Interactive Brokers: what's the catch?

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yukon_cornelius

There is so much talk on this forum about Interactive Brokers.

I looked at their website, only $1 commission to trade 100 shares. WOW! That's so low.

So what's the catch? How can they make money giving away their services for practically nothing? Datek charges $10 for the same trade.

Are there any special fees or other "gotchas" that I'm overlooking? It seems too good to be true.
 
Originally posted by yukon_cornelius
There is so much talk on this forum about Interactive Brokers.

I looked at their website, only $1 commission to trade 100 shares. WOW! That's so low.

So what's the catch? How can they make money giving away their services for practically nothing? Datek charges $10 for the same trade.

Are there any special fees or other "gotchas" that I'm overlooking? It seems too good to be true.
More...

There is no "catch" beyond having to switch to a different order entry system. You don't get any of the extras like news, charting, or level2, so its perfect for the advanced trader who justs wants a cheap and powerful order system. IB has some weird rules like a 10 day waiting period to cash personal checks, but overall I find IB to be superior to datek.
 
Originally posted by Htrader
There is no "catch" beyond having to switch to a different order entry system. You don't get any of the extras like news, charting, or level2
More...

The news and charts at my other online brokers aren't as good as Yahoo (for news) and MSN MoneyCentral (for charts).

Level II quotes: Datek gives you three Level II windows for the low price of $9.99/month. Well worth the money, in my opinion. It can give you hours of entertainment just looking at the quotes.

Well, I'm going to be opening myself an IB account so I can trade for $1. Unless someone else tells me what the catch is.
 
You can see by the various message threads that alot of the other people on this board also use IB. Its not perfect, but the low commissions makes it an excellent place to try out new investment strategies.
 
Originally posted by Htrader

Its not perfect, but the low commissions makes it an excellent place to try out new investment strategies.
More...

Seems that way!

Of course a strategy that works for trades of 100 shares at a time may not work if you use the same strategy and trade 5000 shares.

Another broker I use charges me the full commission for partial executions, and that becomes expensive really fast. I presume this isn't a problem with IB because they only charge you per share?
 
It's a great broker to swing trade with. You can take on 15 positions of 200-300 shares each and have really low commissions compared to other direct access brokers. If you trade 1000's of shares per trade then you lose the advantage. You can also use OCA orders which are great for swing trading and I suppose day trading too. They are a big international company so don't worry about them not knowing what their doing.:)
 
ddefina,

You can also use OCA orders which are great for swing trading and I suppose day trading too.

Please explain what OCA orders are, offering an example if possible. Thanks.
 
One-Cancels-All (OCA) Orders
An OCA order is actually a combination of separate orders that are worked in conjunction with one another in the marketplace.

To place these specific orders one must first open the Fixed Order Box form, accessed through the [O]rder button. There, enter the separate orders, making sure that each order has the OCA button checked.
All orders placed with a given Order Group name will form an OCA group. "OCA" is the default group name. You may enter your own order group name in the Order Group box (to the right of the OCA button).
You can transmit each order separately from the Fixed Order Box or after creating the orders, transmit them one after another while they are displayed on your TWS screen.

A. If, after transmission of the orders, any separate order within the OCA is canceled by the user, the remaining working order(s) will automatically be sent cancellation requests.
B. If any order in the group is partially executed, the contract size of the remaining order(s) will be adjusted downward in proportion to the fraction that was executed.
C. When any order in the OCA grouping is fully executed, the IB system will automatically issue a cancel request for the remaining order(s).

PLEASE NOTE: Because the OCA procedure is an automated process, Interactive Brokers cannot guarantee that requested cancellations and modifications will reach a specific exchange before an order has been executed.

-----------------------
BTW the 'catch' with IB is that they are mainly an institutional broker (see their share of program trading) that allows retail clients access to the same system.
 
The only drawback for small to mid size position traders, is the lack of eye candy and the (imho( funky java based entry order software.

If you already use seperate data and tech application providers and only need a brokerage, IB is nice and cheap.

If you are the type that likes an all inclusive package...move along...nothing to see here...
 
Babak,

Thanks for the thorough explanation of OCA orders. Cyber has a similar function, what I call above/below orders, where for instance on a long position you can place both a sell-limit (above) and sell-stop (below). They aren't linked together but when one is hit, assuming it's for the full position, the other is automatically cancelled.

Very useful at times, and cyber provides the same functionality in their IRA accounts (which I haven't seen elsewhere). Almost all brokers don't allow above/below orders in IRA's since, if they're not linked to self-cancel, then if both get hit (say, on a wild market day) you would have a de facto short which is a no-no in an IRA.

Anyway, nice to see IB offers an auto-cancellation feature which can be especially useful for swings.
 
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