5.4.20

Interactive Brokers vs Fidelity for active trading

For the last two months I have been hand-trading an algorithmic stock strategy in two retail brokerage accounts: One at Interactive Brokers, one at Fidelity.

I didn't anticipate this would be the most exciting two market months since the 2008 Financial Crisis.  But for the purposes of my work the timing was fortuitous: I was able to acquire detailed data and exceptional experience during a live "stress test."  Following are some observations and comparisons of these two online brokers for purposes of trading U.S.-listed stocks:

User Interface (Windows 10): Fidelity offers a platform called Active Trader Pro (ATP).  Interactive Brokers calls its platform Trader Workstation (TWS).  The same functionality is available on both, but for active stock trading I personally prefer the interface of ATP.  (For other securities I suspect TWS would beat ATP hands-down, because Fidelity does not offer access to anywhere near the breadth of markets as does Interactive Brokers.)

Stability: TWS was rock-solid.  ATP suffered one operational failure: On the first day of record-breaking volume in February, during the last ~20 minutes of the regular market, it stopped processing orders and instead returned an ambiguous error message on every attempt.  I discovered I could still manage orders through Fidelity's website, but that is poorly suited to active trading.  Fortunately that was only a one-time hiccup for ATP.

Execution: The positive performance of market orders through Fidelity defies explanation: A significant number of my market orders to buy and are filled at the bid for the stock (and sales filled at the offer).  Otherwise a majority are filled at good prices around the mid of the NBBO.  Fidelity summarizes these "price improvements" for market orders.  I do more limit orders than market orders, and there's no "price improvement" possible on a normal limit order, but even with that dilution I realized an average of 9bp of price improvement across all of my trades at Fidelity.

At Interactive Brokers market orders almost always fill at the NBBO (i.e., you buy at the offer and sell at the bid).  If you are skilled at working hidden orders you might be able to do better, but Interactive Brokers only exposes advanced order types to accounts willing to pay commissions on all trades, and commissions presently run about 3.4bp.

Margin Rates: The interest cost of margin at Fidelity (and most other retail brokers) is absurd: Presently it can run over 8%.  Interactive Brokers is charging no more than 1.55%.

Performance Analysis: Fidelity's historical account and performance analysis has glaring shortcomings.  Want to know your historical daily account value?  Unavailable!  Want to analyze trade history?  Fidelity doesn't show order data, only fills!  Interactive Brokers doesn't exactly make it easy, but if you wade into their Custom Statement tools it is possible to get all the data needed for any performance analysis.

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