eToro vs. Interactive Brokers: Which Is Right for You?
Choosing the right broker is a crucial step in your investment journey, especially if you're focusing on global index investing. In this comparison, we'll explore eToro and Interactive Brokers (IBKR)—two popular platforms with distinct features and fee structures. We'll break down their services, fees, pros and cons, and help you decide which broker aligns best with your investment goals.
Quick Overview
| Feature | eToro | Interactive Brokers (IBKR) |
|---|---|---|
| Fractional Shares | ✅ | ✅ |
| Fee Level | Low (but watch out for hidden fees) | Low |
| Currency Conversion Fee | 0.5% - 1.5% | 0.03% |
| Social Trading | ✅ | ❌ |
| Automated Savings Plan | ❌ | ✅ |
| Regulatory Safety | ✅ | ✅ |
| Available Markets | Limited | Extensive (135+ markets) |
| Inactivity Fee | ✅ | ❌ |
| Withdrawal Fees | $5 per withdrawal | None |
Pros and Cons of eToro and Interactive Brokers
eToro
Pros:
Fractional Shares: Invest in fractions of shares and ETFs.
Social Trading: Copy trading feature allows you to follow and replicate the trades of other investors.
User-Friendly Platform: Easy-to-use interface suitable for beginners.
Cons:
High Currency Conversion Fees: Charges between 0.5% to 1.5% on currency conversions.
Limited Market Access: Fewer markets and instruments compared to competitors.
Hidden Fees: Withdrawal fees, inactivity fees, and higher spreads can add up.
Interactive Brokers
Pros:
Low Fees: Competitive commission rates and low currency conversion fees (0.03%).
Extensive Market Access: Access to 135+ markets in 33 countries.
Advanced Trading Tools: Offers advanced platforms and tools for experienced investors.
Automated Investing: Supports recurring investments and offers fractional shares.
Cons:
Complex Interface: The platform can be overwhelming for beginners.
Complex Fee Structure: Interactive Brokers has a complex and sometimes confusing fee structure with tiered pricing, various commissions, and additional charges. This complexity can make it challenging for new investors to understand the actual costs involved and compare them with other brokers.
Fees Comparison
Understanding the fee structures of both platforms is crucial for cost-efficient investing.
eToro Fees
Commission: Zero commissions on stock and ETF trades for certain countries; spreads apply to other instruments.
Currency Conversion Fee: 0.5% to 1.5% when depositing or withdrawing in a currency different from your account's base currency.
Withdrawal Fee: $5 per withdrawal.
Inactivity Fee: $10 per month after 12 months of inactivity.
Interactive Brokers Fees
Commission: Low commissions starting at 0.05% of the trade value with minimums as low as €1.25.
Currency Conversion Fee: 0.03% on currency conversions.
Withdrawal Fee: One free withdrawal per month; fees apply to additional withdrawals.
Inactivity Fee: No inactivity fees.
Platform Features
eToro
Social Trading: Unique feature allowing users to copy trades of experienced investors.
User-Friendly Interface: Simple and intuitive platform suitable for beginners.
Mobile App: Robust mobile application for trading on the go.
Interactive Brokers
Advanced Trading Tools: Offers Trader Workstation (TWS) for advanced charting and analysis.
Automated Investing: Supports recurring investments and offers APIs for algorithmic trading.
Educational Resources: Extensive educational materials and webinars.
Market Access
eToro
eToro offers access to a range of markets but is more limited compared to Interactive Brokers.
Stocks and ETFs: Access to major exchanges like NASDAQ and NYSE.
Cryptocurrencies: Supports popular cryptocurrencies.
CFDs: Offers Contracts for Difference (CFDs) on various assets.
Interactive Brokers
Interactive Brokers provides extensive market access across the globe.
Global Stocks and ETFs: Access to 135+ markets in 33 countries.
Bonds and Mutual Funds: Wide selection of fixed-income products.
Options and Futures: Advanced derivatives trading available.
Regulation and Safety
eToro
Regulated by top-tier authorities like FCA (UK) and CySEC (Cyprus).
Provides investor protection up to €20,000 under the Cypriot Investor Compensation Fund.
Interactive Brokers
Regulated by multiple authorities including SEC (USA) and FCA (UK).
Offers SIPC protection up to $500,000, including $250,000 for cash.
Which Broker Should You Choose?
Your choice between eToro and Interactive Brokers depends on your investment needs and experience level.
Choose eToro if:
You're a beginner looking for a user-friendly platform.
Interested in social trading and copying other investors.
Prefer a simple interface with basic features.
Choose Interactive Brokers if:
You need access to a wide range of global markets.
Require advanced trading tools and lower fees.
Interested in automated investing and recurring investments.
Wealthy Forever's Recommendation
Both eToro and Interactive Brokers offer platforms where you can invest in global index ETFs at relatively low costs. However, after a thorough comparison, Interactive Brokers emerges as the preferred choice for serious investors focusing on global index investing. The reasons are:
Clearer Pricing Structure: Interactive Brokers provides transparent and competitive fees, making it easier to understand the actual costs involved.
Extensive Market Access: With access to over 135 markets, IBKR offers more opportunities for diversification.
Professional Platform: IBKR is perceived as a more serious and reliable platform, suitable for both beginners and advanced investors.
While eToro has its merits, especially for those interested in social trading, the hidden fees and limited market access make it less ideal for long-term global index investing. Therefore, Wealthy Forever recommends Interactive Brokers for investors seeking a reliable and cost-effective platform.
If the currency that you hold isnt in USD, EURO or GBP the choice becomes even more clear.
Frequently Asked Questions
Which broker offers lower fees, eToro or Interactive Brokers?
Interactive Brokers generally offers lower fees, especially in terms of commissions and currency conversion fees. eToro may have hidden fees like higher spreads, withdrawal fees, and inactivity fees.
Does eToro support automated investing?
No, eToro does not offer automated savings plans or recurring investment features. Interactive Brokers does support recurring investments.
Can I trade on global markets with eToro?
eToro offers access to major markets but is limited compared to Interactive Brokers, which provides access to 135+ markets in 33 countries.
Is Interactive Brokers suitable for beginners?
While Interactive Brokers offers advanced tools suitable for experienced traders, beginners might find the platform complex. However, educational resources are available to help new users.
Does eToro charge currency conversion fees?
Yes, eToro charges currency conversion fees ranging from 0.5% to 1.5% when depositing or withdrawing funds in a currency different from your account's base currency.
Are both brokers regulated and safe?
Yes, both eToro and Interactive Brokers are regulated by top-tier financial authorities and offer investor protection schemes.
Does Interactive Brokers offer fractional shares?
Yes, Interactive Brokers supports fractional shares, allowing you to invest in high-priced stocks with smaller amounts.
What are the withdrawal fees for each broker?
eToro charges a $5 withdrawal fee per transaction. Interactive Brokers offers one free withdrawal per month; subsequent withdrawals may incur a fee depending on the method used.
Can I practice trading before investing real money?
Yes, both eToro and Interactive Brokers offer demo accounts where you can practice trading with virtual money.
Which broker is better for social trading?
eToro is known for its social trading features, allowing you to copy the trades of other investors. Interactive Brokers does not offer social trading.