Foreign individual investors with IB ?

F

fh2000

A relative of mine back home in Asian is thinking of using IB as the broker to do some investing/trading. There is no capital gain tax in that country, only small fees to their Trade ministry when trading locally.

I have exchanged a few emails with IB customer rep. Looks like my relative can just fill out an electronic form online from IB specifying that he is a Non-US person using W8 form. When approved, he can wire transfer the fund to an IB US office and begin trading. He will have to be up at night during US market opening hours. :-)

Is this how foreign individuals use IB as a broker? How reliable is the account held by IB? I understand that in US there are regulations that would ensure safety of customer's funds up to say, $100,000. Is there such safety protection for foreign account holders within IB?

Thanks
 
Quote from fh2000:
A relative of mine back home in Asian is thinking of using IB as the broker to do some investing/trading. There is no capital gain tax in that country, only small fees to their Trade ministry when trading locally.
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Some countries don't have capital gain tax or any fee levied on trading.

Is this how foreign individuals use IB as a broker?
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No, not all customers are living in the US (and would like to avoid taxes). They may choose IB because it offers a large range of instruments, direct-access, online, reasonable commission.

IB is good for middle-priced or high-priced stock trading, futures trading. Not that good for low-priced stock, options or forex.


How reliable is the account held by IB? I understand that in US there are regulations that would ensure safety of customer's funds up to say, $100,000. Is there such safety protection for foreign account holders within IB?
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It doesn't matter whether you are a foreign customer or not. The protection is the same.

No, SIPC offers up to $500,000 (including $100,000 cash max) per person.

IB offers extra protection by providing Lloyd’s insurance. Lloyd's policy provides up to an additional $29.5 million (including $900,000 for cash), shared by all customers.

Remind you that there are terms and conditions, so it is not going to be as attractive as it looks. But I think it is fairly safe to put money in IB. It's a big firm anyway.

See also:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=72792
 
The insurance is pretty standard...
What you will see with a Customer Account anywhere in North America.

So it's not the "insurance" that's the primary consideration...
But the chances of IB's insolvency.

IB's risk of insolvency is much lower than others because:

(1) IB religiously follows a very conservative business plan... extreme automation and minimal staff.

(2) IB does not take on and extend leverage... to pros employing riskier strategies.

(3) IB has always been steadily profitable... and, one can assume, continues to be profitable.

The most dangerous kind of broker...
Is one that is forced to match IB's low commission rates...
But without a similar low cost infrastructure in place.
(Often by extending leverage and taking on much more risk than IB).

Simply... make sure your broker is profitable.
If they cannot prove it to your statisfaction... walk away.

If your broker blows up....
You may eventually get your money back...
But the incident could cripple your business for months.
 
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