Table of Contents
- Before IB
- Why IB?
- How to Open an account on Interactive Brokers
- Trading Platforms
- Web Trader 101
- Account Management 101
I wanted to write about my favorite internet broker since months, if not years. I kept procrastinating writing this post until March 2018, when I received roughly a dozen requests by readers and a couple of requests by friends in real life. Time has come!
But before we start, I have a couple of things to tell you. First, I’m not a financial advisor, I’m only an amateur investor who learnt a couple of things and wants to share them with you. Please, double check any piece of information and do not rely solely on my advices.
Second, this post is about Interactive Brokers which is the broker that I and most of the people I know here in Switzerland use. I’m not advertising IB out of the blue, I’m a satisfied and happy customer. I’ll mention other brokers, but I’m not going to do a deep and professional comparison.
Third, yes, I said advertising. I figured out they have a referral program and I decided to take advantage of it. Hence, if you create an account clicking on one of the IB referral links I spread on this post (and somewhere else in the blog) I may receive some money 🙂
Ok, let’s get started!
This post is for you if:
- You are a beginner investor.
- You care about low fees.
- You plan to follow simple strategies, like Buy&Hold cheap Index Funds (such as ETFs).
This post is probably not for you if:
- You are (or want to be) a daily trader.
- You’re looking for more advanced investment types (futures, commodities, precious metals,…)
- You’re looking for advanced orders (anything that is different from “buy” and “sell”)
- You’re looking for advanced money management (leveraged/margin investing, shorting, options…)
Essentially: if you’re following this blog, if you aim to meet and not beat the market, if you want to reach Financial Independence and have your portfolio support your lifestyle after Early Retirement and if you’re not here to gamble the system, then this guide is more than enough to meet your needs.
But let’s take another step back 🙂
Using Interactive Brokers is the how.
Defining your Asset Allocation and selecting actual ETFs and other investments is the what.
Always start with why.
So, if you’re here and you still don’t know why you’re investing or what are you going to invest on, please take your time to ask yourself some questions and to do some research. See you later! What? Ok, you need some guidance. You know what? This entire blog is focusing on both the why and the how.
Why? Well… Start Here.
How? Well… welcome to my investing series!
- Investing basics
- Financial Investing
- Funds Investing
- Fees & Taxes
- Stock Price and Market Model
- Investor Profile and Lifelong Investing Strategy
- ETF 101
- Stick with it
- My take on Cryptocurrencies – Part 1: The Ugly
- Interactive Brokers 101
Before that: why a brokerage account? Isn’t my current bank good enough for investing?
The answer is usually a big NO, but I must admit that they’re getting there. For example, in Italy one of your best investing options would be Fineco, which happens to also be a bank.
There are several problems with banks. First, they are heavy structures. They’re not born to handle retail investors. Whatever they put together is going to be costly, inefficient and obscure.
Second, they have a conflict of interests. Banks want to sell their financial products. Usually shitty financial products, like actively-and-badly managed funds. They want to sell these products to you. In order to make them shine they artificially raise custody and trade fees associated to “other products” (the good ones). At the same time they tell you that their funds have zero trade fees and zero custody fees. Yeah, cool, can you please tell me what’s that 2.4% Total Expense Ratio I see there? Stay out of my way!
Third, they are used to serve traditional customers like “old people with some money“, “non tech savvy entrepreneurs“, and in general customers that love to be sitting in a room full of expensive paintings, being offered a quality red wine glass by some suited up consultant on the other side of the expensive crystal desk and ready to sign some contract where they are essentially accepting to pay for all of the above, with interests.
Having said that, I must admit again that they’re slowly getting better. Take a look at the PostFinance E-Trading. Yearly fees of 90 CHF, that are credited toward trade fees. Minimum trade fees of 15 CHF for small orders on Swiss Dots (Derivatives OTC Trading System) or 25 CHF minimum on other stock exchanges. Costs to produce tax statements. Costs to transfer securities in and out. Extra trade fees for “Stamps”. And yet it’s not that terrible. Of course IB is 10x better, but finally banks are getting close.
So then why IB and not another brokers?
