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Interactive Brokers is an excellent broker from the United States. It is known for its cheap fees and its unique range of offered investment products. It is being used by many personal finance bloggers, for instance.
It is currently the best broker that allows access to U.S. ETFs. And U.S. ETFs are the most efficient ETFs for Swiss investors.
I am going to go over some detail about Interactive Brokers. Mainly, 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.
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 an excellent reputation. It is known to be cheap compared to its competitors. I have already compared IB and DEGIRO in the past. This comparison showed that it is even less expensive than DEGIRO, the broker I was using before.
Before, I thought DEGIRO was cheaper. An essential 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 from the lending. But, you have the choice, which is good!
Why open an IB account?
So, why did I open an IB account? I had a DEGIRO broker account. Recently, DEGIRO cut access to U.S. funds from Swiss investors! Since my portfolio is composed of about 80% of U.S. Exchange Traded Funds (ETFs), this is a big problem for me. They should have kept us access at least until 2020. But for some reason, 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. The switch to IB will 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.
And talking about USD, IB is much cheaper than DEGIRO at converting between currencies. So, in the long-term, I am going to save a lot of money with IB.
So, let’s see how one can create an account on IB.
Create an Interactive Brokers account
First, prepare some time in front of you. The account creation process on Interactive Brokers is not difficult, but it will take some time. 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 other accounts than the Individual.
On the first page, you will need to enter your email, a user 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.
It is a bit dumb, but it is only a user name. It will not matter much in the future. The password is also a bit limited since you cannot use special characters. I would recommend making it at least 20 characters long. A long password is a very important to secure your 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.
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 accounts 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 addresses as well. Be aware that since this will be related to your taxes in the end, it is essential 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 primary type of account is a Cash account. A cash account is the account type you probably need. 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 procedure is, once again, a standard procedure. Make sure you choose questions from which the answer is not ambiguous!
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 your objectives are for your investments. For instance, you may want to invest in appreciation of capital or for fixed income. I am not sure what IB is doing with all this information. I would advise to answer them with honesty simply.
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. 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.
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, you probably will not!
If you want, you can also join the Stock Yield Enhancement Program. This program 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. I did not agree with that. But that maybe 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. Usually, you also need to submit something as a proof of address. But for some reason, I was not able to complete this at this point when I created my account.
Fund your account
Your account will only be fully activated once it receives funding. You need to deposit the first amount of money 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.
Make sure your properly copy the IBAN number. With banking transactions, you should always double-check all banking information before you do a transfer. Since they have a bank account in Switzerland, the transfer will be free!
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 (2FA). One excellent thing is that you have to use two-factor, you have no choice. It is great. 2FA 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 connections to Interactive Brokers.
If you do not know about 2FA and why it is necessary, read my article about online personal finance and security.
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:
The procedure is now complete! If you followed this guide, you now have an Interactive Brokers account.
At least for now, we have access to U.S. Exchange Traded Funds such as VT, which makes the most significant part of my portfolio.
I have now been using IB for almost two years. And I am delighted with IB. Interactive Brokers is the best broker available to Swiss investors.
To learn more about Interactive Brokers, read my guide to Interactive Brokers multiple user interfaces.
What do you think about Interactive Brokers? Do you already have an account? If not, which broker are you using?