The Interactive Brokers Dilemma

As an emerging commodity trading advisor (CTA) or an NFA exempt trader, setting up an account at Interactive Brokers is straightforward, allowing you to trade your own capital or manage friends and family accounts. The platform’s easy online application process and competitive trading fees make it an appealing choice. However, before opening an account, traders should consider their long-term infrastructure vision and asset management scaling plans. While Interactive Brokers has many attractive features, it may not be the optimal platform for scaling and growing your business. Factors to consider include:


Interactive is a closed environment (no give-ups)


If you plan to raise all your own capital and can direct everyone to open at Interactive, then you will face no challenges.  If, however, your long-term vision is to raise outside capital, then it is very likely you will attract clients who use other FCMs (futures commission merchants) instead of Interactive Brokers.  How will you manage all your clients across their various brokerage relationships through your trading setup at Interactive? The answer is: you can’t without putting up your own collateral.  Collateral requirements do not exist at other FCMs when you want to do give-ups.  Therefore, if you wanted to execute trades at Interactive and then give-up to clients housed outside of interactive, you are unable to do so.  When you as a trader are in this situation, you have two options: 1) Execute trades separately for your IB client base and then separately for all your non-IB accounts, or 2) Move your IB clients to another FCM and then execute all together for all clients at one firm and give-up to all accounts.  The risk with the first option is getting separate fill prices for IB clients and non-IB clients. The solution that option 2 provides is all clients receive the exact same APS (average price system) pricing for all executed trades. 


Better Managed Futures Infrastructure at other FCMs


Allocation account setup at other FCMs is “better” in the sense that it is compatible with all other FCMs.  Therefore, if you have clients housed at many different brokers, you can still execute for them at one place and do give-ups to their respective accounts.  This also results in the same average price for each trade for each client, resulting in no performance discrepancy.

The setup of the allocation account resembles that of Interactive, yet offers greater flexibility for growing clients across numerous brokers. Similarly, the trading capabilities remain unchanged, with many platform choices providing real-time market data.

Lastly, debiting fees from accounts across multiple brokers is also a streamlined process and can be handled by third party accounting firms (if needed).


Interactive does not raise assets or offer consultations


Interactive Brokers is primarily an online based brokerage firm that does not have account reps or capital raising teams.  As a CTA (or exempt money manager), there is no real advantage to start trading at Interactive when other brokers can offer the same trading services in addition to more targeted offerings for CTAs.  

Overall, we advise all new traders and CTAs to thoroughly evaluate all brokerage options before opening their first trading account. aiSource works with numerous FCM partners and streamlines the process, expediting consideration of all relevant factors to help you select the best primary FCM.