When I started looking for a broker, in the mid of 2015, I was listening to all the alternatives. Since at Hooli we are all billionaires, I started following some threads and asking questions to more experienced investors. We have a mailing list for financial stuff, so I dug some data from there too. The vast majority was using IB at that time. Today, the shared knowledge is still that IB is still the best, but its solid position on the top is challenged for relatively small accounts (<100k) and low trade volume. If you plan to invest at least 100k USD there’s no competition at all.
Key features of IB
Size and Stability
This is the most important point. A broker between you and your assets is effectively a man-in-the-middle that could be a point of failure in your strategy.
IB is not a random online broker you never heard of. Founded in 1978, IB is the largest U.S. electronic brokerage firm by number of daily average revenue trades, and it is also the leading forex broker, according to Wikipedia.
It’s a public company (IBKR) and it’s part of the Nasdaq index. It’s actually doing pretty well, its stock price more than doubled in last year! IB employs more than 1200 employees, 1000 of them are software engineers.
Its S&P rating is BBB+ Outlook Positive, which is good but we can do better here and go into “A” territory. Cash in your IB accounts is protected by SIPC up to 500k USD (plus a Lloyd’s extra insurance up to 30M, but collectively 150M which I think it’s not much). Assets are protected even in case of a bankrupt anyway, since customers’ assets and cash are in segregated accounts by law.
Luckily IB is available almost everywhere.
I wrote a full article about the long term impact of fees. Keeping fees low should be your second priority after broker stability.
IB fees are incredibly low, in particular if you invest with them more than 100k USD. Let’s examine them one by one:
Account opening/closing fees
Zero. Well, nowadays if someone asks you money to open an account just walk away.
Zero. Again, if someone asks you money to receive money from you… run away as fast as possible!
Zero on the first withdraw each calendar month, 10 USD (or 8 EUR or 11 CHF) on other withdraws in the same month, more info here.
Yearly custody fees
Zero if your total asset are at least 100k USD, else 10 USD per month credited toward trade fees and waived for the first three months anyway.
For what I care, fixed pricing structure means 0.1% of the trade (minimum 10 CHF/EUR/USD) for Switzerland. It means trades below 10k are inefficient (still way cheaper than any bank though).
The tiered pricing structure is more complex and unpredictable. It depends on which stock exchange you’re trading, the volume of the trade, actual security being traded and other factors I still hadn’t fully figured out. They also claim “In cases where an exchange provides a rebate, we pass some or all of the savings directly back to you“. Anyway, common knowledge at Hooli (and personal experience) says that tiered is usually cheaper (0.07-0.08% instead of 0.1%, plus lower minimum trade fee).
You can also play with both and switch between then at anytime.
~2 USD, unless you trade more than 100k USD. Actual forex pricing are shown here.
They claim to “combine quotation streams from 14 of the world’s largest foreign exchange dealers which constitute more than 70% of the market share“. Forex prices spreads are incredibly tight and commissions so cheap that I’d recommend opening an IB account even if it’s just to convert 20k from one currency to another!
I personally use IB as my preferred currency conversion tool. Do I need 10k USD for a Maldive trip? Easy, I first upload 10k CHF to IB (latency: less than a day), I place a limit or market order to buy 10k of USDCHF for ~9500 CHF (March 2018 prices) wait for the proceeds to settle (up to a week) and wire back the 9500 USD to my PostFinance USD-denominated account for free (latency 1-2 days). It’s not lightening fast, but if I can wait up to 10 days I can convert money in the currency I need almost for free.
Negligible. By the term implicit fees I mean all other annoying costs, the fact that traded securities have high spread between buy and sell prices and so on. I don’t have enough experience with other brokers, but as far as I can see price spreads are incredibly tight and market data is by default acceptably delayed. You can buy real time market data for a premium, but I’m not interested in high frequency trading or daily trading so I don’t care.
Not every broker allows you to trade every product on every stock exchange. IB claims to let you trade on almost any stock exchange, almost every kind of product. So far, I’ve never found a missing asset on IB, but – as I said several times so far – I don’t go for exotic products.
There’s a very long thread on MustachianPost Forum, with more than 100 replies, trying to answer the question “what’s the best Broker option available in Switzerland“.
There’s also a poll, with 49 voters (at the time of writing this post), where IB seems to be leading.
