One of the lesser-known online brokers in Canada is Interactive Brokers, a US-based brokerage firm that offers low-cost trading. I personally use Interactive Brokers and am a big fan. That said, Interactive Brokers isn’t for everyone. If you’re interested in learning what Interactive Brokers has to offer, then this review is for you.
What is Interactive Brokers?
Interactive Brokers is a Canadian self-directed online brokerage firm whose platform lets you buy and sell a variety of assets on global exchanges.
Interactive Brokers can be compared to other online discount brokers like Wealthsimple Trade, TD Direct Investing, Questrade, Qtrade, Scotia iTrade and BMO InvestorLine. But Interactive Brokers is really in a league of its own—it’s far more powerful than any of its competitors in the Canadian market.
That power, however, is a double-edged sword. Because Interactive Brokers offers so many features (as discussed below), it’s mobile phone app and desktop platform are unwieldy and complicated.
Types of Accounts
Interactive Brokers lets you create a variety of different accounts. For the average retail investors, you’ll be happy to know that you can find normal non-tax protected accounts, TFSAs and RRSPs on Interactive Brokers.
Accounts with Interactive Brokers are not free unless you are eligible for a fee waiver. The following chart summaries potential account fees:
|Type of Account||Account Fees||Fee Waiver|
|Individual Account (not tax-protected)||For most accounts with a balance over US$2,000, the monthly fee is US$10 per month minus monthly commissions (up to a maximum of US$10, at which point the account fee is $0)||The first three full calendar months after opening an account; or accounts with a liquidation value of at least US$100,000; or where the average liquidation value of all related accounts is at least US$100,000|
|Tax Free Savings Account (TFSA)||Same as the fees listed above||Same as the fees listed above|
|Registered Retirement Savings Account (RRSP)||Same as the fees listed above, plus a quarterly fee of C$12.50||Same as the fees listed above|
Interactive Brokers’ Fees
Interactive Brokers’ fee schedule is complicated. Before opening an account, you should review it here.
At a high level, Interactive Brokers lets you choose between two fee structures: tired and fixed. Tiered pricing is transparent volume-based pricing. As your trade volume increases, you pay less in commissions. Fixed pricing charges a low fixed commission per share or set percent of trade value.
The following table provides a sample of how fixed pricing compares to variable pricing. Note that this is not an exhaustive table; fees change depending on the asset being traded.
|Type of Trade||Fixed Pricing||Variable Pricing|
|Canadian Stocks||C$0.01 per share. Minimum per order C$1.00, maximum 0.5% of trade value||If monthly volume <= 300,000 shares, C$0.008 per share. Minimum per order C$1.00, maximum 0.5% of trade value|
|US Stocks||US$0.005 per share. Minimum per order US$1.00, maximum 1.0% of trade value||If monthly volume <= 300,000 shares, US$0.0035 per share. Minimum per order US$0.35, maximum 1.0% of trade value|
|US Options||US$0.65 per contract. Minimum per order US$1.00||If contract volume <=10,000 per month, US$0.25 to US$0.65 per contract. Minimum per order US$1.00|
You should do the math to see which option is best for you. The fixed pricing option is usually the best option for retail investors with small trade volume.
There’s no getting around the fact that Interactive Brokers’ fee schedule is complicated. That said, it still remains one of the cheapest discount brokers in Canada. In particular, options are much cheaper on Interactive Brokers than most other platforms.
As far as I know, no other online broker in Canada lets you trade as many assets in as many markets as Interactive Brokers.
Interactive Brokers gives you access to 135 markets in 33 countries and 23 currencies. You can trade stocks, exchange traded funds (ETFs), options, futures, warrants, bonds, currencies and more. All major exchanges around the world are accessible on Interactive Brokers.
With your one account, you have access to securities in the US, Canada, Mexico, Europe, India, Hong Kong, Singapore and many other countries. The world really is at your fingertips in Interactive Brokers.
Trading in Foreign Currencies
Interactive Brokers makes it easy to access foreign currencies, including US dollars, Euros, and pound sterling. Currencies are converted using the spot rate (i.e. the current exchange rate). For this service, Interactive Brokers charges a low commission that starts at just US$2 (the commission increases if your monthly trade amount is more than US$1 million). This means that you can convert Canadian dollars to US dollars for as little as US$2. This is much, much cheaper than most other brokers that charge a percentage of the amount being converted.
