How to Start Investing with IBKR

Starting an investment process can seem daunting. In this episode, we discuss IBKR’s trading platforms for different skill levels and where listeners can find educational resources to aid in their process. Steve Sosnick joins Cassidy Clement explore the topics.

Summary – Cents of Security Podcasts Ep. 72

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Cassidy Clement:

Welcome back to the Cents of Security Podcast. I’m Cassidy Clement, Senior Manager of SEO and Content at Interactive Brokers.

Today’s episode is a little different from our normal interview setup. On October 10th, 2024, I was joined by Steve Sosnick, IBKR’s Chief Strategist, to host a live discussion on how to start investing with Interactive Brokers. We recorded the conversation to share it with our podcast listeners. So in this episode, we’re going to address how starting the investment process can seem daunting and what questions to ask.

So as many people may know, as they enter the investment space, you may even say, where do I start? There’s so much information. Where do you trade? How can I learn more about the markets? In this conversation, we’re going to discuss interactive brokers trading platforms for all the different skill levels, and then also where listeners can find educational resources to help aid in the process of starting their investment journey.

Please enjoy the recording.

Steve Sosnick:

It’s great to see everybody. Thank you so much for hosting me and, I think we should just dive right in. Cassidy and I’ve done several of these before a few years ago, more or less switching from full time trading to part time writing to now I’m full time writing and talking head.

You know, there was this young person right out of college who was sort of stuck putting my stuff on the web and dealing with all the vagaries of how it goes and well, now she’s got her own podcast series, the Senior Manager of Search and Stuff. So I will turn it over to the unfortunate young woman who got stuck with me right out of college and, and we’ll go from there.

Cassidy Clement:

Well, I didn’t feel like I got stuck with you, but here we are. Hi everybody. I’m Cassidy. If you haven’t met me already. I think I’m the only one with that name in the company. But, yeah, I managed search and search engine optimization and content here and, yeah, started out on, Trading Education and working on, helping put commentary and other types of media on the website and eventually made my way into a larger scope. But we’re just gonna jump in I think. So, today we’re going to be talking about how to start investing, how to start investing with Interactive Brokers.

I think we’re going to cover some things in the agenda here that should give you a good idea of how we’re going to go through this. Before we do so, of course, as we all are familiar with, I have to show all the important compliance disclosures, to make sure that everyone knows this is not advice and we’re not making any recommendations. We’re just having a discussion today. But generally what we’re going to do is we’re going to talk about some questions that you should ask yourself and maybe who you are investing with. Before you start investing, what trading platforms we offer as a company, and then any educational resources that can be, useful to you.

And then, of course, we have our Q&A like we always do in these presentations. The main thing that we’re going to talk about, I guess, is really just looking at what you would define your needs for as an investor and what type of skills you would have and what you want to gauge with that. One of our other things that we’re gonna touch on a lot is going to be the IBKR Campus. If you don’t know about that already, and that’s really a large resource. I’m going to go and say vast. It is as if the Grand Canyon style level of information at all times, market commentary, quant blogs, free trading courses, lessons, quizzes, podcasts in English and in Spanish ranging from foundational concepts all the way to advanced market commentary. Webinars, and API documentation and examples. So there is a lot there, and it’s all completely free, and all public. So you don’t have to be an IB client or employee. You can go there and, find whatever you may need and, by all means, if you ever have any questions, there is a feedback bar around our search, but also there are feedback forms.

So to go right into it, we’re going to talk about some questions to ask before investing. So we’re going to kind of go into this podcast style, I guess you could say, Steve. So you’ve been in this for a while. What are some of the essential questions when you’re starting out? I wrote down some bullet points here, but I think you can probably expand a lot better on these and how people can utilize these answers to help guide them towards what is accurate to their investor profile.

Steve Sosnick:

Yeah, well, I think you’ve hit them on the slide for the most part. You know, goals is very important. What are you doing? And I know that in speaking to this group, I was, you know, flattered how many people have signed up actually. But what, what I can tell at least from seeing some of the names of the people I do know who are signed up, you know, people are at different stages of their lifestyle, their life cycle, I should say. So, you know, is your goal to save for your retirement? Is your goal to save, for college if you have kids already? Is your goal to save right now to buy a first home or, you know, or get started in your life that way? And that’s really the most important thing.

And I think that one of the keys here is all those things are situations where you kind of want the money to be there. And so, you know, one of the things that I guess I’d wish we should have put on the slide, is risk tolerance because ultimately that underlies everything you say and do here.