Other brokers worth mentioning are SwissQuote, CornerTrader and DeGiro, plus banks (PostFinance, UBS, Credit Suisse).
If you want to consider DeGiro, please, take a look at this post on MustachianPost Blog (a guest post by The Poor Swiss). Please, if you want to support Swiss Personal Finance blog community and want to open an account with DeGiro go over there and use the referral link 🙂
How to Open an account on Interactive Brokers
Again, if you want to support this site, use this referral link to start the process 🙂
As a Swiss resident (and I guess the same applies to other European countries), you’re registering an account with IB UK. Once you click the link above you reach the account setup page.
Now, take your time to setup the account. The process is not ultra-complicated but requires a little bit of time and attention. I created my account back in January 2016, but to improve the quality of this post I created a new “fake” account without (obviously) completing the application.
The process was different back then and it will probably change over time, but I assume most of the pain points will still be there.
Here are few hints:
Step 1 – Personal Information
Tax Identification Number in Switzerland is your AHV/IV number.
Select a Cash account type, not a Margin one. A Margin account means you’re leveraging your investing through loans. A Cash account means that you need to have enough cash in your account to perform your trades.
Step 2 – Regulatory Information
I don’t know what’s the impact of the Assets & Income and Investment Objectives on your account. Maybe if you declare a lower net income then you might receive notifications while trying to invest too much. I don’t know. I suggest to be honest here.
On the Investment Experience side, I suggest you “exaggerate” your experience a bit. You won’t be allowed to trade if you have no experience.
Trading Countries, just enable “All” in each geographic section. Anyway, you can always change this later.
Step 3 – Certification of Tax Residencies
This step is very important! Remember to check the box for the tax treaty! Else the IRS (US Federal Tax Authority) will tax you on dividends and you won’t be able to claim the withhold back.
Step 4 – Funding
IB requires you to declare a first deposit. Declare your first deposit and save the wiring information. From now on, you always need to declare each funding event in advance.
Now, mind these two things: first, remember to always indicate “for further benefit to Uxxxxxxx / Your Name” on the communications to the beneficiary section of your wire transfer. Second, to some account IB still shows the GB bank account as the one to wire your CHF to. Wiring your hardly earned CHF to this account is slow and it costs 5-10 CHF. Their Swiss bank account is CH2089095000010569674 (same account number 10569674) and wiring money to this account is faster and free of charge. I don’t know why they keep showing this inefficient bank account to customers.
Ok, I know it sounds scary to wire money to a different bank account compared to the one you have been told, but this is 100% guaranteed to work! You have my RIP word 🙂
Here’s a thread on MP forum that confirm that. You can message IB (or even chat with them from within your account management web page) and have them confirm this information.
step 5 – Application Status
Here you need to follow missing steps, like uploading documents and IDs to let them verify your identity and your address. Nothing fancy.
Select Subscriber Status non professional, don’t buy any Market Data, agree to all Risk Disclosures & Agreements documents.
For the Secure Login system, I chose IBKR Mobile x Android app. Pick your choice. This is the second factor authentication and it’s mandatory.
Ok, now you can rest and wait 1-2 business days to have your account open and fully funded 🙂
In the meantime you can play with the demo!
IB kindly offers you a demo of each one of their Trading Platforms. You can actually run the demo even before starting your account creation! I strongly recommend you play with it, try to fill some orders and see how everything works.
Which platform should I try? Going to answer this one soon 🙂
How to use the demo? Well, jump directly to the Web Trader 101 section and follow my guide, since using the demo is similar to using the actual trading platform. The only caveat is that you’re playing with paper money in the demo and trades are fake. They may get fulfilled easier than expected compared to real trades.
IB has several trading platforms where you can place your trades, control your portfolio, watch market data and run analysis tools.
Sorted from the most basic to the most advanced they are:
A super simple trading interface embedded in Account Management interface.
I just discovered it while doing my research for this post 🙂 It looks like it has all the functionalities I need, but I didn’t see prices updating in real time and I don’t feel comfortable with that. Can’t click on buy/sell and pre-fill an order too. You need to type the ticker (I did that typing CSSPX in the picture above). Anyway, cool and quick! I can’t tell if it’s actually good for trading, since I’ve never used it before.
