Interactive Brokers is a globally recognized electronic broker with over 2.5 million clients that provides access to more than 150 electronic exchanges and market centers across 30 countries, supporting trading in 25 currencies.
The platform features approximately 30,000 corporate bonds and around 4,000 sovereign bonds, available in currencies like USD, CAD, GBP, and EUR.
IB offers competitive interest rates on uninvested cash, with a 3.1% rate for €100,000+ account balances.
Interactive Brokers (IB), a robust platform for global investors, offers extensive opportunities in bond trading. Renowned for its diverse investment portfolio, IB connects traders to a global network of markets, including stocks, ETFs, and other instruments. This guide will navigate you through bond trading using Interactive Brokers.
Originating from the US, IB is a globally recognized automated electronic broker, distinguished for:
Global Reach: Although a US-based broker, about 30% of its net revenues stem from international subsidiaries operating across 33 countries in Europe, Asia/Pacific, and the Americas.
Market Diversity: IB grants access to over 150 electronic exchanges and market centers in more than 30 countries, supporting trading in 25 currencies.
Advanced Trading Platform: Known for its comprehensive trading platform, Trader Workstation, IB ensures a seamless trading experience.
Competitive Margin Loan Rates: Offers lower margin loan rates compared to other brokers.
As of December 1, 2023, IB boasts over 2.5 million clients with an equity total of approximately 400 billion USD in their accounts. Founded in the late 1970s by Thomas Peterffy, who maintains a controlling interest, IB went public in 2007. Its shares are traded on NASDAQ, and the company has a market capitalization of about 34 billion USD as of this post’s date.
Residents from 33 European countries are eligible to open an account with Interactive Brokers. The complete list of eligible countries can be accessed via their official website.
The account opening procedure is entirely online. European individuals need to provide:
A valid form of identification (passport, EU identity card, or driving license).
Proof of Residential Address (recent bill, bank statement, or ID with address).
Tax Identification Number.
Documentation verifying the origin of funds (details about employment, assets, income, and source of wealth).
Accounts can be funded in any of the following currencies, irrespective of the selected base currency.
IB ensures client account protection through the Securities Investor Protection Corporation (SIPC). This includes:
Total protection of up to $500,000, which includes both securities and cash.
Cash is specifically safeguarded up to $250,000 within this total limit.
It's important to note that this protection is against broker-dealer failure, not market value loss.
In the event of IB's bankruptcy, SIPC coverage would compensate for cash and unsettled securities within these limits. SIPC, a US non-profit, is funded by its member broker-dealers.
IB offers an extensive range of global bonds:
The platform features approximately 30,000 corporate bonds and around 4,000 sovereign bonds, available in currencies like USD, CAD, GBP, and EUR.
While a vast array is accessible, immediate trading availability varies due to differing liquidity levels.
Specifically, within the Euro-denominated bond segment:
There are 8,892 bonds, with about 2,000 being small denomination (≤1,000 Euro), though not all are highly liquid.
Of these, 3,849 Euro bonds have active quotes.
Within these 3,849 Euro bonds, a careful selection process revealed that only 839 qualify as small-lot-sized bonds (≤1,000 Euro) with strong liquidity.
Following is an overview of the Euro-denominated bonds available on IB, categorized by country and industry:
IB offers fractional trading solely for equities, with no such option for bonds. For individuals with limited capital interested in bond trading, it's advisable to explore bonds with smaller denominations. To facilitate this, we at Bondfish provide a specialized screener designed to help investors find bonds that align with their investment capacity.
IB connects to 150 worldwide exchanges and sources bonds from these platforms as well as its own Alternative Trading System (ATS). This ATS functions as an internal over-the-counter (OTC) system for matching buyers and sellers outside traditional exchanges.
For European bonds, IB is linked to Euronext group of exchanges (Amsterdam, Brussels, Paris and Lisbon), but not to Frankfurt exchange which is significant in bond volumes or Milan exchange.
