Very Convenient Interactive Brokers
Table of Contents
- Top
- Advantages of Interactive Brokers
- Products
- Fees
- Security
- Tools
- Not-so-good Points
- Account Maintenance Fee
- Paid Data
- Foreign Account
- Initial Deposit Restriction
- How to Open an Account
- Account Selection
- What You Need to Prepare
- What You Should Prepare
- Precautions When Opening
- Experience is Necessary
- Account Type
- Don't Trust Japanese Cautions
- After Applying
- Summary
If you frequently trade US stocks or options, a US brokerage account is essential. While there are several options, Interactive Brokers (hereafter IB) stands out as a particularly user-friendly brokerage.
This article summarizes what makes IB so convenient.
Incidentally, like the article below, this was pulled from a document written about 4 years ago.
Advantages of Interactive Brokers
IB's strengths lie in its combination of "products," "fees," "security," and "tools."
Products
You can invest in various products including global stocks, futures, options, as well as FX, bonds, mutual funds, and more. The overwhelming convenience is that you can purchase these on the same platform using funds from the same account.
With domestic brokerages, you'd typically have to transfer funds for futures, use a separate company for FX, and so on. This affects not only convenience but also capital efficiency.
Fees
As an online brokerage, the fees are low.
For both stocks and options, it's about $1 per trade. This is already cheap, but since it's calculated based on quantity and hardly depends on the transaction price, it becomes even more cost-effective when trading high-priced products.
Many domestic brokerages charge fees based on the transaction amount. For small amounts, it might be less than $1, so the cost-effectiveness may vary depending on your trading style.
Security
While foreign accounts might sound dubious, IB can be considered a highly reliable company.
First, the assets you deposit are protected. Based on reading the following, it appears to have a very robust structure.
Next, two-factor authentication is mandatory for login and transactions. It's a shame it's a proprietary app, though. This is rarely seen with Japanese brokerages. I wonder why.
Incidentally, if you skip two-factor authentication, you get a Read-only login. If Japanese brokerages had this feature, M○ney F○ward would have been easier. I wonder why.
Also, customer support is comprehensive. Inquiries are responded to by the next business day, and you can inquire in Japanese if necessary. You can check the status of your support on a dedicated page, so there's no worry about it getting buried in a mountain of emails.
Furthermore, they prioritize protecting customer assets, and when you try to start options trading, believe it or not, a test begins. You can see Uncle Sam's consideration in ensuring you trade with proper knowledge.
Tools
As expected of an online brokerage, the tools are also extensive.
You can trade using a tool called Trading Work Station (TWS), which is excessively feature-rich. There are trading screens and order methods that I have no idea when to use, and I think I'll never know all the features in my lifetime. Perhaps due to its high functionality, the drawing becomes sluggish when opened on a low-spec PC. It can be called a tool for professionals. For those who want to trade easily, there's also a smartphone app. This one is very user-friendly.
Also, APIs are published, allowing you to freely create tools. This is wonderful. I haven't seen any domestic stock exchanges with APIs... Okasan RSS?
By the way, you can create a demo account called a "paper account", where you can test and verify API calls. You don't need to test on a live account.
The data needed for the tools is on a subscription model, where you only subscribe to what you need. It's usually a few dollars per month. For example, US stock prices will be delayed by 15 minutes unless you purchase the data. If you want to save those few dollars per month, look at prices from other sources and just place orders.
Not-so-good Points
As wonderful as IB is, there are some challenging points.
Account Maintenance Fee
It's $3 for those 25 and under, $10 for others, monthly. It's free for the first three months after opening, and also free if you pay more than this in commissions.
Having a fixed monthly cost can be tough, but people who trade frequently won't be affected at all, so it depends on your trading style.
Paid Data
Because of the system where you subscribe to the market data you need, sometimes the information you want is paid. Basic information is free data, and options information is as cheap as $1/month, but costs will continue to accrue.
Foreign Account
Unfortunately, as we're not US citizens, fees are incurred for remittance and dollar conversion. IB itself doesn't charge deposit fees, but fees are charged by the sending bank or intermediary banks. If you send money without thinking, even for small amounts, fees of over 5,000 yen can occur, so be careful.
Incidentally, withdrawals from IB are free once a month. You probably won't be withdrawing frequently, so it can be considered essentially free.
Also, converting yen to dollars within the account can be done with a spread of 5 sen, so it's better to send yen to IB and convert to dollars there.
Initial Deposit Restriction
This might not be a problem for those deliberately creating a foreign account, but an initial deposit of 300,000 yen for those 25 and under, and 1 million yen for others is required. It's for spam prevention and asset protection, but you'll end up sending it while worrying if it might disappear somewhere.
How to Open an Account
As a memo, I'll write some tips on how to open an account. It might have changed, so please read this as a reference.
Account Selection
There are two types of IB: the Japanese branch of IB and the overseas account IB LLC. If you open the Japan-oriented one, you can only deal with Japanese stocks, so make sure to choose the LLC one.
What You Need to Prepare
- Utility bill (within 3 months)
- Photo ID (valid)
That's all. If you've opened an account overseas before, you'll understand, but you don't need to fill out any confusing documents. You can open it just by clicking around online.
What You Should Prepare
- Sumitomo Mitsui Banking Corporation account
- SMBC Direct + Foreign Remittance Service
- Shinsei Bank account
To deposit into IB, you need to transfer to a Citibank account. Transfers to Citibank accounts are treated as foreign remittances, so if you transfer normally, it costs about 2,500 yen.
However, SMBC Direct's foreign remittance service is free for Citibank transfers. Therefore, depositing from SMBC can be done without fees.
Also, when receiving remittances from overseas, you often get charged about 2,500 yen for lifting charges. However, Shinsei Bank is free, so you can keep fees down by receiving at Shinsei Bank. You need to check if fees are charged by correspondent banks.
Precautions When Opening
Basically, you just need to click through from the link below, but there are a few points to note.
Experience is Necessary
To be able to handle some products including options, you need "more than 2 years of trading experience, and a certain amount of assets". Also, dollar conversion at FX rates requires an FX account.
If you can't open this, it loses half its meaning, so if you're short, gain experience and try again.
Account Type
You can do margin trading with a Reg. T margin account. I recommend this as it allows leverage when needed. Note that the concept is a bit different from Japanese margin trading.
If possible, a portfolio margin account is better... For those with $100,000 in assets, please do.
Don't Trust Japanese Cautions
Utility bills within 12 months, ID without photo as a candidate, etc., are blatantly false. Read the English.
After Applying
After applying, a confirmation letter will come to your home, and the account will be opened shortly after.
You need to deposit within 45 days of opening, so it's a good timing to open when you've applied for SMBC's foreign remittance service.
Summary
IB can be said to be an excellent brokerage that covers important points in exchanges. Especially if you want to start options or trade US stocks at high frequency, it should be the first brokerage to consider.
