As people around the world hunker down in their homes to stop the spread of Covid-19, the pandemic has minted a generation of new retail investors eager for returns amid a global downturn. Hoping to assist these new traders on their bold investing journey is Interactive Brokers (IBKR).
In its quarterly results for 2QFY2021 ended June 2021, the brokerage noted higher commission revenue due to increased trading activity and a higher rate of customer accounts opened throughout 2020 and into 2021. For the quarter, the number of customer accounts increased 61% y-o-y and 7% q-o-q to 1.41 million.
Over the last 43 years, IBKR has grown to become a major securities firm with equity capital exceeding US$9 billion ($12.2 billion). Today, IBKR is among the largest electronic brokers, based on daily average revenue trades, which increased 32% y-o-y to 2.30 million in 2QFY2021.
Now, IBKR is flexing its muscle as a market leader to compete with both newly emerged and existing players, all of which are going after their fair share of this growing market. Along the way, changes are happening that could benefit even the most casual trader.
Removing the inactivity fee is among the changes at IBKR to smoothen the trading experience. Now, investors can enjoy competitive pricing without worries about the frequency of their trades, says IBKR.
“While many of our clients are active traders or maintain substantial equity in their account, we wanted to remove any impediments to opening an IBKR account,” says Steve Sanders, executive vice-president of marketing and product development.
Prior to eliminating the inactivity fee from July 1, 2021, the fee was US$20 per month for those with less than US$2,000 in their accounts, and if they did not generate a minimum of US$20 in commissions. If the net liquidation value of the account was less than US$100,000, IBKR charged an inactivity fee of US$10 a month. For those under 25 years old, the inactivity fee was US$3.
Sanders: Investors should be thoughtful about how they choose a broker and shouldn’t base it on a gift or ‘freebie’ that they get in the short term
“Our decision to remove inactivity fees aligns us with industry standards and reflects our ongoing commitment to provide clients with low-cost trading solutions,” says Sanders.
No hidden costs
IBKR’s move has set it apart in this industry. “It’s not too good to be true; it is good, and it is true. You get all the great things an IBKR account has to offer — low commissions, global breadth of product, great technology and fractional shares in US stocks — and now there’s no inactivity fee, no platform fees or other impediments to trading on our platform,” says Sanders to The Edge Singapore.
Along with the jump in trading interest, the competition among brokers has increased. Some are dangling gifts and bonuses for “free” trading. That said, there are often real, hidden final costs to the investor, and Sanders urges traders to carefully consider their choice of brokerage. “Investors should be thoughtful about how they choose a broker and shouldn’t base it on a gift or ‘freebie’ that they get in the short term. That small ‘gift’ may actually end up costing more in the long term,” he says.
Rather than being taken in by “shiny incentives”, investors should really think about the overall value of their broker relationship, says Sanders. These include the long-term cost of commissions, the availability of products and hidden platform fees. “Yes, the immediate pros to opening an account with a broker could include a ‘freebie’, but what are the cons as it relates to true costs in the long term? It’s important to look at the whole picture before making a choice,” he adds.
While the brokerage is headquartered in Connecticut, Asia is clearly a growing focus for the company. Interactive Brokers Singapore began operations here in July 2020, close to the height of the pandemic. At its launch, more than 37% of Interactive Brokers’ users lived in Asia, up from 27% in 2017.
See: Interactive Brokers approaches first year in Singapore; eyes crypto and bigger investors
See also: Interactive Brokers offers trading platform to wealth managers in Singapore
On Aug 1, 2021, the Hong Kong Stock Exchange (HKEx) raised its stamp duty on contract notes from 0.1% to 0.13%. At the same time, IBKR introduced a simplified stock pricing of between 0.015% and 0.05% of the value of HKEx transactions.
The new commission rates are available with IB SmartRoutingSM, IBKR’s routing system that automatically seeks the best price for each order. This new fixed pricing structure is offered alongside IBKR’s current tiered pricing, and the brokerage invites its customers to review both options to choose the one that best fits their investing objectives.
The price changes are a happy coincidence, says Sanders. “We have had a sliding scale in place which is very attractive to active traders, but we lowered the starting tier to remain competitive. It is a coincidence with regard to the increase in stamp, but nice to allow our clients to not see an increase in total fees as a result of the government stamp increase."
Photo: Interactive Brokers
