How to open an Interactive Brokers account

Categories Financial Independence, Investing
How to open an Interactive Brokers account

In 2020, Swiss investors will lose access to U.S. domiciled Exchange Traded Funds (ETFs). This is because of a new set of laws from the Swiss government. These laws are following the ones already impacting the European investors. Unfortunately, DEGIRO decided to implement these laws in advance and therefore I already lost access to these funds one year in advance. Therefore, I decided to create an Interactive Brokers account.

Interactive Brokers is an excellent United States broker. It is known for its cheap fees and its excellent range of offered investment products. It is being used by many personal finance bloggers for instance.

In this post, I am going to go over the reasons I need to open a second broker account. I am also going to go over some detail about Interactive Brokers. Especially, I am going to go over the details of how to open an Interactive Brokers account. It is not very difficult but there are a few things you need to know before you start your application.

Interactive Brokers

So what is Interactive Brokers (IB)? IB is a brokerage firm, from the United States. It was created in 1978 in New York, more than 40 years ago! IB is the largest brokerage firm in the United States and the leading foreign exchange (forex) broker. Interactive Brokers offers access to many instruments such as stocks, bonds, options, futures, futures options and even more.

It is a very well-known broker with a very good reputation. It is known to be cheap compared to its competitors. I have already compared IB and DEGIRO in the past. This showed that it could even be cheaper than DEGIRO the broker I am currently using. I was thinking DEGIRO was cheaper. A very important thing with IB is that, by default, they do not lend your shares to other people such as DEGIRO does by default. You also have the option of lending shares and you will get some of the money of the lending. But, you have the choice, which is good!

Why open an IB account?

So, why am I opening an IB account? I already have a DEGIRO broker account. And I am mostly satisfied with DEGIRO. However, recently, DEGIRO cut access to U.S. funds from Swiss investors! Since my portfolio is made of about 80% of U.S. Exchange Traded Funds (ETFs), this is a big problem for me. Normally, they should have kept us access at least until 2020. But for some reasons, they decided to cut this access. And since they did not communicate at all on this subject, I was pretty angry about it.

Therefore, I decided to open an Interactive Brokers account to continue to trade with my ETF portfolio for one more year. However, this is not the only reason I wanted to change. First, I have discovered recently that Interactive Brokers can be cheaper than DEGIRO. This could save me money in the long-term. Finally, DEGIRO only accepts money from a single bank account. With IB, you can transfer money to your account from any bank account. Since I will receive some money in USD once I sell some shares from my company, this is important to me to transfer USD without costs.

So, let’s see how can one create an account on IB.

Create an Interactive Brokers account

First, prepare some time in front of you. The account creation process on IB is not as easy as opening an account on DEGIRO or other simple brokers. You will need to answer many questions and you will need to wait a day for your account to be funded.

First, you can go to the account creation page and choose to Start Application for an Individual, Joint and Retirement accounts. I needed an Individual account, but maybe you will need type such as Joint if you plan to do it for you and your spouse. The procedure should be mostly the same but I never tried for other accounts than Individual.

On the first page, you will need to enter your email, an account name and your password for the account. They have weird conditions for the user name, it needs to be between 8 and 9 characters in length. And it needs to contain at least three numbers. I think it is a bit dumb, but it is only a password, so it won’t matter much in the future. The password is also a bit limited since you cannot use special characters. I would recommend to make it at least 20 characters long. This is a very important password to a secure account! Make sure to remember it correctly as well!

You also need to enter your country of residence. If your country of legal residence is different, you also need to enter it. You can then confirm the first page.

At this point, they will send you an email to confirm your email address. Just check your mail and choose to continue the application.

Personal information

On the second page, you will have to set your account type. I set to Individual for my needs. You can check the kinds of account to make sure you choose the one according to your needs.

Then, you will have to set the general kind of personal information. There is nothing special here, only the thing you are used to entering on each website. You will have to set your personal addresses as well. Be aware that since this will be related to your taxes in the end, it is very important to enter them correctly. You will also need to enter a valid phone number. This phone number will be used for authentication, so once again, be sure to enter it correctly.

IB has several kinds of accounts. You will need to select the account type you want. The basic kind of account is a Cash account. This is the account you probably want. It means you need to have the money before each trade. There are also Margin accounts. Margin means you will use leverage for investing with money you do not need.

Another thing you need to configure when you create an IB account is the base currency of your account. I am going to make most of my payments in Swiss Francs (CHF), therefore I went with CHF as my base currency. You can always convert money from your base currency to any other currency.

Now, you will also have to set up three security questions. You will need these questions if you ever need to recover your account. This is once again, a totally standard procedure. Make sure you choose questions from which the answer is not ambiguous!

Investment Questions

After this, you need to answers many questions about your finances. You need to set how much your net worth is and how much income you have. You also need to say what are your objectives for your investments. For instance, you may want to invest for an appreciation of capital or for fixed income. I am not totally sure what IB is doing with all these information. I would advise to simply answer them with honesty.

You also need to set which instruments you need to invest in. For instance, if you want to invest and Stocks and Bonds, you need to select these options. Personally, I only selected stocks. There are many more options like Stocks, Bonds, Options, and Futures. You also need to select from which country (stock market exchange), you want to invest in.

You also need to confirm your phone number with a code.

Confirmations

At this point, you will have to agree to all the rules that IB has for trading. Ideally, you may want to read them. But hey, who reads them?!

If you want, you can also join the Stock Yield Enhancement Program. This will allow IB to lend your shares to other people. With that, you will receive half of the interests of the lending. Of course, there is a slight risk to that and you may also not be able to sell your shares when you want or need to. Personally, I did not agree with that. But that may be something I am going to consider in the future.

