Interactive Brokers and Tiger Brokers are overseas based investment platforms that welcome New Zealand customers. Their scale allows them to offer investment options that are traditionally difficult for Kiwis to access, while charging fees that seem to be much lower than our local counterparts. So how do these foreign brokers compare to our domestic sharebroking platforms like Sharesies and Hatch? Is there a catch to their low fees, and are they worth moving your investments over?
1. What’s on offer
Neither broker offers investment into New Zealand shares and ETFs. You’ll need to use a local broker like Sharesies or ASB Securities to access NZX listed assets.
Interactive Brokers (IBKR)
Interactive Brokers is an American brokerage firm with operations around the world, and are listed on the NASDAQ exchange as IBKR. They’re a large platform with over 1.4 million customer accounts and they allow you to buy and sell shares and ETFs listed in countries such as:
- Hong Kong
- China (traded via the Hong Kong Exchange)
- United Kingdom
- United States
They support trading in plenty of other markets as well, including Japan, France, and Germany. In total there’s about 30 countries you can trade in!
Interactive Brokers also offers options, warrants, futures, and margin trading but these won’t be covered in this article. They are high-risk, complex financial instruments and are not suitable for most retail investors.
Tiger Brokers (TIGR)
Tiger Brokers is a trademark of UP Fintech Holding Limited, an online brokerage firm listed on the NASDAQ exchange as TIGR. They’re based in China and primarily serve the Asian market, but are open to the NZ market under the Auckland based Tiger Brokers (NZ) Ltd. TIGR allows you to buy and sell shares and ETFs listed in the following countries:
- Hong Kong
- China (traded via the Hong Kong Exchange)
- United States
Tiger Brokers also offers options, warrants, futures, and margin trading but these won’t be covered in this article. They are high-risk, complex financial instruments and are not suitable for most retail investors.
IBKR and TIGR have a clear advantage over Sharesies and Hatch when it comes to the quantity of investments you can access – certainly handy if you want to buy a particular asset listed in harder to reach markets like Canada or the UK. In addition, neither platform uses DriveWealth for their US trading so offer a greater range of US shares and ETFs than what you’ll find on Sharesies or Hatch.
However, this large range doesn’t necessarily make them better platforms. Accessing investments in markets like Hong Kong and the UK isn’t necessary to build a well-diversified portfolio, and could make selecting what to invest in even more overwhelming. And having more investments might add complexity to your portfolio without adding much diversification – given there is a point where your portfolio is already diversified enough, and adding more and more investments to your portfolio starts to have little effect.
The fee structures of IBKR and TIGR are pretty complicated, especially when they offer investment into so many products and markets. To keep things simple, this review will focus on the fees for buying and selling shares in the key markets of Australia, United States, Canada, United Kingdom, and Hong Kong, but each broker’s full fee structure can be found via these links:
Despite being a foreign based broker, IBKR has a local New Zealand bank account, so depositing NZD into the platform is as simple as depositing money into Sharesies or Hatch, and shouldn’t incur any transaction fees.
However, before trading you still need to exchange your NZD to the relevant foreign currency for the market you want to trade in. For this IBKR charges 0.002% with a minimum charge of $2 USD, and very minimal spreads. This means any currency exchanges up to the value of $100,000 USD will cost just $2 USD!
IBKR’s brokerage fees for buying and selling shares are relatively confusing, with two pricing plans available:
- Tiered – The Tiered fee structure is slightly cheaper, but you’ll need to pay exchange and regulatory fees on top of the base brokerage charges. In addition, this plan gives cheaper rates the more you trade, but you’d have to trade very large volumes (over 300,000 shares in a month in the US market) for the discounted rates to take effect.
- Fixed – The Fixed fee structure is slightly more expensive, but is inclusive of all exchange fees and most regulatory fees.
