Interactive Brokers vs. Robinhood: Comparing Two Very Different Brokerages

By Jordan Wathen Markets Fool.com

Once you've mastered the basics of personal finance, it may be time to start thinking about growing your savings with investments. A brokerage account can open a world of investment opportunities, from individual stocks to mutual funds. Selecting a brokerage isn't easy, however. Below, we'll take a look at two popular services, Interactive Brokers and Robinhood, and compare them on costs and features from the perspective of a long-term investor.

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Trading costs and commissions

Most brokerages make investing cheap. Robinhood goes a step further and makes investing free. This makes it difficult to compare it to alternatives because investors have to accept the trade-off of fewer investment options in exchange for commission-free trades. The table below compares commission prices and available investments by brokerage.

Broker

Stocks/Options

ETFs

Mutual Funds

Interactive Brokers

Stocks: $0.005 per share ($1.00 minimum)

Options: $0.25 to $0.70 per options contract ($1.00 minimum)

$0.005 per share

$14.95 per purchase

Robinhood

Free (options trading isn't available)

Free

Not available

Source: Company websites.

Robinhood obviously gets the clear advantage on cost for stock and ETF trades. Investors who want to invest in mutual funds and stock options will need to find an alternative, however, as Robinhood currently doesn't offer trading in these investments.

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But as you'll soon discover below, there's more to understanding the true cost of a brokerage account than just published commission prices. A combination of special offers for opening a new account, commission-free trades on select ETFs and mutual funds, and other perks act as an effective discount on trading costs.

Commission-free ETFs and NTF Funds

Depending on how you invest, Interactive Brokers and Robinhood may help you minimize your trading costs with commission-free funds and no-transaction-fee (NTF) mutual funds. Brokers are increasingly offering lists of funds that their clients can buy and sell without paying a fee, and fund investors would be wise to take this into consideration before opening an account.

Broker

Commission-Free ETFs

NTF Mutual Funds

Interactive Brokers

33 (Global X, Cambria, and O'Shares)

2,900+

Robinhood

Technically, all ETFs

Not available

Source: Company websites.

Technically, every ETF is a commission-free ETF at Robinhood, whereas Interactive Brokers offers 33 ETFs that its clients can buy or sell for free. Interactive Brokers earns the edge in mutual funds, however, being the only one of the two with no-transaction-fee funds.

Account minimums

Robinhood and Interactive Brokers differ substantially in minimum account requirements. Robinhood is a no-minimum brokerage firm, meaning that you can open an account with spare change if you want to. Interactive Brokers requires a minimum deposit of $10,000 to open an ordinary brokerage account, or $5,000 to open an IRA. Investors who are 25 years old or younger can open an account with as little as $3,000.

Keep in mind that brokers occasionally match large deposits with cash bonuses or commission-free trades, so it may be advantageous to deposit more than the minimum if it means you qualify for added perks.

Trading platform

We at The Motley Fool believe that the best investments should be held for the long haul for big gains rather than traded back and forth for small gains over the course of days or weeks. For this reason, we don't really trade much, and thus we don't have particularly strong opinions about the quality of any given platform.

While personal opinion tends to underlie any preference toward trading software, there's an objective difference between Interactive Brokers and Robinhood. Robinhood is available only on mobile devices (phones and tablets), whereas Interactive Brokers has mobile and desktop applications. If you don't have a smartphone, or would prefer not to use a mobile device to trade, you might find the differences particularly important.

Robinhood's mobile-only platform scores high marks from its users, but it may dissuade investors who don't have smartphones or tablets. Source: Getty Images.

International stocks and ADRs

The world is more connected than ever before, and that extends into financial markets. Most online brokerages make it possible to invest in foreign companies, subject to just a few limitations. Here's how Interactive Brokers and Robinhood compare on foreign investment accessibility.

Investments

Interactive Brokers

Robinhood

American Depositary Receipts (ADRs)

Yes

Some

International stock markets

Yes

No

ETFs/mutual funds of foreign stocks

ETFs and mutual funds

ETFs only

Source: Company websites.

The differences are pretty substantial here. Robinhood clients can invest in companies domiciled in Canada and Israel that trade above $5 per share, but will find that many foreign companies don't fit these parameters. For instance, the company doesn't currently allow for trading in over-the-counter (OTC) stocks, which includes many ADRs.

Interactive Brokers allows for indirect (ADRs) and direct (stocks on foreign exchanges) investments in international companies. It offers electronic trading in more than 100 foreign markets that include well-known exchanges like the London Stock Exchange down to smaller markets like the Singapore Exchange.

Despite their differences, you can make the case for either brokerage in this category. It really just depends on your needs. Many investors are happy with investing internationally with ETFs, which are plentiful, and can be bought and sold commission free at Robinhood. Others who want to trade on markets halfway around the globe will find Interactive Brokers to be one of just a few brokers that offers international trading.

Research quality and tools

We tend to believe that individual investors can benefit from access to a variety of research tools and support.Interactive Brokers provides analyst upgrades and downgrades, multiple daily investment briefs, a daily lineup of top headlines, and a wealth of screening tools, just to name a few of its research capabilities. Robinhood does not currently provide research to its clients, which is a trade-off for its zero-commission trades.

Mobile app reviews

Customers give their brokers fairly high scores for their mobile trading apps. Here's how users and clients of each broker rated their iOS and Android apps (as of 1/04/2017).

Broker

Apple App Store

Google Play

Interactive Brokers

3.5 stars

4.0 stars

Robinhood

3.5 stars

4.5 stars

Source: Relevant app stores.

The better brokerage: Interactive Brokers or Robinhood?

Depending on your needs, either could be a great choice. Robinhood offers commission-free trades in stocks and ETFs, but it doesn't offer a full suite of investment options, or many of the frills (like research) that other brokerages provide. Interactive Brokers offers a full line-up of investment choices, foreign and domestic, plus research, and relatively low commissions on most orders, but its minimum account sizes may not be accessible for new investors who are just getting started.

Ultimately, there isn't just one brokerage for every type of investor. It's all about finding the best mix of features and functionality to fit your portfolio.

To be clear: The Motley Fool doesn't endorse any particular broker, but we can help you compare brokerages to help you in the hunt for the best broker for you. Visit Fool.com's Broker Center for a comparison of features and special offers for traditional brokerage accounts. The Fool.com IRA Center is specifically designed with the retirement saver in mind.

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Jordan Wathen owns shares of Interactive Brokers. The Motley Fool recommends Interactive Brokers. The Motley Fool has a disclosure policy.