On the IB trading platform, users can select their preferred trading venue:
For trading European bonds on IB, there are typically three main sources:
Euronext: Ideal for directly routing trades to the exchange.
SmartRouting: An automated system by IB that searches across available sources, including exchanges and ATS, for the best execution price.
Tradeweb: A leading platform primarily for large government bond trades.
Most often, SmartRouting is the preferred option, as it is designed to secure the best execution price for the trader.
Non-US residents are enrolled in the IBKR Pro tariff plan, with the following fee structure for European bonds:
Additional external fees apply when orders are executed via an exchange:
Exchange Fee: 4.5 bps * Notional
Clearing Fee: Fixed €0.1 per trade
Example Calculations:
German government bond (€20,000 trade value): Total fee = €20,000 * (0.001 + 0.00045) + €0.1 = €29.1, or 0.1455% of the transaction value.
French corporate bond (€20,000 trade value): Total fee = €10,000 * 0.001 + €10,000 * 0.00025 + €20,000 * 0.00045 + €0.1 = €21.6, or 0.108% of the transaction value.
These fees are competitive yet higher compared to European brokers like Degiro or TradeRepublic, which offer flat fees not exceeding €3. For a detailed fee structure, refer to Interactive Brokers' fee schedule.
IB offers favorable interest income on uninvested cash balances in client accounts. The interest rates are aligned closely with live money market rates in respective currencies. Accounts with a net asset value over $100,000 equivalent receive higher interest rates, while the first €10,000 (or USD equivalent) in an account accrues no interest.
Currently, an account with €100,000 in cash would earn 3.1% interest, whereas one with €50,000 would get a 1.5% rate. Interest accrues daily and is paid monthly.
For the latest rates, visit Interactive Brokers' Interest Rates.
IB offers four methods to trade bonds:
Client portal on their website
Mobile app
Trader Workstation, their installable trading platform
Bond Scanner tool
We believe that the most convenient ways are the first two, as options 3 and 4 do not support ISIN search, making bond discovery challenging. Note that our Bond Screener can assist in finding bonds' ISINs.
We'll demonstrate the bond trading flow with the first option - Client portal. We will also briefly touch on the Bond Scanner (number 4 in the list above).
First, you need to log in to the Client portal from the home page.
After logging in, you can search by ISIN or issuer name.
The platform will display all available trading routes for bonds. In the example above, you have the option to trade a bond either via SmartRouting or directly via Euronext.
Upon selecting a bond, the platform displays its detailed information, including a yield chart, and the current quotes for buying and selling, along with the respective sizes.
Clicking the 'buy' or 'sell' button on the right side of the window will open an order ticket. Here, you can set your desired trade parameters and proceed to execute the trade.
Unfortunately IB does not provide yield calculations based on specified prices, nor does it provide other bond-specific calculations such as duration or spread.
The Bond Scanner tool on IB, accessible here, is the exclusive feature for viewing the entire range of bonds available on the platform. It offers a variety of filters to help find bonds that meet specific criteria:
Currency
Maturity date
Yield
Coupon
Country
Industry
Credit risk (categorized as High Yield or Investment Grade)
The Bond Scanner doesn't offer a minimum trade size filter. This makes it particularly difficult to search the universe of bonds that can be traded in lots smaller than 100,000 EUR or USD. However, our Bond Screener simplifies this process and allows you to easily select bonds with smaller lot sizes.
After applying your chosen filters on the Bond Scanner, you'll see the current pricing for bonds on IB. By clicking the trade button, you'll access the same order ticket window described earlier, where you can execute your trade.
IB offers comprehensive portfolio analytics through its client portal. To access this, log into the Client portal and navigate to "Performance & Reports" – "PortfolioAnalyst" – "Reports."
Here, you can generate a customized report by selecting 'Custom report' and tailoring it to your specific needs, providing a detailed view of your portfolio's performance.