Below I’ll cover the Fixed pricing plan given the complexity of the Tiered plan (because you have to calculate and add exchange fees on top of the brokerage fee), but the differences between the two plans should not be significant unless you’re trading very large amounts. The brokerage fees for each market are:
|Australia||0.08%, minimum $6 AUD|
|US||$0.005 per share, minimum $1 USD|
|Canada||$0.01 per share, minimum $1 CAD|
|UK||0.1%, minimum £4 GBP|
|HK||0.08%, minimum $18 HKD|
Regulatory fees – A couple of very small regulatory fees apply when you are selling US shares or ETFs:
- SEC Fee of 0.00051%
- FINRA Trading Activity Fee of $0.000119 USD per share
Withdrawal fees – IBKR gives you one free withdrawal per month, with all subsequent withdrawals costing $15 NZD each.
Account fees – IBKR used to charge account fees, but these no longer apply.
Putting it all together
Given the complexity of IBKR’s fee structure, here’s a simple summary of what you can expect to pay:
Foreign Exchange – If you’re transacting less than $100,000 USD, you’ll always pay $2 USD to swap from one currency to another.
- Australia – You can buy up to $7,500 AUD worth of shares for a flat $6 AUD fee, after which you’ll pay 0.08% of your transaction value.
- United States – You can buy up to 200 shares for a flat $1 USD fee, which most people should not go over unless they’re buying very low priced shares. After which, you’ll pay half a cent per share.
- Canada – You can buy up to 100 shares for a flat $1 CAD fee, after which, you’ll pay 1 cent per share.
- United Kingdom – You can buy up to £4,000 GBP worth of shares for a flat £4 GBP fee, after which you’ll pay 0.1%.
- Hong Kong – You can buy up to $22,500 HKD worth of shares for a flat $18 HKD fee, after which you’ll pay 0.08%.
TIGR also has a New Zealand bank account, making NZD deposits into the platform simple. However, every time you make a deposit they require you to manually enter into the app:
- The amount you deposited,
- The bank account number you made the deposit from,
- A screenshot of the bank transfer you made.
Certainly not as streamlined as other platforms!
TIGR claims they don’t charge any fees for exchanging currency, but they do apply a spread of between 0.3-0.5% on their foreign exchange rates – which is effectively a hidden fee given your money gets converted at a worse rate than what IBKR, Sharesies, or Hatch would offer.
|Australia||0.11%, minimum $8.80 AUD|
|US||$0.0039 per share, minimum $0.99 USD|
For US and HK trades you’ll need to pay a few extra fees on top of the above base brokerage charges:
- Agency Fee of $0.00396 USD per share, minimum $0.99 USD
- Platform Fee of $0.004 USD per share, minimum $1 USD
- SEC Fee of 0.00051% for sell orders only
Hong Kong – There are quite a few additional fees you’ll get slapped with:
- Trading Fee of 0.005% + 0.5 HKD
- Settlement Fee of 0.002% (minimum $2 HKD, maximum $100 HKD)
- Transaction Levy of 0.0027%
- Stamp Duty of 0.13%, minimum $1 HKD
- Platform Fee of $15 HKD
Putting it all together
Foreign Exchange – There is spread of 0.3-0.5% on the foreign exchange rate. Taking the midpoint of this, I’ll assume a 0.4% fee for foreign exchange on TIGR.
- Australia – You can buy up to $8,000 AUD worth of shares for a flat $8.80 AUD fee, after which you’ll pay 0.11%.
- United States – You can buy up to 250 shares for a flat $2.98 USD fee (Commission + Agency Fee + Platform Fee). After which, you’ll pay just under 1.2 cents per share.
- Hong Kong – Using an example of buying $22,500 HKD worth of shares, you’d pay $53.38 HKD for the transaction.
3. Fee comparison with Sharesies and Hatch
Interactive Brokers and Tiger Brokers compete with local platforms Sharesies and Hatch – with Sharesies offering both ASX and US shares, and Hatch offering US shares only. So are the foreign brokers cheaper than our local ones?
Buying Aussie shares vs Sharesies
Here are the fees (in AUD) for each broker for various amounts of NZD invested in Australian shares. I have assumed a NZD-AUD exchange rate of 0.96.
- Sharesies – The cheapest broker for smaller ASX transactions.
