IBKR - Interactive Brokers

[KCLarkin]

I know, but then you would only arrive at around 1.4 pre-tax diluted eps. Even though it's a growing business and has high margins+operating leverage, can the valuation be justified at this point?

 

Based on the transcript, it is $1.39 AFTER tax. Annualize Q4 and add the $0.25 anticipated annual tax savings and you are probably just shy of $2. Still not cheap but probably justifiable by some investors.

[KCLarkin]

Wow, IBKR really seems to have found its groove since dropping the market maker. January Stats:

 

903 thousand Daily Average Revenue Trades (DARTs), 40% higher than prior year and 29% higher than prior month.

Ending client equity of $133.9 billion, 50% higher than prior year and 7% higher than prior month.

Ending client margin loan balances of $30.1 billion, 61% higher than prior year and 2% higher than prior month.

Ending client credit balances of $48.1 billion, 13% higher than prior year and 2% higher than prior month.

497 thousand client accounts, 27% higher than prior year and 3% higher than prior month.

430 annualized average cleared DARTs per client account.

[Liberty]

Wow, IBKR really seems to have found its groove since dropping the market maker. January Stats:

 

903 thousand Daily Average Revenue Trades (DARTs), 40% higher than prior year and 29% higher than prior month.

Ending client equity of $133.9 billion, 50% higher than prior year and 7% higher than prior month.

Ending client margin loan balances of $30.1 billion, 61% higher than prior year and 2% higher than prior month.

Ending client credit balances of $48.1 billion, 13% higher than prior year and 2% higher than prior month.

497 thousand client accounts, 27% higher than prior year and 3% higher than prior month.

430 annualized average cleared DARTs per client account.

 

Yeah, they're cooking. The market is a big tailwind, though.

[atbed]

Wow, IBKR really seems to have found its groove since dropping the market maker. January Stats:

 

903 thousand Daily Average Revenue Trades (DARTs), 40% higher than prior year and 29% higher than prior month.

Ending client equity of $133.9 billion, 50% higher than prior year and 7% higher than prior month.

Ending client margin loan balances of $30.1 billion, 61% higher than prior year and 2% higher than prior month.

Ending client credit balances of $48.1 billion, 13% higher than prior year and 2% higher than prior month.

497 thousand client accounts, 27% higher than prior year and 3% higher than prior month.

430 annualized average cleared DARTs per client account.

 

Yeah, they're cooking. The market is a big tailwind, though.

 

Yeah, they are benefiting from a massively good set-up. But great results!

[KCLarkin]

Yeah, they're cooking. The market is a big tailwind, though.

 

Until recently, the market was a big headwind (low volatility) but everything seems to firing on all cylinders now (interest rates, DARTs rebounding, account growth accelerating, tax reform).

[nkp007]

Any concern that a crypto crash (like down 50%+ in one day or so) could cause them to lose money given the current margin requirements for Bitcoin futures?

[atbed]

https://ibkr.info/article/3049

 

FYI, bitcoin margin requirements

 

 

[KCLarkin]

Long live King Thomas!

https://www.barrons.com/articles/interactive-brokers-takes-top-spot-in-online-broker-ranking-1521854071?emailToken=cb88734298406c1b51a2d6e4baeab82dPgGUAhJN5PP7rbsZw2q4Lk55J+4czQsvOc8Ld9wS2eAfahA9H76B523vmTlRYCZ3LschJducUcEIF+d0rPqRURv6zJR7mcnvesd+TEP979gnLp7snwfenzgQbuP0hMU

 

H/T @noonsixcap

[Jerry Capital]

I enjoyed this

 

"Interactive Brokers - Thomas Peterffy's Speech on Successful Investing at The Trading Show Chicago 2018 Conference"

 

https://www.interactivebrokers.com/en/index.php?f=5599&vid=18003

 

"In my view success in business is all about management and deployment of the appropriate technology. The field in which the business operates does not matter so much if you make it broad enough.