The mobile app.
I use it every day to check account balance and daily Profit&Loss (yes, I know, I shouldn’t check it every day but… you know… it’s just a click away…).
Apparently you can use it for trading too but I’ve never done that. I’m old enough to consider everything but desktop just gaming platforms 😉
Anyway, the mobile app is my main tool for monitoring.
You can customize columns in the portfolio view, activate notifications on your phone (when a position change% is above a threshold or when the entire account is up/down by a certain %) and so on.
The web interface for trading.
This is the tool I use the most. I won’t spend more words here since we have a dedicated Web Trader 101 section below.
Chat/voice-based trading interface that understands natural language requests.
Didn’t know about that either 🙂
Well, I’m not using it and I don’t think I will, but good to know it exists. Chatbots are the future apparently, so I better monitor this one.
Trader WorkStation (TWS)
The desktop App.
It’s a Java software (seriously? Java for frontend Apps? What year is this??) that’s claimed to be “our flagship platform designed for active traders and investors who trade multiple products and require power and flexibility“.
Too much for me, I’m not a daily trader and I don’t need superpowers.
Anyway: “TWS includes all of our most advanced algos and trading tools, and offers a library of tool- and asset-based trading layouts for total customization“, which means it could be interesting to try. Don’t know how many “extras” are free of charge though.
Do you want to build your own app?
You’re welcome, my fellow software engineer
nerd friend! IB exposes APIs in almost all the popular coding languages and web frameworks!
Life is too short for writing another trading app, but it’s super cool they offer APIs!
Recap and Feature Availability
This is the current (March 2018) list of available features for each platform.
I still recommend Web Trader, since it has enough functionality for our needs. Need to investigate more QuickTrade though.
Web Trader 101
A new window (or tab) pops up and you’re facing the Web Trading UI.
I personally only use Web Trader and – as I said before – I think there’s nothing more you need for our purposes, which are Buy&Hold at a very low frequency (once per month?) assets like stocks & bonds via Exchange Traded index Funds (ETFs).
Even though Web Trader is simpler to use compared to TWS, it’s still pretty messy. First thing I suggest you to do is making the interface lean and clean, keeping in sight only what you care about.
Yours will probably look different from mine, with way more tabs. Let’s click on “preferences” and remove everything but Market and Account. You can’t remove the Market Pulse (useless) and Search tab (somehow useful).
You can also customize each tab. I like to keep everything as minimal as I can, here’s what I’ve got.
In the Market tab, I only keep “Market View” and “Portfolio” modules.
The Market View module is very useful to watch/follow some specific security. You can add/remove/edit watchlists and in each watchlist you can add/remove/edit securities.
Here are my watchlists:
I have 3 watchlists (plus default, which I never use). One for ETFs, one for individual stocks and one for currency pairs.
You can edit each watchlist adding new symbols, changing columns and so on. The process is pretty easy.
Let’s analyze a row in my watchlist. A row is a symbol, an ETF in this case. Let’s take a look at the first one: CSSPX. I’ve talked about this ETF in my ETF 101 post. Anyway, we’re not here to discuss the “what” but the “how”.
In Contract column you find the Ticker Symbol (CSSPX), the security type (stock, yes, ETFs are considered stocks), the stock exchange where the security is traded (SMART means IB merges more stock exchanges data for you here) and the currency which your security is traded.
Last indicates the current price. If it has a “D” in front it means the price is delayed (you don’t have realtime data). If it has a “C” it’s the closing price of the previous day.
Then you have the price daily change and, more important, Bid and Ask prices (and volumes, but who cares about volumes?). Bid and Ask prices gives you an idea of the spread. The more a security is traded (more volumes, more buyers and sellers) the smaller the spread should be. That’s why it’s important to buy ETFs with large size. In our CSSPX case… wow… that’s really uncommon! What’s that ridiculous spread? I assume that’s because it’s Easter, trades are closed and someone just placed a sell order very unlikely to be fulfilled 🙂
Other ETFs Bid/Ask spreads are more reasonable, but trust me: when the market will reopen you’ll see smaller spreads again. You may have noticed that some “last price” is outside Bid/Ask range. Well, this is probably an indication that afterhours trading are going in some directions and when the market will reopen the price will jump in the Bid/Ask range.