At this point, Interactive Brokers will want to get proof of your identification. For this, you can upload a driving license, an ID card, a passport or an alien ID card for IB to confirm your identity. On the same page, you will also have to enter information about your tax status. You will also have to fill information about your employer and your job occupation. Normally, you also need to submit something as a proof of address. But for some reasons, I was not able to complete this at this point.

Fund your account

Your account will only be fully activated once it receives funding. You need to deposit a first amount of money in order for IB to validate your account. First, you need to declare how much money you are going to deposit. Then, IB will give you all the information necessary for the payment.

However, you will need to change the bank account. For some obscure reasons, IB always tells you to deposit the money on a U.K. bank account. However, they have a Swiss bank account. If you deposit the money on the Swiss bank account, there will not be any fees! Therefore, you need to change the IBAN to CH2089095000010569674. This is their Swiss bank account. If you want confirmation (and you should want it), you can check this post by Mr. Retire In Progress that recommends the same bank account.

And do not forget to include the “Further Benefit to XXX” line! Otherwise, the money will not directly go to your account and you will have to contact them to fix the issue. You will need to do that for all your future deposits to your Interactive Brokers account.

Finalize your account

After you have funded your account, there are still a few more things you can do.

First of all, you can configure the market data. You should set your market data status to non-professional. And you should check that you are not buying any market data. Unless you plan to day trade, you do not need any of this data. You do not want to pay for it.

You can also configure your mobile phone to use it as two-factor authentication. One very good thing is that you have to use two-factor, you have no choice. It is great. Because it is an essential part of online security. First, you need to install IBRK Mobile on your phone. This application is available for Android and iOS. Once you installed the application, you can register the application as two-factor for your account. You will have to log in with your user and password. You need to enter the code you received by SMS. Finally, you can then choose a PIN for your future two-factor authentication. Make sure to remember that PIN since you will have to use it for each of your connection to Interactive Brokers.

Wait for your account

At this point, you only need to wait for IB to create and fund your account. It should not take too long. For me, it only took one day for my account to be created and funded. It is quite fast. The next day, I could directly make my first trade.

The only thing that remains at this point is to configure the Pricing System. I recommend you use the Tiered Pricing system. IB is cheaper than DEGIRO when you use the Tiered Pricing system. You can do the change in your Account Settings. If you prefer the more predictable Fixed Pricing, you can also opt for it.

Here are my settings just before I made the change to Tiered pricing:

Interactive Brokers Account Settings
Interactive Brokers Account Settings

Conclusion

This is it! I know have an Interactive Brokers account. I have not transferred much money, just enough for a single trade to test the system. For now, I am still going to keep my DEGIRO account. But I will not do keep it forever. I am still undecided as to how to transfer my money between the two brokers.

At least for now, I have once again access to U.S. Exchange Traded Funds such as VT which makes the largest part of my portfolio. I have done a single trade on IB since for now, we are still low on cash. Once we are done replenishing our cash fund, I will move more funds to my new IB account. At this point, I will make sure to write an article on how to buy an ETF on Interactive Brokers. I did the same for DEGIRO, but on DEGIRO it was much easier.

What do you think about Interactive Brokers?

13 thoughts on “How to open an Interactive Brokers account”

  1. Nice. Glad you made the switch! Welcome on IB! A real broker! ;-)

    When I opened my account, it took me something like almost 1 hour, between all the questions and the documents needed. It was a real pain in the ass as we say. I’ve never done a registration like that before haha.

    I hope you will consider using their TWS (Trader Workstation) app for investing. It’s a scary Java app, at first sight, but much more feature complete than the rest, there is more informations and honestly, not hard to use and much better looking than their WebTrader. In fact, I find the last one quite scarier…

    The only thing I suggest, is double checking how to convert currency correctly, you need to use FXCONV instead of IDEALPRO when converting USD to CHF on the forex. Not sure if you can do it with the WebTrader. Else you can end with virtual negative balances… Maybe you can do some tests with your paper trading account.

    Also I couldn’t say it better so I’m quoting someone from internet : “And really you want to learn how to use TWS anyway – it’s a hell of a lot better.”

    Good luck.

    1. Hi Cashflow,

      As you said, it’s a bit a pain in the ass. I’ve never seen any registration so complete. But it’s pretty straightforward overall.

      I will definitely test TWS. So far, the only things I have seen from it is pretty overwhelming. But I am going to give it a try.

      Thanks for the tip about conversion. I will take a closer look at this the next time I do a currency conversion!

      Thanks a lot of sharing

  2. I did not find the way of using FXCONV on the TWS “android” app but only on the PC desktop version. If anyone can share an idea on that it would be highly appreciated. Cashflow is right, use the FXCONV for currency converting. The IDEALPRO also works but it ends up in a currency position instead of cash balance. It does not harm but gives a headache by reading out balances.

        1. Hi Marc,

          Thanks for the link. It is very helpful indeed!
          My only problem is that I do not use the TWS app most of the time. I prefer to use the WebTrader or even simpler the Account Management interface. And from these two interfaces, only IDEALPRO is available.

          Thanks for stopping by :)

  3. Great Post,

    just a question what will happen after 2020. Will we need to sell all our US based ETF? Or can we keep them until we want to sell them?

  4. Hi the Poor Swiss,
    Did you make up your mind yet as to how to transfer your capital from Degiro to IB?
    I am exactly in the same situation as you…
    Cheers from Genf!
    Jean-Pierre

    1. Hi Jean-Pierre,

      Yes, I did. I started selling my funds and buying them back. However, I do not think it is a good idea anymore. There is really too much risk of market price change between the time you sell and the time you have the money again to buy them back.

      Unless you have a very small portfolio, I would not advise to sell and buy back.

      Good luck with your transfer!

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