I can’t emphasize enough how cheap it is to convert currencies on Interactive Brokers. I now use Interactive Brokers as my default currency conversion platform. In fact, I’ve heard that some people have Interactive Brokers accounts solely for the purposes of exchanging currencies because of how good the commission rate is. Note, however, that Interactive Brokers imposes hold periods on deposits and withdrawals. This means you cannot instantly deposit funds, convert them, and then withdrawn them.
Canadian and US dollars can easily be deposited and withdrawn between Interactive Brokers and your Canadian and US dollar bank accounts using electronic fund transfers. Currencies other than Canadian and US dollars can be deposited and withdrawn, but this may require a wire transfer and related fees (which are reasonable).
Interactive Brokers has a lot of features and functions—way more than the average investor requires. Some users may be confused or intimidated by the online, desktop and mobile platforms because of all these features.
Even as a serious investor, I often find Interactive Brokers’ platform to be difficult to use. The desktop version of the platform looks like a trading desk from the 1990s and requires hours of training before you can really understand how to use it.
Before making trades using your money, you should consider using a paper account on Interactive Brokers. A paper account is a simulated trading account; you can practice trading on Interactive Brokers without risking any of your real money. Interactive Brokers automatically sets you up with a paper account when you open an account.
The highlights of Interactive Brokers are the following:
- Access to Global Markets: Interactive Brokers gives you access to global exchanges. No other mainstream online brokerage in Canada gives you comparable access to so many international stocks and securities.
- Fractional Shares: Interactive Brokers lets you trade fractional shares. This means that if you want to invest a set amount of money, you can buy that exact amount of shares.
- Low Fees: Interactive Brokers’ fee tariff is confusing and long, but in general you’re paying some of the lowest commissions out of any Canadian online discount broker. The full list of fees is available online.
- Analyst Reports: Analyst reports and ratings from top firms are available at no additional cost. This information can help you when researching your next stock or other asset to buy.
- Live Data: There is no lack of data that you can access on Interactive Brokers, including live asset prices. Note that most of this data comes at an added charge.
- Types of Accounts: You can open a TFSA, RRSP or personal (non-tax sheltered) account with Interactive Brokers. Unfortunately, no accounts are free unless you are eligible for a fee waiver or your monthly commissions add up to at least US$10.
- Auto-deposits: Interactive Brokers lets you set up auto deposits so that you always have cash ready to invest.
- Margin: You can trade using the cash that is in your account as well as on margin (i.e. with a loan). Interactive Brokers provides some of the lowest margin rates in Canada.
What is Interactive Brokers Lacking?
Interactive Brokers is a great platform for low-cost trading, but it isn’t perfect. A few of the features that Interactive Brokers is lacking are the following:
- Intimidating User Interface: Interactive Brokers’ has so many features that it can be overwhelming. This is most obvious in its convoluted interface. This makes for a big learning curve when you first open your account.
- Delayed Deposits/Withdrawals: You can fund your account in Canadian or US dollars by linking it to your bank account (and other currencies). Transfers from your bank to Interactive Brokers take approximately three to five days, but you may not be able to trade the money for even longer because of the hold period imposed by Interactive Brokers. The delay in processing deposits can be frustrating if you want to trade on short notice and without planning days in advance.
- No Individual Dividend Reinvestments: Dividends are automatically added to your cash balance. Stocks can only be enroled in a dividend reinvestment plan (DRIP) on an account-wide basis (meaning all or none). There is no option to only enroll individual stocks in a DRIP.
- Limited Phone Support: Interactive Brokers is primarily self-service. Don’t expect any call centre hand holding.
Is Interactive Brokers Right For You?
Interactive Brokers is a great do-it-yourself online broker for serious and advanced investors. Setting up an account is quick and easy and gives you access to truly global markets. International diversification is at your fingertips. With one account, you can hold multiple currencies, access international exchanges, and quickly and cheaply exchange currencies.
Beginning and intermediate level investors are unlikely to use all of the features on Interactive Brokers. Unless you plan to regularly trade options and access foreign markets, you should consider more user-friendly platforms. If you don’t regularly trade or have more than US$100,000 in your account, then the monthly account fees will slowly erode your money.
Interactive Brokers is a great trading platform for advanced investors. Through one platform, you can access global financial markets and trade all sorts of assets, including stocks, bonds, options, commodities, currencies and futures.
Interactive Brokers is not a great broker for beginner investors. In short, Interactive Brokers offers too many features and not enough guidance for people who are new to investing. Even serious investors will be intimidated by the sheer number of features on Interactive Brokers when they first sign up.
Interactive Brokers, however, remains one of the most powerful brokers in Canada and offers some of the cheapest commissions. While it might not be the first broker you register with, you should certainly aspire to one day work up to an Interactive Brokers account.