So, play with the watchlists and add your favorite ETFs! Mind that sometimes adding an ETF is not straightforward.
For example, that’s what you get if you want to add CSSPX to a watchlist: there are several securities matching your query. In that case pick the stock exchange matching your preferred trading currency and go on.
In the CSSPX case just pick LSEETF, i.e. London Stock Exchange ETF division, if you want to trade the ETF in USD. Ok, this was easy since it’s the only actual CSSPX ticker in the list, but sometimes it gets more complicated. You’ll learn with time to not pick the wrong security 🙂
If you feel scared of trading a product you’re not sure it’s the one you want, you can always click on the top level Search tab and follow the flow:
You can verify security ISIN and other details in IB Security Search, which is very high quality.
Along with the market view (watchlists) I keep just the Portfolio View in my Market Tab:
The Portfolio View is a snapshot of your portfolio and its performance, like profits&losses for each security you hold.
Profits&Losses are usually split in unrealized and realized. Unrealized are “virtual” P&L: they are based on the prices you bought the security over time and current market price. Realized are based on actual completed trades, i.e. when you sell something you previously bought. Or I guess it’s more complicated for options trading and for short trading (selling before buying), but – as always – I don’t care about exotic trades.
Realized vs unrealized matters at tax declaration time since some countries tax capital gain, and you have some capital gain only when you realize profits. Luckily in Switzerland there’s no capital gain tax so I don’t matter.
You’ve probably noticed currencies (currency pairs) in this list, like “USD, Cash, IDEALPRO, CHF“. Again, for taxation purposes forex trading are considered “positions”. I send CHF to IB and then sometimes convert them to USD to be able to then buy an ETF traded in USD. Converting CHF to USD means actually buying USDCHF, which is a Currency Pair. I won’t talk much about that, but if you’re wondering why it’s listed in your portfolio the answer is simple: taxation. Currencies are assets and they go up and down like stocks. You might realize profits by buying and selling currencies and that matters in countries where capital gain is taxed – or if you’re considered a professional investor in Switzerland.
The Account tab by default is a higher level overview of your account. I keep it lean by only having Balances, Market Value and Positions:
There’s also a “Margin Requirements” module that I can’t get rid off, even though I have a Cash account and not a Margin one. It’s a little bit annoying. Please, if there’s someone from IB who’s listening: please, make that module optional!
Anyway, I guess this is pretty straightforward. I come here only to check cash balances and actual positions after a trade.
Ok, let’s do something real, let’s buy stuff!
Before that, let’s first learn how to play with currencies and do some forex. As I said before, forex with IB is extremely easy, fast and cheap!
Add a row to your watchlist, select “forex” tab, type USD and click Go.
As you can see the USD can be traded against a lot of other currencies. Let’s select CHF and add that to our watchlist.
Note: Idealpro is the IB network, which is streaming offers from several exchanges and providing the best offers to you (so they claim).
As you can see in your watchlist you now have a USD–>CHF entry. You won’t find the reverse one, you won’t find the CHF –> USD one. This is how Currency Pairs work. If you want to buy USD and sell CHF, you need to buy USDCHF. If you want to do the opposite (buy CHF using USD) you need to sell USDCHF. Yes, it’s kind of weird but it makes sense, at least to me.
To make everything more complicated you won’t easily find BUY and SELL. From the watchlist, the right way to start filling an order is clicking on the price under the Ask (if you want to buy) or the Bid (if you want to sell) column.
If you want to buy USD using CHF, you want to Buy USDCHF currency pair, which means you want to click on the “Ask price” of the USDCHF currency pair. Yes, this is unnecessary complicated. I guess Ask and Bid are there for historical reasons.
Btw, this is the same process we’ll use to buy/sell stocks, bonds, ETFs and everything else 🙂 And, of course, you can always enter an order manually, without having to start from a watchlist or portfolio view.
Please, take your time to admire the ridiculously small spread in currency pairs. We’re talking about 0.5 pip. A pip is a 0.0001 change in price, i.e. a fourth decimal change in price. It means you’re living on the table 0.005% on average when trading currencies and that’s not due to IB, but to supply and demand law! It’s 5 USD on average when trading 100k. Try to wire USD to a CHF denominated account in a regular bank and let me know how it goes 😉
Once you click on the Ask price you finally go to the Order Management section, which is dominating both your Market tab and your Account tab.