 

But right now I would invest in businesses that could benefit from putting their operations on a technologically strong platform, such as health care, home building, agriculture, personal care or even money management, where with the use of big data many functions will be standardized and automated and with that much greater scale, savings and efficiencies will be achieved. As a result, your company becomes one of the few to survive and prosper in the space.

 

You want to identify entrepreneurial companies that have substantial insider ownership, where management has a long term perspective, interest and commitment. They don't just want to drive the stock price up before they cash out their options and leave. They also aren't likely to be looking for a bigger pay package at another company. They personally identify with and are invested in the goals, continuing growth and success of the firm. They should have longevity at the firm and expertise in the business AND in building the necessary technology.

 

You also recognize that for the last several thousand years it is the application of new technological innovations that have been driving our economic advancement and THAT isn't going to change. So you want to make sure that you invest in companies at the forefront of applying all the new technologies that can be utilized in the business."

[chrispy]

Is the major decline this year primarily due to margin requirement concerns? I am not too familiar with the finer details of the company and simply noticed the large drop

[Spekulatius]

Is the major decline this year primarily due to margin requirement concerns? I am not too familiar with the finer details of the company and simply noticed the large drop

 

Stock was probably overextended after a significant rise and there is a trend for brokerages to reduce or even eliminate fees (Fidelity, JPM) increasing the competition for IBKR.

 

FWIW, rest in piece, IBRK iPad app. Your clean GUI will be sorely missed.

[KCLarkin]

Is the major decline this year primarily due to margin requirement concerns? I am not too familiar with the finer details of the company and simply noticed the large drop

 

Stock was probably overextended after a significant rise and there is a trend for brokerages to reduce or even eliminate fees (Fidelity, JPM) increasing the competition for IBKR.

 

I agree that it was way overextended. Volatility picked up a bit earlier in the year. Things have calmed down and price has drifted lower. However, all the other growth metrics have inflected higher.

 

So the core business has accelerated and much of the overvaluation has burned off.

[chrispy]

IBKR's competitive advantage is low commissions but also the low margin rates and access to markets around the world. They still have the upper hand in #2,3 that say, Fidelity, doesn't focus on, right?

 

Clearly I am just beginning to look into this...

[benhacker]

I think IB has several advantages.  I think if you read through this and the other(?) IB thread on this forum, you will get great context (both pro-con) on IB.

 

As for this years price performance... I would guess a combo of:

1) High valuation (big run up last year)

2) Slowing growth relative to comp/equity market (in AUM)

3) Bad performance of foreign currencies / global businesses in terms of stock price performance for the year (which probably affects IB's shares)

 

Ben

[muscleman]

IBKR's competitive advantage is low commissions but also the low margin rates and access to markets around the world. They still have the upper hand in #2,3 that say, Fidelity, doesn't focus on, right?

 

Clearly I am just beginning to look into this...

 

Well.... After I repeatedly place the same order in IB, Fido, TD at almost the same time over the past two years, I found that almost always IB give me the worst fill. Fido and TD were similar. I also don't understand why you guys think IB has the lowest commission. Maybe true for small amount of high priced stocks, but Fido has $4.95 flat fee. If you buy 30000 shares of a $2 stock, IB is way more expensive in commission, and you usually get a worse fill on top of that.

 

 

[sleepydragon]

IB’s commission structure intends to attract the kind of customers that trade a lot, using margin and trade options and futures. If u trade multiple times per day, IB is cheaper

[benhacker]

Muscleman,

 

for limit orders, you will (certainly) get better fills at IB.  for small/medium market orders, I would guess you get better fills at retail brokers who sell to internalizers (you can think of internalizers as outside MM's basically paying Fido to share in making markets for their retail orders... why?  Because retail orders are on average dumb(er) money, so you can afford as a MM to make a tighter market in those cases).

