Which Broker To Use?
|March 14, 2016||Posted by Oddmund Grøtte under Investment Theory|
I recommend two international brokers: Interactive Brokers (IB) and DEGIRO. Underneath I will briefly describe their differences.
IB is listed on Nasdaq with tickercode IBKR. I have personally used them for many years and I really like their software. They are more made for trading than investing, though. Unless you generate commissions, they will charge you 10 USD per month in inactivity fee. To my knowledge they have the lowest commissions for retail customers.
Worth noting is that IB does not make you the official owner of the stocks you own. Instead your shares and assets are treated as an asset in their balance sheet and they have a liability towards you. That means IB is the official owner of the shares and you are just a beneficial owner. For practical purposes this does not matter to you. However, this might have importance if IB gets into financial trouble. Your cash and shares are insured up to 500 000 USD in SIPC, but above that you are not insured. In addition IB has a company wide insurance in Lloyds on behalf of customers up to 150 million USD to cover losses above SIPC insurance. Mind you, 150 million is not much. I think Lloyds charges 0.15% in premium to insure your funds if you choose to do it yourself. Both I and several others have asked IB if they can offer a solution where we are the official owners, but they have declined saying it’s not convenient.
This system is in stark contrast to for example Scandinavia. I have an account in the Norwegian broker Netfonds, and whenever I buy stocks in Scandinavia I automatically get my shares registered in the private register called Verdipapirsentralen. That means I’m out of the woods in case the broker goes bankrupt. I’m perfectly safe, except for my remaining cash deposit in Netfonds (which is insured up to 225 000 USD).
Registered in Holland and supervised by the Dutch authorities we find the low-cost broker called DEGIRO. They don’t have a long track record outside Holland, but they offer investors access to a lot of markets at reasonable commissions. Unlike IB, they have gone to great length to segregate customers assets. They have created a trust called Stichting DEGIRO that is not owned by DEGIRO the broker. This trust is a custodian for your shares and funds. That means your shares should be safe in any circumstance, even though you are not the official owner in this structure either. I’m not a lawyer but to me this structure seems more safe than any funds above 500 000 at IB.