Time to place our first order!
Once clicked on the Ask price of USDCHF you’re sent here, in the Order Management view and, as you can see, there is a lot of work to do before placing the actual order! We’ll investigate most of the options later, when trading an actual ETF.
For now, let’s just put 10k in the Quantity and place a Limit order, i.e. select LMT under Order Type.
You’ll see the Limit Price changing while you fill other fields of the order. That’s normal, by default IB sets up a Limit Order for you with Limit Price the current market price. As soon as you type in the limit price field it stops auto-updating.
What’s a limit order? According to U.S. Securities and Exchange Commission:
A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. A limit order is not guaranteed to execute.
The other popular order type is the Market Order:
A market order is an order to buy or sell a stock at the best available price. Generally, this type of order will be executed immediately. However, the price at which a market order will be executed is not guaranteed.
There are of course other order types but you shouldn’t care if you don’t plan to become an active investor.
Whenever you enter a Market order you get prompted by alerts like: “warning: the price is not guaranteed!” and maybe the cheapest seller for your security at the order placement time is the guy selling CSSPX at 296 USD while the last price is 254. Don’t do market orders when spread is large. Nevertheless it’s ok to go with market orders when trading currencies.
Mind that during the order placement process you will interact with several pop-ups that are there to warn you about risks and other minor issues. Read them carefully, but once acknowledged you may safely torn most of them off forever by checking the box “do not show again”.
Once clicked on Preview Order (and killed some pop-ups) you reach the final stage where you can review your order and finally submit it:
You can finally see the actual cost in terms of CHF of your trade. Yes, this is also a little bit more complicated than it should be. It’s not possible to “buy 10k worth of CHF in USD”. You need to play with a calculator if you know how much you want to sell but you’re filling a buy order.
Let’s say you have 10k CHF and want to buy USD. You divide 10000 / 0.95332 and you get roughly 10489. Subtract a couple of USD for the commission and then you have your order: buy 10487 USD at that price, expected price ~10k CHF.
Problem with this approach is that sometimes the order doesn’t get fulfilled so you edit it and increase the price by some pips and… maybe at the new price you can’t afford 10487 USD but few less. It’s painful, but you can play safe and try to buy ~10 USD less than the calculator said, so you have some edit margin (or you could try a market order). If the order fills immediately you’re left with few spare CHF on your account but who cares? Next month you’ll wire new CHF to your investment account and will do the same game 🙂
I’ve also tried not to do forex before a trade in a currency I don’t own. Apparently IB auto sells your other currencies for you, at market price. I’m not sure how reliable this process is (once IB auto sold an ETF share to fulfill one of my orders), so better to play safe and do your forex before buying securities in a different currency.
Trading other securities (like ETFs) is essentially the same process. You start by clicking on Bid/Ask on your watchlist or your portfolio view:
Here I’m trying to sell some SC0C (Stoxx600 Europe ETFs).
Let’s investigate the Order Management view a little bit:
I’m placing a Limit Order, with the limit price 10 EUR higher than market price, which means I don’t want to actually sell my SC0C 🙂
The Order Type drop-down list shows the already explained LMT and MKT plus several additional order types we don’t want to investigate.
The Time in Force (TIF) of our order means for how long we want to keep the order alive (if not fulfilled) before declaring it deprecated.
By default it’s the current day, meaning that at the end of the day (by some definition of “a day”) the order gets cancelled if not fulfilled, and it should usually be ok for you. Don’t touch this. I don’t even know what the other options mean 😛
If you’re not satisfied by the TIF options, you can go advanced and select exact start time and end time.
In which stock exchange are you posting your order? Things like NYSE, LSE, SIX, EBS… well, sometimes it doesn’t matter. Actually, it doesn’t matter most of the times. So just pick SMART and let IB optimize that for you!
Once you’ve filled all order details, click on Preview Order. As you can see this time there’s a forecast of commission prices. SC0C is only traded in European stock exchanges so it will bring more or less a 0.1% trade fee. Trading on American stock exchanges is way cheaper! Usually securities traded in US are also domiciled in US, which will bring other advantages and disadvantages I’ve discussed in ETF 101.
