Chapter 7 — How to buy an ETF with Interactive Brokers?
Now that it's done, you'll be able to buy your first ETF (or any other security, such as a stock or bond).
Investing in the stock market is one of the most important pillars of your FIRE adventure, because that's what makes you invest your money to make it work for you, so that one day you can live off your passive income and officially declare yourself FIRE!
Except that when you face the Interactive Brokers user interface for the first time, it's pretty impressive. And it might even block you from starting because you're afraid of clicking in the wrong place and losing all the CHF you transferred there (I speak from experience ^^).
But don't worry, that's why I created this guide. If you follow it step-by-step every time, it will become child's play, like it was the case for me.
Step 0: Know which ETF to buy before anything else
If you still don't know which ETF to choose as a Swiss investor, then I recommend that you take a break and read these two articles:
- How to build a Mustachian Boglehead's portfolio
- In which ETFs I would invest CHF 10'000 if I started today
Now that you know which stock or ETF you want to buy, let's move on to the next section.
Step 1: Check how much free cash you have to know how many ETFs you are going to buy
Before submitting my stock market order, I always look at how much cash I have to know how many securities I'm going to buy.
Let's take the most common example where I want to buy the VT ETF with the USD I converted in the previous chapter:
The next piece of information I am interested in is the current price of a VT ETF's share. To do this, you can look in two places on Interactive Brokers: either in the "Search" section or directly in the "Transaction" view.
Since we are here to buy, we will use the "Transaction" function directly:
We now have all the elements in hand to know how many VT ETFs we can afford today:
- USD cash available: 4'129.50 USD
- Purchase price of one ETF VT share: 97.29 USD
- Total number of shares we can afford: 42 (because 4'129.50 / 97.29 = 42.445266728)
Step 2: Buy your ETF on Interactive Brokers (finally!)
Here we are.
This is a key moment in the life of an investor. Because once you get through this stage, the money you're going to earn is actually going to start working for you while you sleep or go about your business. Bye bye theory, it will now become your real life!
Here is an explanation of all the points in the image above on how to buy an ETF with Interactive Brokers:
- 1: make sure that the security (ETF, stock, or bond) is the one you want to buy
- 2: select buy (unless you want to sell one of your shares, because it happens in the same "Trade" tab)
- 3: indicate the quantity of VT ETF shares you wish to buy (you will note that it is 41, and not 42, because between the time I started this article and the time I finished it, the price of the VT ETF has increased ;))
- 4: as I explained in the yellow box above, we want to buy "entire" shares, not just indicate a cash amount to buy 41.YXZ fractions of shares
- 5: the order type corresponds to the price parameter you can set up. Personally, I only use the "Limit" type to say how much I am willing to pay for a share at maximum (here 98.65 USD)
- 6: Then you must indicate the validity period of your transaction order. I now always use "Good Till Cancel (GTC)" which means that the order is valid until it is executed, unless I cancel it myself. As you can see, you can also make it valid for one day only, or until the next opening of the stock exchange
- 7: FINALLY! You will click on "Submit" to submit your order on the stock market. That's where everything will happen :) So, take a deep breath, and click!
Maybe you're wondering:
But Marc, why is my order sent, but not yet filled?
Very good question!
In fact, an order may not be filled for several reasons, such as the fact that your minimum purchase price is too low compared to the price that other sellers on the exchange are willing to sell for.
But in our case, the reason is even simpler: it's because at the time I'm writing this article at 5am in Switzerland, the New York Stock Exchange is not yet open :)
And with a bit of patience (i.e. until it's 9:30 am in New York City, when their stock exchange opens), this is what you will receive in your mailbox as a transaction notification from IB:
That's it, congratulations, you've just bought your first ETF!!!
You can also go to the "Portfolio" section of Interactive Brokers, where you will see your new ETF.
You will also notice that I paid the VT ETF 97.7 USD, which is quite normal since I had set my maximum limit price at 98.65 USD.
There you go, now you know how to buy an ETF on Interactive Brokers.
In the next chapter, I'll explain how you can see how much money you get back from your investments on Interactive Brokers (capital gains and dividend gains). This is a key element of your future FIRE life, because it is your investments that will finance your lifestyle :)