I know some people who’ve made a lot of money but, you know, to a certain extent, it was like hitting sevens while rolling dice so many times in a row. It’s most important to make sure that the money is there.

We’re all working very hard to earn this money. And so that’s very important. Next of course, is the amount of your investment. Do you somehow expect, $1,000 a year to be able to pay for your kid’s college education? Probably not. So you should be, certainly, recognizing whether the amount of money and given, you know, historical patterns, seems sufficient.

 One thing I will say is, we’re fortunate to work for a company that has a pretty good, 401k match and so that’s often a very good way to save for retirement because honestly, it’s the closest thing to free money that you’ll see in life pretty much. Part and parcel with that is time horizon. Is your oldest child starting college next year or, do you have like a newborn at home? And that will depend on how you want to invest. Because, you know, there is the effect of compounding, there’s the effect of growth. As a rule of thumb, the shorter the amount of time you need the money, the more stable it should be. You don’t want to find that you put the kid’s college fund into some biotech stock and if it works, you do wonderfully, but if it doesn’t, sorry kids.

 So you don’t want to do that. So that’s kind of where you want to start thinking about, conservative investing versus less conservative investing. On the other hand, if you’re, you know, in your twenties and you’re putting money into your retirement account, perhaps you might want to invest that a little more aggressively because you’ve got a long career ahead of you, and so you can withstand, some, what we call drawdowns, and markets do have drawdowns. My phone rings, my chats light up far more, on down days than on up days.

And, you know, for example on Friday, the S&P went up about 50 points. Not a peep. On Monday, the S&P went down by about 50 points. I was swamped. Why? Even though they move the same amount over the same couple of days, it’s what I like to call socially acceptable volatility. We like it when markets go up. We expect when markets go up, but they don’t always go up, but we tend to get much more freaked out when markets go down. And one of the comments I make is it’s sort of a gut check. If a drawdown concerns you to the point where it really stresses you out, well, then you’ve got too much at risk.

And you know, unfortunately there is a balance. Well, fortunately, I guess there is a balance between risk and return. Generally the more risk you take, the higher your potential for returns, but also the higher your potential for losses. If you don’t take a lot of risk, you tend to be a little bit more risk averse. You tend not to have that profit potential. But, you might feel a lot more secure if you know that you’re planning your honeymoon in a year, you probably don’t want to gamble that.

Where we want to help you out, we can’t really help you out. In terms of your goals, your, your risk tolerance, your time horizon, the amount of investments, that’s all internal. That’s all gotta come from you. But, once you have a handle on that, that’s where the resources come in. That’s where, using IBKR Campus, you can utilize that research. It’s our stuff. It’s the traders education stuff that that a lot of us have worked very hard to put on that site in terms of educational profiles.

We also have a lot of third party research on there. So you get, you can get a huge range of opinions for free, which is kind of remarkable actually. And then of course, once you are ready to take the plunge, one of the things that we’re all working hard to do, and I think it’s easy to lose sight of, is that we all basically make our money from these trading platforms. From clients interacting with the markets on our trading platforms, and as a result, to be client friendly, we have several different platforms, and that’s going to be one of the things, as we continue on through the slides.

Cassidy Clement:

And I think a really important question that sometimes people forget to ask themselves before they go into, any type of investment, and it could be something that’s new or familiar to you or maybe that you’ve heard about socially. A very important question, I believe, is how much do I know about this investment already?

And the reason for that is the landscape changes so incredibly quickly, both in terms of rates, public opinion, volatility, et cetera. And it’s important to stay ahead of those. And if you decide that, hey, maybe you don’t want to stay ahead of those every single moment of every single day, there’s investment products that, allow you to be a little more passive with it than active. It’s things like that that are part of that question set to really get you to the answer of where should I be looking? At what part in my life, at what risk tolerance am I at? So as I say that, that kind of also goes into your trading platforms, which is the last bullet. If you’re somebody who’s a lot more advanced, there tends to be more of a complexity to what you’re able to achieve if you also choose an advanced platform.

So when we’re talking about IB, because we’re all familiar with that here, there’s several different platforms whether it’s desktop, mobile, or, just like online in general, with no platform fees. And these platforms are way more than just some of the images that you see on the website. Especially TWS and IBKR Desktop, they’re extremely powerful. They have a ton of features. A lot of them are fully streamlined solutions. And of course, various awards that are given to them.

But something that not everyone knows about is there’s a paper trading account if you wanted to try it out, meaning you want to try a simulated environment. You want to test out, okay, how much do I really know about this? And also within the platform, how much do I know that I can execute this correctly or that I understand the features. It’s a great feature to take advantage of. I mean, I don’t know if you want to speak on that at all, Steve. Like, we offer so many opportunities for you to try things and make sure you’re comfortable with them before you go with, one of these platforms, especially the complex ones.