Once you Submit your order, it moves to the Orders tab of the Order Management module.
Once the order is fulfilled it becomes Filled and moves to the Trades tab.
At this point your portfolio and your cash balance change accordingly.
You can obviously modify or cancel an order before it’s fulfilled.
That’s all for Web Trader 🙂
I heard from colleagues that one can create cascading orders (put a sell order for X, then put a buy order for Y, then a limit sell order for Y at price 1% greater than buy price and so on) or rebalancing orders given an asset allocation but I never tried anything fancier than buy and (rarely) sell limit orders.
Account Management 101
There are other aspects of IB outside the trading interfaces I want to talk about: login, funding, statements and so on. Let’s have a quick look together 🙂
Login and second factor authentication
As any modern sensible account, IB requires you to have a second factor authentication, i.e. your password is not enough. You have three choices here: physical card, security device or mobile app. I use mobile app. They used to have a dedicated login App, now they’re transitioning toward integrated authentication functionalities within the IBKR Mobile App. It’s a bit painful if you change physical device or phone number, but still better than anything physical.
Deposit & Withdrawals
Whenever you want to deposit some money on your IB account you have to inform them.
Based on the currency of the deposit IB shows you the right IBAN that you should use to transfer (WIRE, SEPA and so on) your money.
I’ve already told you that there’s a trick for CHF deposit in case they tell you to wire the money to their GB account.
Remember to set all costs to the beneficiary, IB won’t charge you any extra cost for that.
Deposits take regular banking time before you have them available in your account. Usually CHF deposits on their CH account are available on the same day your bank wires the money. SEPA and USD deposits take an extra day (from Switzerland and Italy, I assume in US is faster to wire USD).
Ah, after 2 years of history, they’re becoming less picky about deposit notifications. I don’t have to tell them exact amounts anymore. Sometimes I even forget to inform them about a deposit and it’s ok. Maybe that’s because I’m a “trusted customer” now. Two years ago I once put a wrong amount in the deposit notification and they complained. I had to cancel the notification, create a new one before they accepted it and made the money available right away. It never happened that a deposit bounced back to my bank due to wrong or missing notification. Eventually they keep your money on hold and ask you to provide more details.
The only complex issue I had to manage was with Hooli stocks autosale: when my Hooli stocks vest the proceedings go directly to IB. This is a broker to broker transfer, not a wire from one of my bank accounts. The first time that this happened I received a call from an IB operator that asked me to prove I have an account with the other broker. Problem easily solved after scanning a statement and sending to the IB operator.
Withdrawing money is also super simple and must be performed in Account Management too.
Select the currency, the method and save some bank information. Again, the bank account must have your name attached to it.
First withdrawal in each calendar month is free of charge, others cost ~10 CHF. Try not to withdraw money more than once per month. It should not be hard 🙂
Note that you can only withdraw settled cash. Cash takes some time to settle after a trade, on average 3-5 business days. It means if you sell your CSSPX for cash and try to withdraw the money soon after you won’t be allowed. I guess it’s reasonable. Money is not sent directly to the withdrawing account after a trade but it’s spread on several fast access trading accounts closer to stock exchanges for efficiency reasons (maybe you want to use it directly for other trades).
Let’s see a real life currency conversion use case. Let’s say I have 10k CHF in a Swiss Bank account and I want to convert them into EUR in an Italian bank account.
- I inform IB I’m wiring 10k CHF – Day 0
- I input a wire transfer from my CHF (CH) account to IB – Day 0
- My CH bank actually performs the wire transfer to IB – Day 1
- The CHF transfer materializes on my IB account – Day 1
- I buy EUR on the market, roughly 8500 EUR (used to be ~10k EUR a couple of years ago…) – Day 1
- I wait until the dust settles… – Day 4-6
- I SEPA the money to my EUR (IT) account – Day 4-6
- The EUR amount is available on my IT bank – Day 5-8 (plus a weekend: ~10 days)
If you’re not in a desperate need of money, you can do the conversion in 10 days at ~2 USD cost instead of at least 2% offered from banks.
