IBKR - Interactive Brokers

[writser]

Benhacker: thanks for your considerations. More or less matches with my own thoughts - I haven't pulled the trigger despite my religious zeal for their brokerage accounts.

with $1m+ you are a fool if you park the majority of your assets at a different broker.

Let's not start hurling insults

I only insulted millionaires. They should be able to withstand some criticism from a random troll. I still stand by my statement but to please you I will make two exceptions: you are not a fool if 1) you are not in the slightest bit tech-savvy or 2) you understand that IB is much cheaper but you invest the majority of your assets in markets they do not offer. The third argument, which is: "I understand it is cheaper but I don't like the interface" is just nonsense if you have a 7-digit account. Spend one day getting used to it and you save a ~$1000 / year or more.

Though granted, people also like to pay 1%+ p.a. for the 'right' to invest in an arbitrary horrible mutual fund so perhaps this isn't the largest investment sin possible!

[KCLarkin]

On valuation, depending on your assumptions about how to treat the market making business and corporate overhead, if you assume $600M after-tax 2015 net income from the brokerage business I get it trading at a low-20s forward multiple of brokerage net income. The stock is up more than 40% over the past 6 months, which never feels good, but the valuation still does not seem that expensive for a business with the growth trajectory, runway, and competitive advantages.

My estimate for the brokerage business is 22.6x 2015E. I value MM at book. Expensive but not so outrageous that I would feel the need to hedge with a pair trade.

[Packer16]

Packer,

it's true that certain markets IB doesn't support (yet), but their IRAs are fully international, and I can (and have) held currency other than USD in them.

Unless I am reading something wrong on the IB site - "IRA accounts may be opened in any base currency, but when trading in a non-base currency product a currency trade must be executed first as you cannot borrow currencies."

Packer

[leeway]

I for one likes IB more and more as I started to use it more in the last 1.5 years. I hated the interface initially, but as I am getting more used to it, it starts to make more sense. I think the basic idea is similar to Reuters screens that are used widely on wall street. Maybe just by chance my IB account has performed much better than my TD and Fido accounts, so I have been shifting money over to IB from other accounts (ie doing more that has been working).

[benhacker]

Packer, yes, you are confused as the wording you are reading.

What IB is saying could be rewritten as this:

***You can't borrow foreign currencies.***

If you have $100k USD in an IRA, and you want to buy XYZ on the Spanish exchange, XYZ trades in Euro, so you can't buy it without Euro.  So at IB (in an IRA) it's two steps, you "buy" Euro vs. USD, and then you buy XYZ (with the Euros).

In a taxable account, IB allows margin, so they can combine the forex / XYZ purchase into an attached order (they can, it's not the default) where the buy / borrow happen simultaneously.  I think the reason they can't attach the forex order in an IRA is that there is no guarantee on pricing since forex and equity moves could theoretically gap between purchases... because IB is not acting as a forex dealer (like Fidelity is... charging 1%), they are just executing forex at the best bid/ask on the OTC market, they can't "guarantee" that a simultaneous dual trade like this would be limited to a specific value.  (This is probably why Fido just says "they can't do this in an IRA" which is total BS, it's just that they can't guarantee you won't use margin if you executed badly in a volatile market... I wonder if Fido let's you trade overseas if your taxable account isn't a margin account?  Anybody know?)

Does that make sense?

Thanks,

[thepupil]

Packer,

it's true that certain markets IB doesn't support (yet), but their IRAs are fully international, and I can (and have) held currency other than USD in them.

Unless I am reading something wrong on the IB site - "IRA accounts may be opened in any base currency, but when trading in a non-base currency product a currency trade must be executed first as you cannot borrow currencies."

Packer

All that means is that you have to execute the currency trade first before buying the stock. You can hold currencies in the IRA; you just can't hedge out the currency by being short it.

In my taxable account at IB, if I buy a foreign stock, with one click it basically shorts out the currency and buys the stock. It executes the currency trade using a normal bid-ask spread which for most currencies is measured in pips; they don't not rape you by charging you 1% like Fido. In an IRA you just have to swap into currency first and then you buy the stock with that currency. You wear the currency risk (unless you do what I do and short the corresponding amount of currency in the taxable account).

My dad has Fido. I have IB. On the same trade we did recently, he underperformed by several percentage points since he had to got jammed by Fido's currency bid offer through which you can fit a double wide. The difference amounted to about $2K. That's a lot of monthly minimums.

[Jurgis]

"I understand it is cheaper but I don't like the interface" is just nonsense if you have a 7-digit account. Spend one day getting used to it and you save a ~$1000 / year or more.

This is not true. Productivity loss may cost more than savings. You also just picked $1000 number out of thin air.

Peace

[oddballstocks]

Packer, yes, you are confused as the wording you are reading.

What IB is saying could be rewritten as this:

***You can't borrow foreign currencies.***

If you have $100k USD in an IRA, and you want to buy XYZ on the Spanish exchange, XYZ trades in Euro, so you can't buy it without Euro.  So at IB (in an IRA) it's two steps, you "buy" Euro vs. USD, and then you buy XYZ (with the Euros).

In a taxable account, IB allows margin, so they can combine the forex / XYZ purchase into an attached order (they can, it's not the default) where the buy / borrow happen simultaneously.  I think the reason they can't attach the forex order in an IRA is that there is no guarantee on pricing since forex and equity moves could theoretically gap between purchases... because IB is not acting as a forex dealer (like Fidelity is... charging 1%), they are just executing forex at the best bid/ask on the OTC market, they can't "guarantee" that a simultaneous dual trade like this would be limited to a specific value.  (This is probably why Fido just says "they can't do this in an IRA" which is total BS, it's just that they can't guarantee you won't use margin if you executed badly in a volatile market... I wonder if Fido let's you trade overseas if your taxable account isn't a margin account?  Anybody know?)

Does that make sense?

Thanks,

I don't have margin and purchase foreign stocks at Fidelity.  I have also purchased foreign stocks in a Roth at Fidelity.  I had to call to execute the order but it worked out fine.  Broker executed orders cost more but if you call they can execute almost anything on the phone.  I was told I could trade anywhere in the world except Africa (South Africa excluded) through the phone.  They first look for a US market maker with the foreign stock then go directly to the foreign market makers.  At one point I called about a Danish stock in the morning, maybe 8am.  While I was on the call they pulled the ask from the Danish market maker directly.  They gave me a good quote although I ultimately never executed.

Fidelity claims they can't execute foreign trades on a foreign exchange for amounts less than $50k, but that's not true.  They will execute orders for $5k or less if you ask.  The $50k is some boilerplate language they must need to read to clients on the phone.

Simply calling the international desk on a few occasions has been very instructional.  I get the feeling these guys are bored.  They'll do a lot of digging for you if asked.  At one point I called about a stock and mentioned that IB could do the trade and the broker was doing backflips to keep me happy.

This is anecdotal but when Fidelity came out with their international platform they had a limited market offering.  I kept emailing them with additional markets I wanted to see supported and in v2.0 of their international offering everything I had requested was available.  I don't know if this is coincidence or not, just an anecdotal story.

Compared to Europeans I think we have it great on commissions!

[Jurgis]

I wonder if Fido let's you trade overseas if your taxable account isn't a margin account?  Anybody know?

Yes, they do.

[benhacker]

Thanks for the additional color on Fido!