- IBKR – The minimum $8.74 AUD fee IBKR charges (for brokerage + FX) is not very cost effective when investing small amounts, but becomes cheaper than Sharesies for transaction sizes above $991 NZD (and becomes significantly cheaper for even larger transactions).
- TIGR – Their fees don’t appear to be as competitive, apart from being cheaper than Sharesies for larger transactions.
Want to do your own fee comparison? Check out our ASX Brokerage calculator here.
Buying US shares vs Sharesies & Hatch
Here are the fees (in USD) for each broker for various amounts of NZD invested in US shares. I have assumed a NZD-USD exchange rate of 0.7, and that we are buying a reasonably high priced share like Apple (AAPL) which is currently trading at just under $150 USD.
- Sharesies – Again the cheapest broker for investing small amounts.
- Hatch – Cheaper than Sharesies for investing over ~$1,000, but more expensive than IBKR and TIGR.
- IBKR – Becomes cheaper than Sharesies for transactions larger than $386 NZD. Significantly cheaper than all other brokers for large transactions.
- TIGR – Not as competitive as IBKR, but still cheaper than Sharesies and Hatch for larger transactions.
Want to do your own fee comparison? Check out our US Brokerage calculator here.
4. Safety of your funds
Sharesies and Hatch don’t register your shares under your own name, but we still trust them given their appropriate custody arrangements, and their recognised and locally run operations. So how do IBKR and TIGR look after your money?
IBKR holds your assets under custody. While any shares you buy aren’t registered under your own name, they are kept segregated from the assets of the broker. So if IBKR gets into financial strife, they can’t use your money to repay their debts or for their everyday expenses.
Client-owned, fully-paid securities are protected in accounts at depositories and custodians that are specifically identified for the exclusive benefit of clients. IBKR reconciles positions in securities owned by clients daily to ensure that these securities have been received at the depositories and custodians.Interactive Brokers
In addition, IBKR is a member of SIPC (Securities Investor Protection Corporation) which provides up to $500,000 worth of protection for each investor in a worst case scenario where a broker goes bust with assets missing from customer accounts.
Like IBKR, TIGR holds your assets under custody, segregated from the broker’s assets. They sometimes use different custodians to hold customer assets, for example, TIGR may use IBKR to hold your US investments.
Client assets are held and kept in custody accounts, separated from the broker’s own capital. Detailed calculation and reconciliation of client money and securities are performed on each trading day.Tiger Brokers
The NZ branch of TIGR isn’t a member of the SIPC, but they are a New Zealand Registered Financial Services Provider. This registration doesn’t necessarily make your funds any safer, but it does require them to join a dispute resolution scheme which can help you resolve any complaints about the broker.
While there is some oversight of the platform from NZ regulators, TIGR was issued a formal warning by the FMA in 2020 for not having their anti-money laundering processes up to scratch, but this isn’t indicative of any mishandling of clients’ money (Sharesies was also warned for AML breaches in August 2021).
IBKR and TIGR are legitimate brokers, both taking appropriate measures to look after your money. However some people may still feel more comfortable dealing with a New Zealand owned and operated brand like Sharesies or Hatch.
– What happens to your money if InvestNow or Sharesies go bust?
5. Other considerations
Minimum investment & Fractional shares
There is no minimum investment required into either platform except for the following cases:
- TIGR doesn’t currently offer fractional shares, so the minimum investment into any company is 1 share – this will make it difficult for some investors to buy shares in companies like Amazon which has a share price of over $3,000 USD. IBKR does offer fractional investment into US shares and ETFs (so you could buy fractions of an Amazon share), but not for other markets.
- TIGR also requires a minimum investment of $500 into ASX listed companies and ETFs (though there is no minimum for subsequent investments). This makes TIGR much less accessible than platforms like Sharesies who require no such minimum for the ASX.
Your tax liability on any investments purchased through IBKR or TIGR is the same as if you were to buy US or Aussie on Sharesies or Hatch. Your foreign assets are mostly considered to be Foreign Investment Funds and FIF tax rules apply.
– What taxes do you need to pay on your investments in New Zealand?
