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A Review of Interactive Brokers (IB).

By GC, Los Angeles, October 2009.

When I first became an IB client around 9 years ago, they won my business because they had leading software, their sales and support team were first class and their commissions were extremely competitive.

How things have changed.

Until recently, I had little reason to even care whether any other Brokers existed. However I have recently begun an active search to replace IB as I now find them a constant source of frustration in many areas.

Even though I had previously noticed occasional things that weren’t just how I would like them, I understand that not everyone thinks like me, or has exactly my trading style, so generally I just accepted how things were and was happy.

My real troubles began when I realized I could consolidate the several accounts I had at IB (Corporate, IRA etc) into one “Friends and Family” account, which works in a way that allows many separate accounts to be combined as sub-accounts of an “Advisor” allowing just one trader to trade within the Advisor account and “allocate” the trades across all sub-accounts using one of several allocation methods available.

This sounded like a great idea, and should have cut down my order entry effort considerably. It also meant I could use just one order entry platform instead of the onerous requirement to have a separate order entry application open for each account.

Firstly, since the original accounts already existed, I was surprised to find that they could not simply be transferred across to be sub-accounts of the Advisor, and a completely new set of paperwork had to be completed for each account. Oh well.... that was just a bunch of wasted time, but easy enough to do.

Then I had a real taste of what dealing with IB was going to be like from now on. I had left my personal IRA account as the last to transfer the funds since it was the smallest account and least important for regular trading. IB REFUSED to transfer the funds from the old IRA account to the new IRA sub-account! Now, the IB customer support staff are very polite, but it was like talking to a brick wall:
Me: “Why can’t I transfer my IRA funds to the new account?”
IB: “I’m sorry Sir, but our system doesn’t allow you to transfer IRA funds.”
Me: “What! How do I get the funds from the old account to the new account?”
IB: “You need to withdraw the funds out of the old account and then deposit them to the new account.”
Me: “But I can’t withdraw funds out of an IRA, I need to Roll/Transfer the funds.”
IB: “I’m sorry Sir, I can only tell you your choices.”
Me: “What choices! I can’t just withdraw the money from an IRA account, I can’t deposit the same amount of money into some new IRA account from another source, and YOU won’t transfer the funds between accounts... ”

It took more than two weeks to sort that out, and I was pretty red in the face during the whole episode. I can’t be the first person to ever want to transfer my IRA account to be managed by an Advisor. IB was just plain unreasonable, and without the personal intervention of a customer support person who put himself on the line to get the changes through (by manually bypassing their regular computer system), that would have been the end of my association with IB. I was told that IB (at least at the time) had no plans to change that system, which was the first time but not the last, I noticed IB doesn’t seem to care if a client is having so much difficulty with something that ought to work, that they start looking for another Broker.

Using the new Advisor system required me to learn a few things about their Trader WorkStation (TWS) order entry application. No problem, I’m happy to learn what I needed to know, and spent a couple of weeks trying out new things as my normal trading setups occurred.

On June 1st, 2009, (about two weeks after opening the Advisor account) I sent in a support ticket telling IB that part of the allocation selection menu in the “Booktrader” (with the price ladder) part of TWS did not function correctly, or even show all the sub-accounts to allocate to. It took 8 days to get the response that they had referred the issue to their developers, and then another 4 weeks to be advised it had been fixed. I couldn’t see what had changed (and they didn’t tell me) other than I could now see the accounts in the allocation menu, but the allocation still did not work according to the choice in the menu and I advised them the same day.

A couple of days later I found out the hard way that their allocation had another huge bug. When I entered a position using the BookTrader user configurable order buttons (automatically allocated across my accounts) and then exited the position by clicking a price in the BookTrader priceladder, my account showed a net zero position as expected, but was surprised to see shortly after, that the profit figure was changing as the contract price changed. When I looked at the sub-account info I saw an account showing a position, and confused why, I just exited the position. That didn’t fix the problem though as the profit was still changing. This was real money here, so I just picked up the phone to the IB Trade Desk and had them flatten every account, for which they charge $30.00 for EACH account.