 

For large market orders, retail internalizers can dump your order to the NBBO and in that case you are likely out of luck.  for limits, you can be front run by a retail internalizer (they outbid you by $0.001) if they so choose (I'm not sure if Fido or others can prevent your order from showing on the NBBO... I don't think so)... and they so choose (on average) when it is to your detriment.

 

My 2 cents (and my understanding may not be perfect here on the above). brokers do report average spread / market impact of their customers trading on their platform, and IB scores better across all metrics.  YMMV.

 

 

[muscleman]

Muscleman,

 

for limit orders, you will (certainly) get better fills at IB.  for small/medium market orders, I would guess you get better fills at retail brokers who sell to internalizers (you can think of internalizers as outside MM's basically paying Fido to share in making markets for their retail orders... why?  Because retail orders are on average dumb(er) money, so you can afford as a MM to make a tighter market in those cases).

 

For large market orders, retail internalizers can dump your order to the NBBO and in that case you are likely out of luck.  for limits, you can be front run by a retail internalizer (they outbid you by $0.001) if they so choose (I'm not sure if Fido or others can prevent your order from showing on the NBBO... I don't think so)... and they so choose (on average) when it is to your detriment.

 

My 2 cents (and my understanding may not be perfect here on the above). brokers do report average spread / market impact of their customers trading on their platform, and IB scores better across all metrics.  YMMV.

 

When i place small market orders at IB, I still get bad fills. MSON for example two weeks ago. Bid 18.95 ask 19.3. I tried to sell 400 shares at Fido and at bid, and got 19.16 fill. Then I tried to sell 500 shares at IB at bid. I was filled right at the bid.

It seems to me that IB has an internalizer called MM. Whenever MM is involved, I got a tiny bid of improvement. Otherwise it is always fill at the NBBO.

 

I never place larger orders in one day. For medium orders, I like to use TD's time slice order, which sends out 100 shares every 10-15 minutes through Citadel. I know Citadel is an evil internalizer and if it knows there is a large consistent buying force throughout the day, it will try to run up the price first. But that's ok for a medium sized order which only sends out 100 shares every 5-15 minutes.

 

IB has something similar, called accumulation/distribution algo order. I tried it but wasn't impressed. It was basically an order held on the client side TWS, and periodically send orders out. If I set the buy limit to hit the ask, it will almost always just hit the ask at NBBO, just like a single order. Even if it is a small order, IB tries to fill me at NBBO.

 

[muscleman]

IB’s commission structure intends to attract the kind of customers that trade a lot, using margin and trade options and futures. If u trade multiple times per day, IB is cheaper

 

I don't understand why IB is cheaper if you trade multiple times a day vs a single trade a day. Fido has $4.95 flat fee, and IB can easily run up to $20-100 for small priced stocks like a $1 stock. If one trade is expensive, multiple trades is more expensive.

For margin, I don't use margin, but my understanding is that if you buy and sell within one day, there is no margin charge? If you hold margin positions overnight, then of course there is margin charge, and IB has advantage here.

I agree that IB's option and future commissions are low.

[sleepydragon]

IB’s commission structure intends to attract the kind of customers that trade a lot, using margin and trade options and futures. If u trade multiple times per day, IB is cheaper

 

I don't understand why IB is cheaper if you trade multiple times a day vs a single trade a day. Fido has $4.95 flat fee, and IB can easily run up to $20-100 for small priced stocks like a $1 stock. If one trade is expensive, multiple trades is more expensive.

For margin, I don't use margin, but my understanding is that if you buy and sell within one day, there is no margin charge? If you hold margin positions overnight, then of course there is margin charge, and IB has advantage here.

I agree that IB's option and future commissions are low.

 

If u just trade 1 dollar stock, I agree IB is not cheap. But most retail day traders trade Apple, Tesla , index futures and oil futures etc. I couldn’t make myself invest in IBKR, because I think a lot of it’s clients lose in stock market. They need to keep getting new suckers that trade a lot. