Interactive Brokers Vs. Trading 212

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In July I decided to take the plunge and change my broker of choice from Trading 212 to Interactive Brokers. It wasn’t as straightforward a process as it should have been, but that is actually part of the reason I switched.

Initial Thoughts

Back in October 2020 when I started the Income Portfolio, my main concern was fees. I would not be investing huge amounts of money, and I would be buying various different stocks each month based on my investment criteria. I didn’t want to choose a broker who would charge commissions. The fact that I would be buying multiple different stocks meant I would be open to multiple commissions. Reputation and security were also important to me, I didn’t want to choose a broker based on fees alone. Interactive Brokers were on my list, but I ignored them initially as I wanted to minimise my fees while my account was small.

Being based in Ireland, my options were fairly limited. In Europe we don’t have the same access to discount brokers that US investors do, but there are a few providers if you spend the time looking around. After researching DeGiro and eToro among others, I settled on Trading 212.

Trading 212 – Pros

Firstly, let me say that Trading 212 are a fantastic broker for those looking to dip their toes into the investing world. They offer both an investing service, and a CFD platform. Unless you are comfortable with margin and derivatives trading, I would suggest steering clear of the CFD offering.

The main selling point of Trading 212 is the fee structure. There are no commission charges when buying or selling, there is a low minimum deposit (€1, $1) and they offer a paper trading platform to test out your investment ideas. All-in-all, a solid offering from a discount broker.

The platform is simple to use and highly intuitive, for a beginner investor I feel like this is a huge plus.

Trading 212 – Cons

The biggest negative I found with Trading 212 was the inability to swap your shares to another broker. At the time when I signed up, this was a fairly small concern but it has grown along with my portfolio. If you want to change to another broker, Trading 212 will not allow you to send you shares directly, you must sell your shares and re-buy them with the new broker. In Ireland, this would mean a potential capital gains tax event. Granted, there is an exemption in Ireland on the first €1,270 of capital gains, but this would be miniscule in comparison to the gains made by a larger portfolio. Imagine you spent 10 years building an income focused portfolio and needed to switch brokers, you could potentially lose 30% of your shares (assuming you didn’t have the cash on hand to cover CGT).

A second negative was the introduction of forex fees. Prior to the change, there was zero charge for opening positions, Trading 212 was a no cost broker. In April (or sometime around then) they introduced a 0.15% foreign exchange fee. Although the fee is small, it changed the profile of the company in my eyes. Trading 212 was now a low-cost broker, not a no-cost one. This was the shove I needed to convince me to change brokers.

Another negative that comes to mind but may not necessarily be of concern to most investors is the lack of other trading options. Although I do not actively trade anymore, there are certain trading styles I plan to revisit in the future, namely options trading. I do not intend to pursue this in a standalone fashion, it will be more to supplement income from the Income Portfolio via selling covered calls etc. With Trading 212, there is no way to trade options.

The more I type the more negatives that pop into my head. Trading 212 also introduced a minimum order amount for limit orders. When buying stocks, I always use a limit order in order to avoid buying on big market spikes and being left with a poor entry price. Trading 212 have a minimum limit order of $100/€100/£100 (depending on the currency of the stock). While this was not an issue at times, there were other times when I only wanted to purchase a single stock and could not do so via a limit order.

The Switch

I decided to switch while my account is relatively small. As I have only been operating this portfolio since October, I had not yet reached the CGT threshold which meant I could sell the stocks on Trading 212 and buy them in Interactive Brokers at the same time without paying CGT. I followed the below process to ensure I didn’t lose any money when transferring the positions. I had some spare capital on hand which made this process easier, I didn’t need to wait for the position to close in Trading 212 before opening a new one with IB.

  • Open the position on IB via a limit order.
  • Get the total cost per share, including commissions.
  • Sell on Trading 212 via a limit order at the total price above.

This wasn’t a quick process for some stocks as prices rose and fell, however over the course of three weeks I successfully closed all of my Trading 212 positions and re-opened them with Interactive Brokers.

Interactive Brokers – Pros

I have only been using IB for a few weeks, but there are definitely some positives. The ability to transfer positions out of IB to another broker is fantastic. It is the polar opposite of Trading 212 and although I hope I never have t use it, it’s nice to know the feature is there.

The ability to trade options and buy warrants is also a nice feature that I want from a broker. Not much elaboration here, just good to have the option.

There is a huge choice of markets and IB also allows you to trade on margin. Margin trading isn’t something I would recommend and I don’t utilise the feature myself, but again it is nice to know it is there.

Interactive Brokers – Cons

The main reason I didn’t choose IB at the outset was the fee structure. With IB, you pay for everything. Forex fees, commission, live price feed fees etc. While this can be daunting, the fees are actually quite low. I am paying $0.35 per trade commission usually on the Tiered fee system. Yes it’s higher than Trading 212, but the cons of Trading 212 far outweigh the small cost savings.

One thing to note is that in order to trade stocks in foreign currencies, you will need to convert the currency yourself (unless there is a shortcut I haven’t found yet). With Trading 212 I would buy a US stock and it would convert my Euro and charge me a 0.15% fee (usually ended up around €0.05 – €0.15 per trade). With IB, I have to convert my currency manually first which carries a minimum FX spot fee of $2.00. On my usual deposit (€500) this equates to 0.4%. Slightly more expensive than Trading 212.

Where this becomes more of an issue is if you mistakenly convert too little currency (as I have done in the past) meaning you need to convert more and pay the FX fee again. As I increase my deposit size over the coming months and years, the impact the FX fees and commissions have will be lessened.

The platform can be slightly confusing at first, but in comparison with Trading 212 you can understand why. With so many options to trade and invest, it is impossible to have the simple user experience Trading 212 has. That said, it is by no means cumbersome when you become familiar with it. In the long run, I believe you may actually grow to prefer IB’s more technical interface.

Am I Happy With My Choice?

Absolutely. Although the process was a pain in the ass and took several weeks, I’m glad I made the switch. There is a lot to be said for dealing with one of the most reputable brokers in the business. The switch has opened up the possibility of trading options to increase my income from my portfolio, but at the moment this is not in my near term plans.

I would suggest that people (in Ireland specifically) who use Trading 212 think about their long term plans. Having to pay CGT when transferring positions has the potential to set your portfolio back years depending on the stage you are at. In the future I hope to post a further update with my thoughts on IB as I become more familiar with the platform and its features.

As always, this post is not a recommendation use the above brokers. It is for informational purposes only. Before investing your hard-earned money, make sure you do your research.

The Stoic Trader

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