What is an Interactive Broker?

The term interactive broker refers to a broker of financial products such as stocks, commodities futures or forex trading who interacts with clients via the internet. Many different financial companies offer interactive brokerage services through their websites. The order submission process, data fees and commissions, as well as support services differ amongst companies offering these services.

A prospective client might wish to consider several points before choosing a specific online brokerage service. The first inquiry should be whether orders are submitted quickly and accurately to the relevant exchange. Most on-line brokers use a software system through which the client submits his own order, which eliminates broker error. The actual speed at which the order is submitted can only be judged when the trader submits an order and watches his depth-of-market screen, which tracks the overall interest of a particular product at a specific price, to see that the number of offers or bids at the price he submitted changes. A second question might be whether the software the interactive broker supplies is adequate to the traders needs, and if it does not, the trader will need to discover whether the broker has an available interface to allow the trader to use other software.

Data fees and commissions are always worth investigating because they can play a significant impact on a trader's profit margin. Commissions vary somewhat and should be carefully checked because some interactive brokers have layered multiple commissions in a non-transparent manner. Some brokerages have been known to charge for data streams, whereas other brokers will provide data streams for free. A prospective forex trader will want to investigate to see whether he is better off using a fee based broker or a spread based broker. Another item to check on is if and when telephone access is available because the trader may need a back-up contingency trading method if his Internet connection goes down.

Help desks, technical support, and banking support should be available both via the Internet and by telephone for any interactive broker a trader is considering. Non-US traders may have language and currency considerations. If a trader is skilled enough to extract money monthly, he should inquire whether Automated Clearing House (ACH) processing is available or if the brokerage will send paper checks in the mail. Wire transfers should be available, but it is usually expensive unless the trader is moving large sums of money.