Reports & Statements
Statements are fun, really fun! Well, I assume they’re fun if you’re a nerd like me 🙂
IB statements generator is powerful and complete, it’s all you need!
Here I am asking for a Year-To-Date (2018) activity default statement. You can customize sections, period, language and format. You can also save your custom statements templates and reuse them for future statements 🙂
Default activity statements contains a lot of info:
Let’s take a look at some of the interesting sections here, like Net Asset Values:
I can see my account grew by 37k CHF since January 1st, which is not good news, since deposits and withdrawals net to 57k… Yes, we all know. If we exclude the first 25 days of the year, the remainder of Q1 2018 has not been amazing for Mr Market 🙁
Let’s look at the Trade report:
Here we can see all my trades for Q1 2018, stocks and forex.
First one is an autosale of 1 SC0C, my mistake. While playing with a buy order for VHYD I didn’t notice I was short of ~20 USD and IB autosold 7 EUR to USD (last 2 entries, zero commission), 1 SC0C to EUR (first entry, 1.25 EUR commission for a single stock… ouch!) and then another 7 EUR to USD (zero commission).
I don’t know how to prevent IB from letting me buy securities without enough cash available and without having to sell other securities in unpredictable order… does anyone know?
Anyway, for the regular trades I’ve spent 40 CHF commissions for 56k CHF trades (bought 60k USD of VHYD, which I just discovered now the ETF is being renamed VHYDI), i.e. 0.07% trade fee on average.
I still don’t know how to control that. I usually pay something around 0.08% fee for my trades with tiered pricing, but one of my trades (2018-02-20, 10k USD) went thru with just 0.40 USD commission! That brought my average trade fee down to 0.07%.
Forex, as usual, is ~2 USD commission unless you trade big amounts.
What about Funding and Dividends?
You can see Deposit and and Withdrawals on top left.
Made a 27.7k USD deposit in January (Hooli stocks autosale), 30k CHF deposit in February (yearly bonus and some savings), 5k EUR deposit and withdrawal in March.
The 5k EUR thing was to cheaply (free) transfer money from Switzerland to Italy (EUR to EUR). If I SEPA directly EUR from my EUR denominated account in PostFinance (CH) to BancoPosta (IT), then Bancoposta will charge me 7.50 EUR + 0.15% of SEPA amount (another 7.50 EUR for 5k transfer). It’s 15 EUR saved, at the cost of ~10 days delay.
Before you scream: it’s all legal 🙂 I’m just moving my money around and trying to avoid such criminal costs (that should be illegal).
Dividends: I’ve received some dividends from my VHYD(I) ETF in December 21st, actually paid out in January. Q1 2018 dividends have been announced: 0.39 USD per share, 706.69 USD total, being paid out in early April.
SPOILER ALERT: Yes, I’m experimenting with dividend investing 🙂 more on this on my quarterly financial update (next post).
IB offers Tax forms, but I don’t use them.
For now, my tax situation is simple: I only need to declare trades, profits (dividends) and net asset values at the end of each year. I don’t need dividends withholding reimbursement (for now) or more complex stuff so I take care of my investment taxes documents on my own.
IB is growing a lot. They’re starting offering bank related products like credit and debit cards. When they will issue a debit card that works with multiple currencies I’ll go with “shut up and take my money” 😀
They also offer free webinars in several languages, financial education (I guess for free, online) and a lot of analysis and trading tools based on Machine Learning. I don’t use any of these, since I’m not a daily trader.
A feature I like and use a lot is the App notification. You can customize when to be notified and how. I use it, but you shouldn’t! We’re long term investors, we don’t care about daily profits and losses!
And no, I’m not telling this mainly to myself, that’s not true! 😀
I like IB, I trust IB, I use IB.
I’m a satisfied customer and I’m here to recommend IB to you, my dear new investor.
If you found this guide useful and plan to open an IB account, please consider supporting this blog by creating your account using this affiliate link. It won’t cost you anything, but IB will eventually reward myself with a referral bonus 🙂
Again, I’m not recommending a tool I don’t use and like, I will never do that. I’m recommending IB after more than 2 years of being a happy customer.
So… click here and open your IB account!
That’s all for today 🙂