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Interactive Brokers to Offer Free Trades

Where did all the commissions go? With the launch of IBKR Lite, some see a challenge to Robinhood.

Interactive Brokers Group announced a new commission-free app and desktop service for making unlimited trades on U.S. exchange-listed stocks and exchange traded funds. The service is called IBKR Lite and it will be available in October. The move is considered by some to be an effort to compete with zero-commission trading app Robinhood, but it may also serve to add pressure on pricing models at discount brokerages like Charles Schwab, E*Trade and TD Ameritrade. 

Clients will have the option of moving between IBKR Lite and its existing stock trading services, which will be rebranded as IBKR Pro, as many as three times, and then once per quarter. “With Interactive Brokers, clients can choose to pay no commissions and have their orders routed to market makers like many other retail brokers do or pay Interactive Brokers’ ultra-low commissions and receive professional executions through our IB SmartRouting system,” said Thomas Peterffy, chairman and CEO of the firm. IB SmartRouting is the name of the brokerage’s order routing software.

There is no account minimum and no inactivity fees charged to IBKR Lite users. Idle cash balances receive interest rates that sit at 1.5% under the fed funds rate. If the fed funds rate dropped below 1.5%, clients will see the interest they receive on cash stop at zero, "for now," according to company spokesperson Kalen Holliday. 

Although it certainly makes waves, Interactive Brokers Group’s move is in line with a recent move by firms to consider dropping trading commissions. JPMorgan Chase launched YouInvest last year, with a limited number of free trades, and Robinhood’s zero-commission app has raked in users and was valued at $7.6 billion as of July. 

The latter’s growth has put it on the minds of some industry observers. Interactive Brokers Group “just went full [Robinhood] on the entire brokerage industry,” said Meb Faber, co-founder and CIO of Cambria Investment Management, in a social media post. “Love it.” 

“In the past few years, many financial firms have lowered their fees, and some have even introduced so-called free trades,” added Peterffy. “There’s usually a catch, such as a limited number of transactions. IBKR Lite clients will be able to trade U.S. exchange-traded stocks and ETFs as little or as much as they want and it won’t cost them a dime.” The service will be available only for U.S. residents.

Interactive Brokers Group has long partnered with innovative startups and drawn tech-savvy advisors and advisory tech providers as well; it first worked with and later acquired Covestor in 2015 and in January announced a partnership with Marstone.

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