Shareholders in companies are typically entitled to voting rights. This allows you to elect company board members, and vote on important company issues like mergers and acquisitions. Both IBKR and TIGR allow their customers to vote.
However, you may not be able to vote if your broker has borrowed your shares from you and has loaned them out (to someone shorting those shares) at the time voting takes place. IBKR may loan out your shares if you have a margin account, and TIGR has the right to loan out your shares at any time.
The borrower of securities has the right to vote, or to provide any consent or to take any similar action with respect to the loaned securities if the record date or deadline for such vote, consent or other action falls during the term of the loan. Such loans could inhibit partly or wholly Client’s ability to exercise securities’ voting rights.Tiger Brokers Client Service Agreement
Some of you might be considering leaving Sharesies or Hatch and transferring your shares in to IBKR or TIGR. With Sharesies it currently isn’t possible to transfer out Australian and US shares, so to switch your holdings over you’d need to:
- Sell off your shares (incurring brokerage fees),
- Exchange the proceeds back to NZD (incurring FX fees),
- Withdraw the NZD to your bank account,
- Deposit the NZD to IBKR or TIGR,
- Exchange the NZD back to AUD/USD (incurring more FX fees),
- Repurchase your shares (incurring more brokerage fees). What a process!
Hatch does allow you to transfer shares out to IBKR or TIGR. However, you can’t transfer fractional shares and Hatch’s executing broker, DriveWealth, charges a $100 USD fee for performing the transfer. So best to ensure the benefits you’re getting from transferring to IBKR or TIGR are worth the fees and effort!
If you want to transfer out of IBKR or TIGR, this is also possible. The fees should be minimal for IBKR (depending on where you’re transferring out to), but TIGR charges $150 USD per US position transferred!
IBKR has a “Free Riding Rule” rule which prevents you from selling any shares you bought with unsettled funds within two trading days. If you are considered to be “free riding” you won’t be able to buy shares with unsettled funds for 90 days. The Free Riding Rule is similar to Hatch’s Good Faith Violations, and only applies to IBKR cash accounts (as opposed to margin accounts). TIGR has no such trading restrictions.
IBKR and TIGR are full of features but the downside is that their user interfaces are relatively complicated. The better user experience you get from Sharesies and Hatch may be worth more than IBKR and TIGR’s potential fee savings, especially for beginners as the steep learning curve of IBKR and TIGR could put investors off.
However, there’s a couple of positives. Both platforms have demo/paper trading accounts which you can use to try out and familiarise yourself with the platform before having to commit real money. They also offer native mobile apps for Android and iOS which should be easier to navigate than their full desktop sites.
Supporting NZ businesses
Sharesies and Hatch are locally owned services who employ Kiwis to develop and operate their platforms. Supporting local businesses may be a factor you consider in deciding to use Sharesies or Hatch over IBKR or TIGR, despite their fees potentially being higher.
Keen to start building your investment portfolio with Sharesies? Sign up with this link, and you’ll get a bonus $5 in your account to invest!
The immediate advantage of signing up for Interactive Brokers or Tiger Brokers are their vast offerings – enabling investment into harder to access markets like Hong Kong and the United Kingdom. This advantage doesn’t mean you should immediately ditch Sharesies or Hatch – I think it’s unnecessary to access these markets to achieve a complete and diversified portfolio, with the view that the majority of investors are better off sticking to simple investments (like index funds and locally domiciled shares).
The secondary advantage of these foreign brokers are their fees. In particular IBKR is significantly cheaper than Sharesies and Hatch, as long as you invest at least a few hundred dollars per transaction to make the minimum FX and brokerage fees worthwhile. TIGR is not as cost effective as IBKR, plus their lack of fractional investing makes makes them a much less compelling option in my view.
In summary, Interactive Brokers is a solid alternative to our domestic brokers and will suit those who are more experienced investors, those wanting to access IBKR’s huge range of investments, and those who are investing large enough amounts to take advantage of the lower fees. However, Tiger Brokers isn’t as useful for Kiwi investors given their fees are less competitive and they don’t offer anything unique over IBKR.
The content of this article is based on Money King NZ’s opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.