Steve Sosnick:

One of the original knocks on the systems, were that they were very complex and, and to a certain extent, that’s kind of the genesis of how we grew up. The reason Interactive Brokers exists is we were creating all this bandwith for us to do our options trading. When I joined this firm, it was Timber Hill. We were options market makers. We traded on all kinds of other products, but our main business was buying and selling options. And you know, Thomas had the realization that if we were building all this capacity to wire up all these connections to exchanges, there’s a lot of fixed costs to doing all that groundwork, but the variable costs were actually quite low. Once you have the wires in place, it was a fairly easy thing to just sell that excess capacity, which is really how it developed. But, you know, I guess the mindset that everybody had was we were all professional traders. So the original systems were sort of built for professional traders. And one of the bigger realizations I had, I was, you know, a lot of my responsibility involved also our market making in Canadian options. I was up in their office for their holiday party and we went out to dinner at a steakhouse, a famous place in Old Montreal called Gibby’s actually, and, I was in the first sort of group to arrive, the first cab load, basically, and we said, we’re here for Interactive Brokers and the Maître d’ comes over.

He’s like, I got to tell you, I just signed up for your platform today. It’s phenomenal. I can’t believe it. It’s cheaper. It’s better. And so we’re all like, yeah, this is great and then he launches into the idea that, so I spent four hours on YouTube today and I think I understand how to invest with it. I was happy, but I actually literally fired off an email to Milan the next day saying we can’t do this. Number one, we can’t have it so that people, you know, go to YouTube to learn how to use our platform. And number two, we can’t make it so complicated that people, you know, who’s going to sit through four hours of videos to do this?

Thank goodness this guy had patience. I think one of the things that’s gotten much better is, there’s a lot more emphasis on making the system user friendly. But one thing regarding the paper trading accounts, there is a distinction between trading and investing, and I think it’s very crucial that we all understand this. And quite frankly, given our rules, it’s actually not so easy to trade your personal account while working here.

In the U. S., you know, essentially you can’t really trade during the day, which means you have to think much more as an investor, and I think that’s a better way to start anyway. You know, we’re a firm, sort of built by traders for traders, but that doesn’t mean that you shouldn’t be using the platforms for investing.

But I also think it’s probably better, especially if you’re new to this, to think like an investor, not like a trader, because, the compliance rules are such that it actually makes it somewhat difficult to be a very active trader. But that said, the paper trading account is a very good way to get your feet wet and interact with the system for the first time if you’re not familiar with it, or new products if you’re not familiar with them.

Cassidy Clement:

I remember the Montreal story. I remember back in the day at GOP, you coming in being like, I don’t understand that. It’s like, yeah, I guess they just don’t understand because it’s very complex. And, you know, eventually the camp is built out and we have all of these pieces. But, I’m sure a lot of people on this call who’ve been here for a while, they know that that was a concern. And what we’re going to talk about next is showing the different platforms that we offer now and how large of a variety we now have.

 By the way, if anyone is ever curious, you can go to IB.com, click on trading and trading platforms. On that page, it’s actually a scaler that shows all the different platforms we have and they are ranked by skill level. So you’re actually able to go oh, okay I’m the beginner. Maybe I should go to Desktop or I should go to Global Trader or something like that. It’s very helpful. But IBKR Desktop being a little bit more beginner, intermediate, but having a lot of the tools that TWS has and Global Trader is a lot more streamlined and obviously global, so it encapsulates a lot more of the worldwide aspect.

Client Portal is something that we all have probably heard a million times, but that’s our web platform and that’s where you’re able to manage all of your accounts. Our mobile, IBKR Mobile, that’s where you’re able to access, obviously the trading tools, but from a mobile platform and our APIs are allowing for you to integrate into our system, usually TWS .

There’s many resources there to do things on a larger scale. We have ForecastTrader, which is something new ish that is based on Event Contracts. Those are things like economic data, global climate events, some key futures market items, and then finally we have, something like Impact, which is more of an ESG type of management system where you’re able to see what companies share your values that you may want to start investing in. But as we go through these before we get into the questions of comparison and picking the right one, anything else to build on here Steve before I move on?

Steve Sosnick:

Originally, when we were putting the slides together, you know, Cassidy did the logical thing and put them sort of in ascending order of skill level required. And I did opt to put Trader Workstation first because I think it all stems from that. I use it, this is what I use because this is what I’ve used for decades at this point.

