Interactive Brokers safety
Whether a financial provider like Interactive Brokers is safe and legit is an important and very legitimate question one can have. After all you trust Interactive Brokers with your investment money and savings. It is also a very common question, we get this asked a number of times.
One thing worth bearing in mind: all the brokers that you find on BrokerChooser are regulated by at least one top-tier authority. So in this basic sense Interactive Brokers is of course legit. Additionally, there are other factors you can take into account when you check the safety of Interactive Brokers, e.g. if Interactive Brokers is listed on any exchange, provide two-step login, disclose transparently its financial result, etc.
Here, we've collected and summarized the common questions on broker safety, enabling you to decide for yourself whether you consider Interactive Brokers safe in your individual circumstances. We also compared Interactive Brokers with two similar brokers.
|Interactive Brokers||Saxo Bank||DEGIRO|
|Broker listed on stock exchange||Yes||No||No|
|Annual financial statements on website||Yes||Yes||No|
|Mobile two-step authentication||Yes||Yes||Yes|
|Broker ownership transparency||Yes||Yes||Yes|
|Broker management transparency||Yes||Yes||No|
|Broker is audited by the Big Four||Yes||Yes||Yes|
Interactive Brokers safety
Things always worth considering
When you assess a stock broker it's best to think through the following aspects:
- What authority or authorities regulate the broker? In other words who can you turn to if something goes south?
- How much protection do you have?
- For how long Interactive Brokers has been in operation?
- Is it publicly traded itself?
- How transparent is it?
- How much do they protect your account from unauthorized access?
- What auditor audits the brokerage?
As you see there are a number of aspects above. But not all of them were created equal.
We think the most important feature is to be regulated by at least one trustworthy authority.
First and foremost, to gather a wider knowledge about one broker's safety, you should check the regulators of it. For this purpose, we sum up below the most important things to know about regulators and how to interpret them for your individual case.
Interactive Brokers is regulated in the following countries and provide the following investor protection:
|Country of regulation:||USA, Ireland, UK, Luxembourg, Hungary, India, Australia, Canada, Japan, Hong Kong, Singapore|
|Investor protection amount:||£85,000 or $500,000 (but only $250,000 for cash) in the UK depending on the assets you hold; $500,000 ($250,000) in the US; €20,000 (IB Ireland & Luxembourg) or €100,000 (IB Central Europe) in the EU, CAD 1 million in Canada; HKD 500,000 in Hong Kong|
The investor protection amount and the regulator might differ based on which entity you belong to.
For the avoidance of doubt, it is
- By and large your home country (i.e. your residence, not your passport) that will determine under which regulator you'll fall, should there be more than one regulator.
- In some cases you might choose between regulators, and that being said, we recommend you choosing the higher-tier regulator, e.g. FCA over CySEC.
Don't forget that regulators are not created equal. Investor protection can also vary from authority to authority. There are top-tier regulators whose excellence lies within their features such as the presence of segregated accounts, the range of protection tools or the investor protection amount itself. Check out a few of the top-tiers in the table below. Most brokers reviewed by BC fall below one of the following four regulators:
|FCA in the UK||Financial Services Compensation Scheme (FSCS) covers £85,000 of each account's deposits.|
|SEC, FINRA in the US||Securities Investor Protection Corporation (SIPC) covers up to $500,000, including a $250,000 limit for cash.|
|BaFIN in Germany||€100,000 for cash, and €20,000 for securities.|
|ASIC in Australia||No investor protection.|
As you could see, Interactive Brokers is regulated by SEC and provides the SIPC investor protection scheme. SIPC protects against the loss of cash and securities in case the broker goes bust. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. A non-US citizen with Interactive Brokers is treated by the SIPC the same as a US resident in case something goes bad. These amounts are substantially higher than what most European investor protection schemes offer.
Not all investments are protected by SIPC. In general, SIPC covers notes, stocks, bonds, mutual funds and other investment company shares, and other registered securities. It does not cover instruments such as unregistered investment contracts, unregistered limited partnerships, fixed annuity contracts, currency, and interests in gold, silver, or other commodity futures contracts or commodity options.
Interactive Brokers is regulated by the top-tier UK regulater, the FCA or Financial Conduct Authority. FCA monitors which firms and individuals are able to enter the financial markets and supervises how firms work and stop those that don't meet their standards.
If a broker goes bankruptcy, eligible customers would also be protected by the FSCS up to £85,000 per claimant per firm. For forex and CFD brokers you're also covered by negative account balance protection. A non-UK citizen is treated the same way as a UK resident in case something goes south.
There are some brokers that provide additional insurance because they have private insurance (e.g.: eToro through Lloyd's, among the US brokers Charles Schwab and Ally have similar setups), which means that you have an extra safety net above the regulatory. It's worth checking it out when you're choosing your broker.
Interactive Brokers safety
Additional "nice to have" safety features
The subsequent bullet points are rather supplementary, “nice to have” features. Ticking them definitely adds to the safety and legitimacy of an online broker, but not having them is not necessarily a big red flag.
Interactive Brokers doesn't have a banking background, which is not crucial, but would mean another guarantee for safety. The reason is that even if it's not required by law that a struggling broker must be saved by its parent bank, in most cases you can count on this happening.
Broker listed on stock exchange
Interactive Brokers is listed on the following stock exchange: NASDAQ, which is a good sign for safety.
Why is being listed on the stock market useful? For two reasons:
- Listed companies by and large have stringent reporting requirements
- If something really goes wrong with the broker, you'll be able to tell it from the (rapidly falling) share price of the broker in most cases. In this unlikely scenario, you'll have time to move your funds and securities to another broker.
Annual financial statements on website
While most of the people don't read financial statements, it's a promising sign for safety that Interactive Brokers publishes these regularly. Financial statements can be considered as financial reports, which generally contain information about a brokerage's income, profit and loss, retained earnings and cash flows.
Mobile two-step authentication
Interactive Brokers provides two-step authentication when logging in, which makes the platform safer to use.
Broker ownership transparency
Ownership structure of Interactive Brokers is public, everyone can check the owners of the company on their website, which adds to their safety scores.
Broker management transparency
Interactive Brokers is transparent about their management structure, which means that anyone can see who is in charge of management issues at the brokerage.
Broker is audited by the Big Four
Interactive Brokers is audited by one of the so-called Big Four auditors (KPMG, PWC, Deloitte, EY),which guarantees another depth of safety.
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Interactive Brokers safety
Now that we have gone through the most frequent and - as we think - most important safety aspects of Interactive Brokers, we can say that Interactive Brokers is great in safety, since it fulfils most of the important criteria mentioned above. We hope that you feel armed enough with information for your future decision. In case you're still unsure, use our broker finder and meet the best online broker that suits your needs.