All this happened relatively quickly, and the damage was only a few hundred dollars (it could easily have actually been a profit, but no such luck) but I was pretty interested to find what had happened. Long story short is that the BookTrader part of TWS still had a bug I hadn’t encountered, or maybe it was changed as part of the recent development work, but the TWS allocated trades differently depending which method you used to enter orders... NOT a documented feature! So instead of exiting my position, it had entered an opposite order but allocated the trades differently and I ended up long in one account and short in another. The telephone support guys said the method to put in a claim for compensation was to use a support ticket, so I added that to my still outstanding ticket about the allocation and was told the issue had been again referred to the developers.

Nothing further happened for 5 weeks, then I was told “the issue has been resolved” so I updated my TWS and tested it out. Of course I couldn’t then, and still can’t today (now end of October and several TWS versions later) see that anything has been fixed.

I had so little response from TS customer support that I used their online contact form to send a complaint about the problem and the lack of support, and promptly received a message from the Manager of Professional Services who apologized for the length of time this had taken and would personally ensure both the allocation issue and my compensation request would be resolved “as a top priority”.

I did get a response after another 2 weeks that the compensation claim had been “submitted for approval” however as I write this 7 weeks after first contact with the Manager of Professional Services, and 4 and months after my initial complaint neither the compensation or TWS allocation functionality are resolved. I wonder how many other traders are losing money because of this same issue. This certainly counts as a huge failure and extremely poor support in my opinion.

    There are other issues with the IB TWS. For example:
  • When we try to create an offset price to set a target exit or stop, we cannot use the actual fill price in the calculation, but are required to use the current bid or offer and “hope” that they are close enough. I have complained about this literally for years, but it seems no one at IB cares.
  • We can enter a new order with just one click that will allocate the position over all sub-accounts, however, exiting is FAR more complicated if you want to exit a partial position say at a first target. Since futures traders have allocation by number of contracts and not value, the largest account will be allocated a contract position before smaller accounts. That means if you buy two contracts across two accounts, one contract is allocated to each. When we exit just one contract (say at first target), unless we manually choose otherwise, the largest account is exited. Then when you exit the final contract, the “automatic” allocation would allocate the trade to THE SAME ACCOUNT that had been already exited (because it is the largest account) leaving you long in the smaller account and making you short in the larger account instead of being flat in both. To overcome this, after a partial exit, ALL REMAINING accounts (and imagine doing this for dozens of client accounts) need to have the order tickets done individually and manually. Note: there is also a feature to reduce (or increase) positions by a percentage of an existing position, but you can’t exit half a contract and it is still time consuming to change setups for each trade. This makes fast scalps virtually impossible in multiple accounts. Come on guys, this is the 21st century!
  • The support system is frustrating. I have had to argue occasionally about functionality especially when what actually happens is not what is in the documentation. It seems to me the support personnel don’t actually use the software and if the manual says this is how it works, they won’t even consider what I am experiencing even if it may be a bug. I am happy to say all support staff remain very courteous, even when I am telling them they are wrong.

I have a list of other things I find annoying, and there are of course many good features I have not attempted to cover, but the above should give some understanding of the difficulties, disappointment and frustration dealing with IB today. Since I have begun looking for an alternative Broker, I have also been pleased to notice more competitive commission pricing and far lower margins available these days elsewhere.

IB has grown into a large brokerage with a comprehensive trading ability not always found in smaller Brokers, however the majority of what a trader sees day after day is the order entry platform, and the issues mentioned above far overshadow what might otherwise be a formidable package. Frankly, these issues cost a trader time and money (literally).

Years ago I was a walking advertisement for IB. Today I recommend traders try somewhere else.


Webmaster’s Note: We will be interested to update progress on these issues (if any) as we are advised. Keep checking back.

   

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