Interactive Brokers Adventure

It was a dark and stormy night in the middle of the hottest day of Southern California's current record-breaking heatwave when I began to attempt to put my Interactive Brokers adventure down in sans-serif, mono-spaced font. I'm sure the immediate question is: Why use a mono-spaced font? Or, more likely: What does sans-serif mean? The real answer is: Stop asking silly questions! None of that matters. This is the account of signing up for an Interactive Brokers (IB) brokerage account, why are you asking about fonts? Nothing to see here folks, keep moving... If you're not interested in reading my colorful-commentary, or you're impatient, scroll to the end of this post for my executive summary.

I had already set up an account with OptionsXpress (OX) about a month earlier, but did not fund it. I did attempt to put in some paper trades together on OX using their virtual trader interface. OX's interface seems simple enough, but I have a couple complaints: 1) The virtual trading interface is not exactly the same as their live trading interface. 2) Although they're modestly priced for multiple contract options and medium-to-large lot stock orders, for small orders, they are rather expensive (even at the "active trader" rate).

Both of these are major factors in my decision to not use OptionsXpress and instead go with Interactive Brokers. I plan to take advantage of the virtual trading in exactly the same way as I'll manage my real account, so the disparity in abilities between OX's virtual trader and their live trading interface is undesirable. Also, because my account will be small to start with, I won't be able to take advantage of the multi-contract Option discounts nor large lot stock purchases, so the Cost of Trade will weigh heavily against gains and will enhance losses.

I have heard a number of complaints by non-professionals about IB's interface. Interactive Brokers seems to have gained a reputation amongst amateurs of being difficult to use, yet I have not heard such complaints from professionals. I'm a reasonably savvy computer user (ok maybe even a full-fledged computer geek), so I'm not dissuaded by a complicated interface; I'm willing to put in the time today to learn to use a powerful order entry tool for my career in professional trading. I figure once I'm through the learning curve I get to take advantage of a very nice platform for placing trades.

Without the typical negatives touted about Interactive Brokers being of any significance for me personally, the remaining reasons for choosing IB make it seem like a no-brainer. Both my weekly call-in coach (Rob Craig) and my mentor (Jordan Stokes, who I'll sit down with in mid-September) use and recommend Interactive Brokers. Both of these gentlemen are successful traders and I'm going to mimic them in the beginning as I discover my own style of trade and risk tolerance. Another huge point is that Interactive Brokers is cheap, really cheap. So cheap that Bill Keevan made the remark in one of the Trading P.I.T. sessions that he doesn't even factor in the cost of the trade into is profit/loss calculation. I like that -- the ability to be an active trader without it costing much to get in and out of positions. Also, some Option plays require 4+ legs to put the strategy together -- this could likely end up offsetting gains greatly. Interactive Brokers also has an outstanding reputation over an extended period of time (29 years) for accurate order execution.

Interactive Brokers also seems to be the choice for professional traders because they don't place artificial restrictions on your orders - things like a required distance between your stop and limit when opening a position. IB allows very sophisticated, advanced order specification and routing. It is also worth noting that they allow you to trade just about every kind of tradable security under the sun: Forex, futures, options, ETFs, etc... If it's tradable, IB has it. IB's interface may be a bit more complicated than other brokerage firms, but that's because they expose so much power and flexibility. They really give you a lot of control over your trade and with such control there is far more to know and consider when trading through them.

On a personal note about the learning curve involved with IB's trader interface: consider my background. I'm a musician and computer programmer. Neither are instant-gratification pursuits. You don't just pick up a French Horn and a week later you're performing at Carnegie Hall. It takes years of disciplined practice. With the right attitude, patience, and acceptance of the learning curve you can make great strides. Even when you get to the top of your game, music, like many things, requires diligence to keep your skills sharp. Use it or lose it. Programming is the ultimate discipline of a lazy person. On the surface you may not think so, but one tenet of programming is the desire to save time. Programmers will spend thousands of hours in order to save minutes; however, those minutes are saved by everyone, everyday when they use what the programmers were willing to spend thousands of hours creating. I'm certainly willing to put in the time to get past the learning curve and take advantage of all those very nice benefits IB offers.

Now that you can (hopefully) understand my motivation to get an Interactive Brokers account, I can recount the tale of the actual sign-up process. After reviewing the various accounts that Interactive Brokers offers, I considered signing up for an advisor account. I thought: Cool, I can manage multiple accounts from one? That should work quite well for me as I plan to manage my father's account someday too. However, I stumbled when I was faced with some questions about being considered a professional and the tax implications, etc. Also, I had a reality check moment where I realized it was probably a bit ambitious to take on an adviser's account before having actually placed even a single trade. Even though having an adviser's account is likely in my future, I was getting ahead of myself.

After identifying that I desired an individual account, the details behind that account must be filled in. As mentioned, Interactive Brokers allows you to trade all kinds of markets and commodities. It seems like a simple enough decision: I want it all. I signed up for access to everything they offer, and supported the fact that I can be trusted with such access with all the necessary details. To avoid any unnecessary delay or rejection, I may have been slightly embellishing on some of the details of my experience with the different types of markets. I take full responsibility for my usage of such access, and stand by my stated experience. Please understand that I'm not advocating lying about your experience or net worth to bolster your account access; doing so can lead to many interesting ways of losing your money and may be considered a punishable offense.

It took hours to read through the roughly 40 legal agreements concerned with subscription and usage rights and disclosure of inherent risk of all the various types of markets and trades. After 4 cups of coffee, I was nearly through half and decided to take a break. There's only so much legalese I can take before the words are just a blur moving by in the background while I fantasize about... Wait, what was it that I just read? ... You get the picture. It was important for me to read and understand all of the agreements, and there were so many because of the level of access I was requesting. Make no mistake, setting up a brokerage account is not a casual thing that you should do for fun at the end of a long day.

The next step after reading through the agreements was to actually fund the account. Interactive Brokers required a minimum of $5,000 to fund my account (remember, I signed up for it all, including margin, etc... the minimum may be different for other types of accounts/access). As far as I could tell, you cannot move forward from this point until you set up the funding. That is, no paper trade acces, nothing... They seem to want serious customers, not lookey-loos. After I send the ACH payment, I scanned my driver's license and emailed it in, as proof of who I am and where I live. It seems all brokerage firms require some proof of who you claim to be and where you live. About a week later my account was activated. Immediately after, I asked for a paper trading account to be created for me to virtual trade. It took another few days for the virtual account to become active and now I have my account set up, funded and ready to trade.

Executive Summary (for the impatient):

Positives for Interactive Brokers:

• Powerful capabilities
• Trade many different markets
• Cheap!
• Reliable
• Well-established brokerage firm
  
• Virtual (paper) trade interface exactly same as real trade interface

The only negative is the opinion amongst casual (or amateur) investors is that the interface is difficult. I've begun using their Trader Work Station (TWS) software and although I don't know all the ins and outs, find nothing worth complaining about. As I learn how to use their TWS software for trade execution and management, I'm sure all the abilities they provide will be very desirable and much appreciated.