Interactive Brokers is a leading online broker, offering a wide range of financial products, including stocks, options, futures, currencies, bonds, funds, and cryptocurrencies. Operating in 150+ market centers across 34 countries and in 27 currencies, the company manages over $465 billion in assets and has more than 2.7 million accounts. Let’s take a closer look.
Interactive Brokers upholds a robust financial structure with $15.2 billion in total equity, reflecting its strong capital base. This stability is further reinforced by an investment portfolio composed solely of short-term instruments and bank deposits, which are marked to market daily, ensuring full transparency on gains and losses. The focus on transparency extends to IBKR’s lending practices, as it exclusively provides margin loans that are fully secured by marketable, exchange-traded securities. Complementing this, its sophisticated real-time margining system continuously evaluates all client positions, automatically liquidating those with inadequate margin deposits to mitigate risks. Moreover, the firm enhances security by credit vetting all orders before execution, ensuring sufficient account equity and safeguarding clients’ investments.
IBKR offers a variety of trading platforms to suit different trading styles and expertise levels:
- IBKR Trader Workstation (TWS): A powerful desktop platform for seasoned, active traders, featuring a customizable workspace with comprehensive trading, order management, and portfolio tools.
- IBKR Mobile: An app providing experienced traders with robust tools and market information, mirroring the desktop TWS functionality for on-the-go trading and account management.
- IBKR Client Portal: A user-friendly, web-based platform requiring no downloads, offering full access to view, trade, and manage accounts with a single login.
- IBKR GlobalTrader: A streamlined mobile app for trading stocks, ETFs, options, and cryptocurrencies worldwide, allowing deposits in local currencies and trading across multiple exchanges.
- IBKR APIs: For sophisticated users, this allows the creation of custom trading applications and automation of trading processes, with options ranging from an Excel API to an institutional-grade FIX API.
Over the past five years, Interactive Brokers has experienced significant growth in several key areas, including client accounts, client equity, and Total Client Daily Average Revenue Trades (DARTs). Client accounts have grown at a compound annual growth rate (CAGR) of 34%, rising from 598 thousand in 2018 to 2.56 million in 2023. Client equity has also increased, with a CAGR of 27%, expanding from $128 billion in 2018 to $426 billion in 2023, despite a dip from $374 billion in 2021 to $307 billion in 2022. Similarly, Total Client DARTs have grown at a CAGR of 18%, increasing from 862 thousand in 2018 to 1.94 million in 2023, following a decrease from 2.57 million in 2021 to 2.12 million in 2022.
The group stands out with an attractive offer for clients. Preferred by professional and semi-professional traders, the platform operates in a highly competitive market where commissions are nearly zero. However, IBKR‘s model has made it a pioneer in low-cost trading for over a decade. Alongside this strategic positioning, the company aims to be “generous” with its clients by allowing them to benefit from rising interest rates. Clients can earn up to 4.83% interest on cash balances over $10,000, significantly higher than those offered by competitors like Wells Fargo (1%), JP Morgan (0.02%), Citi (0.07%), and BoFA (0.04%). The company takes an aggressive approach, implementing strategies to continuously attract more clients and encourage larger deposits at the lowest rates.
The platform benefits from a diversified client base, ensuring steady sales. Individuals make up the majority of accounts (68%), YTD commissions (56%), and client equity (43%). However, despite their numbers, individuals contribute proportionally less revenue. For instance, Proprietary Groups and Hedge & Mutual Funds, though only 2% and 1% of accounts respectively, contribute significantly more to YTD commissions at 17% and 7%.
The platform’s client base is geographically diverse, with a majority from the Americas, followed by Asia-Pacific, and Europe. Accounts are most varied in Asia-Pacific, but over 50% of YTD commissions come from the U.S. Client equity is concentrated, with 46% in the Americas and only 18% in Europe.
In 2024, Interactive Brokers launched a streamlined desktop trading platform with a modern UI framework to provide faster access to information and trades, catering to active traders. Additionally, the company developed a mobile version allowing users to trade stocks, options, and cryptocurrencies across 90+ markets in over 27 currencies. The app supports fractional shares, enabling investments as small as $1 to maximize returns on small cash balances. IBKR also introduced the Option Wizard, facilitating options trading on 30+ market centers worldwide and helping clients understand and trade options more effectively.
Over the period, Interactive Brokers has seen its operating expenses double, resulting in significant operational leverage and a fivefold increase in operating profit, from $600 million in 2013 to over $3 billion in 2023. Interestingly, as the broker grew and captured market share, its valuation decreased, with its stock trading at more than thirty times earnings ten years ago compared to fifteen times today. The group’s revenue quadrupled from $1 billion in 2014 to $4.3 billion in 2023 and is projected to reach $5 billion in 2024 and $5.5 billion in 2026. EBITDA followed a similar trajectory, increasing by 486% from $545 million in 2014 to $3.195 billion in 2023, with a target of $3.5 billion by 2026. This impressive growth in revenue and EBITDA is accompanied by high operating margins of around 70% and net margins between 13-15%. Management also anticipates net cash of $7 billion for 2024 and $10.7 billion for 2026, with a return on equity of 19% for 2023.
In the first half of 2024, the group demonstrated strong financial performance. In Q1, commission revenue rose by 6% to $379 million, driven by a 24% increase in options contract volume, despite declines in futures and stock share volumes. Net interest income grew 17% to $747 million due to higher benchmark interest rates and increased customer margin loans and credit balances. Other fees and services increased 37% to $59 million, primarily from risk exposure and FDIC sweep fees. Execution, clearing, and distribution fees rose 6% to $101 million due to higher options trading volume, maintaining a pretax profit margin of 72%, with total equity at $14.7 billion. The Board also raised the quarterly cash dividend from $0.10 to $0.25 per share.
In Q2, IBKR exceeded analysts’ expectations with adjusted earnings per share rising to $1.76, surpassing the $1.74 consensus, and net revenue increasing to $1.23 billion. Commission revenue surged 26% to $406 million, with gains in options, stocks, and futures. Net income increased 14% to $792 million on higher benchmark, customer margin loans and customer credit balance. Customer accounts grew 28% year-over-year to 2.92 million, and net interest income rose 14% to $792 million. However, the quarter included a $48 million loss due to a technical glitch at the NYSE affecting Berkshire Hathaway’s class A shares.
Interactive Brokers leverages its global platform to offer clients advanced trading tools at a lower cost than its peers. This industry-leading technology provides a competitive edge, which the company capitalizes on amid improving macro trends. As more people engage in investing and trading, the firm continues to attract a growing number of clients.