And for better or worse, had some hand in helping build and stuff like that, but, you know, that’s sort of the OG as it was the original thing. The power of the platform is immense. There’s also a lot of aspects that are clunky and this is why over time we’ve iterated into more streamlined, platforms, that work well. But the key here is really no matter where in the world you live or want to invest or no matter what you want to invest in, you can do it. Trader Workstation allows that. But that’s not for everybody, of course. Another thing that if that’s very important is we have two basic pricing structures, IBKR Pro and IBKR Lite.

 The Lite is the platform that basically, at least in the US, charges, no commissions on stock trading. It’s important to understand the reason for that. Interestingly, even though most of our customers are not necessarily professional, the vast majority of our customers opt for the IBKR Pro.

 Think about it this way, when you get something for free, you’re the customer. And so what’s going on there is anytime, whether it’s us or any of our competitors who offer commission free stock trading, it’s because the orders are farmed out to market makers of which this firm was one for a long period of time. So we understand it. They pay for the order flow, because they want to see the order flow from individuals. And so they want first look at the order flow, they’ll pay for it. And in exchange that payment gets passed on in the form of free commissions to the user. What we found though is, we were never 100 percent comfortable with the idea, although we were among the first to offer commission-free trading. You know, It’s not something that really is in our DNA because we spent decades figuring out how to fight for every little fraction of a cent that one can get and that’s built into the IBKR Pro. And the implicit decision that a lot of our customers made was that they believe they can benefit more from the advanced execution tools that go on behind the scenes to save them money than they would if they didn’t have to pay commissions.

 If you’re a beginner, it probably does suit you to start with the Lite. Because again, given the fact that it’s very hard for us to be active traders while working here, at least the way I’m doing it is I’m putting in limit orders and they either get hit or they don’t. You know, if I’m putting my order before 8:30 in the morning when the market’s open at 9:30 Eastern, you know, it doesn’t matter who’s working my order because it’s just laying there on the book anyway. So in that situation it behooves people to maybe think about the Lite but our customers were very active traders for the most part.

The idea between Lite and Pro is really how hard we work to get the absolute best execution for customers behind the scenes. So then as we go along, we realized Trader Workstation you know, I gave you the story of how mind bogglingly complex the entry was for at least, the random customer I found, but it was not the only one who gave me an example like that. We then simplified it. So yes, the Desktop has a lot to do. Oh, you know, I’m getting a comment in here. Margin rates are a little bit higher with Lite. I didn’t even get into margin trading because that’s borrowing money to trade and if you’re a beginner, I don’t know that that’s necessarily the way to go either.

 But then we realized Global Trader is a way for us to access all the depth, the breath of the product offerings that we can have. Not every country is available to every user in every jurisdiction. There’s a lot of compliance that goes on behind the scenes. But for the most part, I can’t think of anybody who would allow just ordinary people, to get the breadth of global access that we offer. The IBKR Desktop, of course, being the simpler one, Cassidy, can you go to the next one?

Client Portal is more the behind the scenes stuff. That’s not necessarily so much as managing your actual investments is just managing your account and your interactivity with the firm and funding it and performance and things of that nature. And of course, as the world’s gone mobile, a lot of work has gone into the IBKR Mobile. And I don’t know if any of the UI, UX developers who I’ve worked with are on the call, but I’m telling you it’s kind of remarkable how far we’ve come with a lot of this stuff.

API, if you’re on this call, don’t even think about that one because that’s really how you interact, electronically with markets. If we’re talking about relatively new investors, don’t even think about that one because that’s basically setting up automated trading strategies, and feeding them into our system, and going from there. ForecastTrader is new I don’t think we can offer this outside the U. S. yet, I’m not 100 percent sure, but I believe there are some restrictions about that. But this is basically a way to, I hate to use the word wager because that’s the wrong word, but place direct investments on certain specific economic items.

And by the way, my friend, Jean Francois in Montreal just told me it’s not available in Canada, among other things. So I don’t know. And I certainly don’t know the status for, for those of you who may be, you know, in Switzerland or elsewhere. But it’s fascinating. I was on a call on Tuesday, a radio call-in show, it’s the Options Radio Network. These are basically hardcore traders. And, I had one of our IBKR Campus people online, you know, she sort of sits in the background being able to answer a lot of when people ask, you know, very specific questions, which I get, and it’s amazing how many questions came in about ForecastTrader.

