, you can set a higher limit price, even with a limit price higher than the asking price to fill the order directly.

For order timespan, I choose Good till Cancel, which means that my order will be there for as many days until the price drops to my limit price. You can also set the order timespan to Day as you wish.

Click “Accept” to prevent your order from being filled at an unreasonable price.

The reason for this measure is to prevent human mistyping or system bugs. If you enter the wrong price, like one more digit or something, your order may be filled at 1500 rather than a reasonable price of 150, especially when a stock has a low market cap and little liquidity.

You can click “Always Use” to prevent your order from being filled at an unreasonable price.

Your order is ready to go. The status is pending because the market is closed now.

To check your order, you can go to “Orders and Trades” under the “Trade” tab.

Here, you can see the details of your fractional orders.

So, this is how you can buy and sell fractional shares. Remember that you will still receive dividends on fractional shares but without the voting right, which is fine for me.

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How to Buy Equity Options with IBKR

For those of you with a higher risk appetite, you can buy options to boost your returns. If you are bullish on a given asset, you can buy a call on that asset. Let’s say, for instance, we are bullish on the NASDAQ, we can buy a call option of TQQQ, which corresponds to 3 times the returns of the NASDAQ 100 Index.

To buy options with Interactive Brokers, we suggest using the desktop app Trader Workstation because you can see the implied volatilities of options.

Log in to Trader Workstation, click “File” on the top left corner, click “New Window”, and click “Option Chain”.

On the top left corner, type in the symbol of the underlying assets of the option you want to trade, in our example, type in TQQQ.

You can see that there are call options on the left-hand side and put options on the right-hand side.

Now, we are looking at the options with a time-to-maturity of 375 days. The options will be due in around one year. These are considered long-duration options.

Let’s check the column of implied volatility. We can see the implied ask volatility of these long-term call options is around 55%.

To buy options, simply right-click on the bids or asks price and hit buy or sell.

Is the Options You Buy Expensive? Compare Options’ Implied Volatility with Historical Volatility.

Historical Volatility: the cost of options for option sellers

Historical volatility is a way to measure the risk associated with fluctuations in the price of an asset. Volatility, in this context, refers to how much the price moves up and down. Historical volatility is also called hedge volatility because option sellers use this measure to calculate how many stocks they have to buy to hedge against the risk of selling call options, namely, delta. Hedge volatility is also considered the cost of selling options.

The formula of historical volatility is the standard deviation of daily returns of a stock price over a designated time period. For instance, 20 historical volatility is calculated as the standard deviation of the past 20 daily returns of a given stock price. And then multiply it by the square root of 252 to get the annualized numbers.

If you want a practical example of how to calculate historical volatilities, check the Google Sheets here.

Implied Volatility: the price of options for option buyers

On the other hand, implied volatility measures how pricy an option is. It is calculated using the Black-Scholes formula. There are 5 parameters to reach the theoretical price of an option, namely, S, K, V, R, and T.

S is the price of the underlying asset of the option.

K is the strike price of an option.

V is the volatility of an option.

R is the interest rate of an option.

T is the time to maturity of an option.

Given the price of an option, we can calculate its implied volatility.

The higher the implied volatility of an option you buy, the more time value you pay per day, and thus you want the stock price of the underlying asset to move faster in a shorter period of time to make money.

How to check the historical volatility of an option?

To check the historical volatility of an option, go to the “Stock Analysis” from Sunfortzone.com, and select the underlying asset from the left-side panel.

For instance, if we want to check the hedge volatility of TQQQ, select TQQQ from the left-side panel. We can see that TQQQ has a historical volatility of 32% in the past 20 days. The table shows the historical volatilities of a given underlying asset from the past 10 days, 20 days to the past 252 days. We also show you the mean of all the different windows of historical volatility, which is 40% for TQQQ.

So, you know that the reasonable option price for TQQQ should be around 40%, plus some markup. If you buy a TQQQ option with an implied volatility of less than 40%, you will have an edge because you pay a lower time value per day.

Scroll down from the webpage, we can see the graph of historical volatilities in a given period of time in the past. We can see that short-term historical volatility will fluctuate in a more volatile way than long-term historical volatility.

After examining the history of TQQQ’s historical volatilities in the past 6 months, we can conclude that the reasonable price for TQQQ options is around 48%.

How to check the implied volatility of an option?

To check whether it’s pricy for your options, we use the Option Chain window from Trader Workstation.

To add columns, right-click on a column to add columns of implied bid volatility and implied ask volatility.

If we buy options, we check the implied ask volatilities. If we sell options, we check the implied bid volatilities.

As you can see in the graph, the implied ask volatilities for TQQQ options with a duration of 32 days range from 40 to 60%, depending on different strike prices.

Another way to check the implied volatility is to use the Options Calculator from Sunfortzone. Just select call or put, type in the parameters of S (underlying stock price), K (strike price), premiums (price of option), t (how many days to maturity), and how many days a year. In TWS, they use 365 days a year.

The conversion ratio is always 1 for normal options and ranges from 0 to 1 for warrants.

After setting all the parameters, the calculator gives you the implied volatility of 43%, which is reasonably the same compared to the one calculated by Trader Workstation.

The slight difference may come from the different interest rates used, the different Black-Scholes models used, or the different programming languages used behind the scenes.

In conclusion, if you buy a call option with a strike price of 69.5 and 32 days to maturity, the one-month historical volatility is 32% and the implied volatility is 44%. You are paying a margin of 44 minus 32 which is 12%.

The basic principle is that we want to sell options with implied volatilities as high as possible and buy options with implied volatilities as low as possible.

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Interactive Brokers’ Customer Service Review | Great Live Chat Support

If you are not able to solve your problems through the FAQ section, Interactive Brokers offers 3 main ways to help you, namely, Web Tickets, Chat Rooms, and Phone Calls.

If you are not urgent, opening a web ticket would be a good way to text them your specific question. If you want to get a timely and faster response, you can chat with a 24-hour live representative or just call them during working hours.

I would personally recommend reaching out to them via their live chat for a timely response. Most of the time, I got a very supportive representative within 10 minutes to answer my questions on live chat. However, you may encounter a situation where all representatives are busy sometimes. Just be patient.

To enter a live chat, simply log in to Interactive Brokers’ website, click “Help” on the top right corner, click “Support Center”, and then scroll down to the bottom and click “Chat Room”.

After selecting the topics related to of your question, a real person will enter the chat and text you back and forth to solve your problems.

To open a web ticket, click “Help” on the top right corner, and click “Secure Message Center”.

And then you can write down your questions after clicking “Compose” and “New Ticket”.

 

You can also call them during available hours. For the United States, calls are open 8 AM to 8 PM from Monday to Friday and 1 PM to 7 PM on Sunday, New York times. The toll-free number in the United States is 1 877  442 2757, and the direct dial is 1 312 542 6901.

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