Is Interactive Brokers Safe?

Is Interactive Brokers Safe?

The last thing investors should be worried about is the safety of their brokerage. In this review we will be discussing the reliability and safety of the Interactive Brokers platform.

For investors looking to expand their investment skills and portfolio in the US and abroad, what does Interactive Brokers offer and do they provide a history of prestige and trustworthiness?

Interactive Brokers’ History

Interactive Brokers is an international firm that prides itself on one of the most inclusive offerings of US and internationally based equities on the market.

Headquartered in Greenwich, Connecticut, the firm’s over 2600 employees focus on making Interactive Brokers one of the premier institutions for investors of all sizes and backgrounds.

Unlike most brokerage firms, Interactive Brokers operates as a standalone broker-dealer. This distinction allows the company to provide its investors with a uniquely focused experience that comes without an overly expansive balance sheet.

This standalone nature allows IBKR to solely focus on its investors, without having to worry about group-wide liabilities and policies that could force its hand in times of recession or crises. 

Operating since its founding nearly 45 years ago, Interactive Brokers Group, Inc. conducts over 2,204,000 trades per day for its clients, half of which are located outside of the United States.

Nevertheless, Interactive Brokers is more than just a brokerage.

After creating the first handheld computers for trading in 1983, the firm has continued to develop its technological edge over its competitors and offers its clients some of the most cutting edge and advanced trading software available. 

In addition to a comprehensive mobile platform, Interactive Brokers provides its investors with its flagship trading platform Trader Workstation, a single product that allows trading of stocks, options, futures, currencies, bonds, and funds on over 150 markets worldwide.

Furthermore, the company prides itself on offering its clients one of the most inexpensive trading options available, with commissions maxing out at 1% of trade value for free users. 

Meanwhile, customers that subscribe to the firm’s IBKR Lite program trade US stocks and ETFs commission-free.

Is Interactive Brokers Safe and Credible?

Rated investment grade by Standard & Poor’s, Interactive Broker’s mission to “Create technology to provide liquidity on better terms. Compete on price, speed, size, diversity of global products and advanced trading tools.” has not changed since its inception in 1978.

The firm prides itself in its ability to protect its customers’ interests and takes a number of steps to ensure that its clients are protected and insured through any event or circumstance.

Despite its approval by the Commodity Futures Trading Commission (CFTC), Interactive Brokers chooses not to invest its clients’ assets in money market funds due to concerns surrounding foreign sovereign debt. 

Additionally, Interactive Brokers Group, Inc. holds over 10 billion dollars in equity capital, despite the required minimum being just over 6 billion.

Moreover, the company covers all of its investors’ capital with insurance and is regulated by the US SEC and CFTC and is a member of the SIPC, in addition to dozens of other regulatory bodies surrounding the globe. 

In 2020 Interactive Brokers surpassed 1 million client accounts and now holds over 170 billion dollars in client equity.

The company has been widely recognized by many as the best firm for international trading and receives an A+ safety rating from the Better Business Bureau.

Interactive Brokers receives 5/5 stars in 2022 from Barrons, StockBrokers.com, and ForexBrokers.com for its exceptional commitment to client satisfaction and offerings. 

The firm also received recognition from Investopedia as its #1 rated brokerage firm for international trading and for advanced traders. 

Payment for Order Flow

One of the biggest cons of modern commission-free brokerages is that they make a significant portion of their money by selling investors’ orders to market makers that in return execute trades.

The problem with this process is that investor orders are often not prioritized, and market makers generally profit off of playing both sides of the trade and receive the difference between bid and ask prices.

The issue for investors is they often do not receive the best prices through this practice and it regularly costs unknowing investors money each and every time they place a trade.

Interactive Brokers may not charge commissions to its IBKR-Lite clients for US Equity trading, but it does subject their orders to payment for order flow, allowing the firm to receive some compensation.

Nevertheless, for clients that opt for IBKR-Pro this practice does not exist and traders are free to execute orders as they please, without worrying about the negative consequences involved in payment for order flow practices.

Interactive Brokers Security

Interactive Brokers takes its customers’ security seriously and provides a variety of resources to protect its clients’ accounts and information.

The firm utilizes a unique secure login system that offers either a dual factor authentication through its mobile application or a free physical security device that allows investors to further protect their accounts. 

Furthermore, for clients with portfolios exceeding $1,000,000 IBKR are offered a digital security card that requires login attempts to utilize a pin, challenge code, and an enormous amount of varying code combinations. 

Additionally, IBKR’s security features include auto-logouts automatically and will also lock a customer’s account after a number of repeated login failures. 

The firm also prides itself in its 24/7 account monitoring capabilities that is backed by an experienced support team, responsible for verifying and authenticating suspicious trades with investors. 

In fact, in 2020, Interactive Brokers did not suffer a single outage throughout the year and reported 0 significant data breaches throughout the same term. 

Customer Service and Support

A great platform and pricing are great, but how does Interactive Brokers offer support when something goes awry? 

As a firm, IBKR has historically struggled to provide top of the line 24/7 support for its clients, generally choosing technology and cost over premium services.

Nevertheless, over the last few years that trend has significantly reversed. 

Interactive Brokers has developed a new artificial intelligence tool called “IBot”.

IBot helps to direct investors to commonly used FAQs and solutions, streamlining the support process.

Clients who are in need of a support representative can call any number of IBKRs toll free support lines 6 days a week from anywhere in the world. 

Additionally, users that wish to speak with a representative without calling can use Interactive Broker’s cost free live chat service. 

These features, in addition to the ability to submit tickets online, allow IBKR to service its clients 24/7, without compromise.

The Negatives

Although Interactive Brokers has a long history of outstanding credibility and trust, in 2020 IBKR agreed to pay the Securities and Exchange Commission 38 million dollars in a settlement surrounding the company’s failure to report suspicious transactions to authorities.

The case, regarding the account of a user that was used to commit fraud, accused Interactive Brokers of disregarding a number of red flags associated with suspicious transactions. 

Additionally, on the same day, the Financial Industry Regulatory Authority (FINRA) fined IBKR $15 million for failures in its anti-money laundering program. 

Final Thoughts

Overall, Interactive Brokers is an excellent, safe option for investors looking to expand their investing portfolio all under a single umbrella of the IBKR platform.

With access to 150 markets, 33 countries, 25 currencies, and crypto, Interactive Brokers has it all, and IBKR is notorious for providing an excellent experience for even the most seasoned traders.

Although the firm experienced some turbulence in 2020 with several regulatory fines, Interactive Brokers has a long track record of credibility and trustworthiness. 

Furthermore, with its large capital reserves and overcaution with investors’ funds, we believe IBKR has the unique ability to protect its investors in the event of a severe financial crisis, especially without the liabilities that coincide with the majority of bank-owned brokerages.

If you are interested in learning more about the Interactive Brokers platform, check out our 2022 review of IBKR and whether it might be a good fit for you.