Sep 222016
 

Lower Cost with Interactive Brokers

Everyone likes a discount, especially personal finance enthusiasts. We tend to get hyped over even marginal deals. 😀

16-09-why-pay-10-discount

Speaking of margin-al discounts. I recently lowered my stock margin rate from 4.45% to just 1.95%. Hot damn! It’s even lower than my mortgage now, haha. 😁

One of the best things investors can do to increase our net returns is to reduce the cost of investing. When it comes to leverage, or borrowing money to invest, the best way to reduce our cost is to find a broker which charges the lowest interest rates. 🙂

In the past I have held my margin account with TD Direct Investing. The current interest rate they offer is 4.25% or 4.75% per year, depending on which currency investors borrow in.

16-09-td-margin-rates

Although TD’s rates are already competitive relative to the other large banks in Canada, it is not the lowest. After doing some research online I’ve discovered that a U.S. based brokerage firm called Interactive Brokers offers the lowest margin rates, and has cheap trading commissions. So I recently transferred my entire margin portfolio from TD to IB to reap the benefits of lower cost borrowing. 🙂

Interactive Brokers Advantages

Here are 4 reasons why I switched to IB.

  1. Reduced margin rates for more cost-effective leverage. I currently have about $54,000 of margin debt. I was paying on average 4.45% a year for this massive loan with TD. But with Interactive Brokers I’m now paying only 1.95% on average because I have both US and Canadian dollars. This represents a difference of 2.50% between the two brokers, which translates into $1,350 of interest rate savings every year! 😀 “BM” in the table below refers to the benchmark rate set by Central Banks.16-09-interactive-brokers-margin-rates
  2. Cheaper trading commissions. TD and many other brokers charge a flat fee of $9.99 per trade when buying stocks. But IB charges 0.5 cent per share for U.S. accounts, and 1 cent per share for Canadian stocks. The minimum cost per transaction is $1. For example if I buy 200 Shares of BMO (Bank of Montreal) shares, then my total commission would be $2.00 CDN. My trades are typically worth between $1,000 to $3,000. This means I rarely buy more than a few hundred shares of anything because most companies I prefer to own are dividend growth stocks, which tends to be priced at $20 per share or higher.
  3. Access to global markets. This isn’t a big deal for most people, but for more advanced investors Interactive Brokers allows trading in foreign currencies outside of North America. This means we can buy European stocks in Euros, or Australian stocks directly from the ASX using Aussie money. 🙂 TD used to have a platform that lets Canadians like myself trade internationally, but they cancelled that service last year. 🙁 I’ve mentioned in a previous post, that I want to diversify into other countries and there could be some good opportunities in the U.K. after the Brexit event earlier this year. So having access to a global trading platform is important for my financial goals. 😉
  4. Great for options trading. $0.70 per contract; $1 minimum order; volume discount available. And in the unlikely chance that our open options are exercised or assigned, there is $0 assignment fee, unlike $43 for TD or BMO.

Disadvantages of IB

Here are a couple drawbacks with IB.

  1. Penalty for not being an active trader. If investors do not spend at least $10 in commissions per month, we will be charged the difference. Furthermore, there’s a $10 fee for real-time quotes each month which is waived if at least $30 in commissions is spent. I typically trade once or twice a month so I will be paying these fees.
  2. $10,000 USD minimum balance to open up an account. This isn’t an issue for me, but some investors might have trouble coming up with $10K.

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Nov 262012
 

Yesterday I went to the mortgage forum at the Vancouver Convention Center, put on by Canadian Association of Accredited Mortgage Professionals (CAAMP.) They had an educational seminar followed by a meet-and-greet session with mortgage related companies. The whole event was to promote the mortgage industry and get people interested about starting a career in the vast mortgage market.

What is the mortgage industry? It’s a part of the overall financial industry that deals with loans for real estate.  When someone wants to borrow money to buy a home they generally go through an originator (commonly known as a broker) who then talks with a lender (bank, credit union, private company, etc) to obtain a loan for the buyer. In a high ratio mortgage case (down payment <20%) the lender must go through an insurer 😀  That’s basically how everything works.

As usual, my favorite part about these kinds of events is all the swag companies were giving away. Colorful pamphlets, pens, notepads, Canadian maple syrup, mini first aid kits, eco-friendly shopping bags, food, shoe polish, lent remover. etc… Oh my goodness so much free swag(⌒▽⌒)

branded swag from companies in the mortgage industry

There are many different kinds of jobs in this sector. Even if you’re with a company that has nothing to do with the mortgage industry, you may still find yourself working indirectly in it. D+H (Davis and Henderson) for example, known for printing cheques, had a booth at the event. They told me they have expanded their expertise to provide targeted services to mortgage brokers and lenders.

Jobs directly related to the mortgage industry:

Broker channel: To become licensed within your province to help borrowers find lenders.
Property valuation: This includes appraising the value of homes and keeping up with market trends
Insurers: The 3 big ones here are CMHC (government insurer), Genworth (a spin-off from General Electric’s financing division), and Canada Guaranty (used to be a company under AIG)
Regulators: To license and authorize business, and to set standards in policy and enforce rules.
Lenders:  Must learn how to adjudicate, meaning they must determine if the borrower can pay back the mortgage or not. This is called the underwriting process.