What To Know Before You Get A Interactive Brokers Account

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What To Know Before You Get A Interactive Brokers Account

Singa Polah

30th November 2024

Here are three things I wished I knew before I started an account with IB.

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Choose a Cash Account instead of Margin Account To Avoid Interest Fees

When opening a brokerage account, you can choose between cash or margin accounts.

A cash account requires that all transactions be made with available cash. Meaning if you don’t have enough cash to buy the stock, the transaction will not go through.

When you’re on a margin account, IB will lend you money if they find that you lack the cash, in the right currency. You will be charged interest daily until you pay it back.

Many new investors are caught off-guard when they buy stocks in a different currency(e.g. US stocks) from their own (e.g. SGD). When you only deposited SGD and do not hold sufficient USD cash, IB will automatically lend it to you. Then interest is charged on this USD loan until you pay it off. This is reflected on your portfolio as having a negative value on USD in your portfolio.

If you find yourself in this situation, you can just pay it off by converting enough of your home currency into the foreign currency so that there is no longer a negative amount outstanding.

And if you want to save yourself the hassle of always checking if you’re unwittingly borrowing money from IB, changing to a cash account will save you some money down the road.

I would only recommend margin accounts if you’re actively trading and if you are advanced enough to know what you’re doing.

For most beginners, a cash account is sufficient.

Know the Difference Between Tiered Pricing and Fixed Pricing

IB offers two types of commission pricing. In general, if you’re trading amounts less than USD$15k each time, a tiered pricing will work out to be cheaper for you. You can find out more by checking out this article.