I think right now with the U S elections, we’re able to offer, contracts based on them. They’re sort of binary options for lack of a better word. I don’t want to go down the option rabbit hole, but basically, you figure there’s a binary outcome. Yes or no. These are all yes or no questions. No is zero and yes is a hundred. The number in between is your likelihood that an event may occur. And there’s a whole bunch of stuff to look at, but I was amazed at how much traction that among this investment community. And Impact is a bit different as well. This is our way of saying, you know, there’s other things sometimes to consider beyond just P&L. If there are social issues that are important to you, you can help tailor your investments, in those regards, whether it’s green energy or et cetera, et cetera.

Cassidy Clement:

Yeah, I mean, at this stage of the game, we cover so much, and it seems like we covered it so fast, at least in my time here. So many different platforms have launched, and so many different changes, I’m sure for those listening, watching, et cetera, probably, if you’re not familiar with this, were like, whoa, I didn’t even realize we had this many things that you could read through or look at. And yes, you’re correct. It is overwhelming, but thankfully we put together a slide for helping you. So when you’re comparing the platforms, obviously you want to look at your own trading style and your expertise, and that’s where that skill level comes in. And you can look online at our trading platforms page to see what is the most accurate to your needs and comparing them.

And there’s a table also, on that webpage that shows our clients or potential clients, you know, what is supported in these tools. What data can you get? Are there options permissions available or futures? What type of portfolio management languages? We talked a little bit about APIs, things like that. But the big point that we wanna drive home is. Not only can you learn about how to trade and how to start investing, IB also offers all the additional pieces on the Campus and some other places, which I will show you quickly. There’s three main places that you’ve likely seen for supplemental help, and those are the IBKR Campus, IBKR Guides, and of course our FAQs, and all of these look to supplement you in any of the ways that you’re looking to learn more about trading, whether it’s using our platforms or not, and it’s all there free to the public, and a lot of it has beginner all the way through to advanced.

 And it’s very vast. Before we go into any other Q&A, Steve, anything you want to talk about? I know we’ve done podcasts recently on how elections impact the markets. We’re going to be doing one, with Jose Torres on the ForecastTrader with Event Contracts soon. Any other additions to what I had said that you think would be worthwhile for our audience out there?

Steve Sosnick:

Well, I’m going to give a plug to the Cents of Security podcasts, which are hosted by, Cassidy and they are specifically aimed at newer, younger investors, because I think she realized having produced several of, you know, the original podcasts and stuff like that, that a lot of it was going over many people’s heads. Like having me having a high level conversation about options, volatility with someone from the CBOE was not necessarily particularly gripping to someone who just wanted to know generalities about how to get started investing. Again, we want to be able to cater to a wide range of people. So Cassidy does those podcasts. We have, you know, podcasts all the time now. It’s actually funny how the podcast developed. I think I brought up this idea, I don’t know how many years ago, had you started even at this point when I started?

Cassidy Clement:

Oh yes, I remember the day. Yeah. It was sometime in 2020. And at the time the team was a lot smaller, but it’s quite a lot to be able to produce everything.

Steve Sosnick:

But I think I first brought up the idea like 2017 or 18 and it just kicked around. It sat there and then all of a sudden I have a feeling someone in a meeting one day said, oh, how about podcasts? And then we had to sort of get them up and running in about six weeks. So those of you who work in different project areas can relate to that story. It happens to everybody. This idea kicked around for the longest time and then we’ve since developed the resources to do this properly, but we were very much learning on the go.

 The first couple of podcasts are actually interesting because, really my first guest was Thomas Peterffy, who was a good sport. Some of those are actually enlightening cause he was actually pretty unvarnished in some of those conversations. So that was a lot of fun. The way that happened was I’d written a piece about the movie Trading Places for those of you who’ve seen it. It’s literally a trading movie and it takes place around Christmas and, you know, what do I write about like between Christmas and New Year’s?

And Thomas actually calls me up and says, did you know that I was like there with the producer and I think it was my idea? And I’m like, whoa. And he told me the whole story and I said, you know what? We’re starting podcasts in two weeks. You gotta tell this story. And he tells the story. And so there’s a whole bunch of other stuff. It’s also like how he almost fired me various times. There’s all kinds of stuff in there. So those are very much, those are fun. Like if you go scroll all the way back, but there’s so many topics in there. But, I think just the key is what we’ve done with campus and there’s so much on there.

Cassidy Clement:

We hope you enjoyed the conversation. As always, listeners can learn more about an array of financial topics for free at interactivebrokers.com/campus. Follow us on your favorite podcast network and feel free to leave us writing a review.

Thanks for listening, everyone.

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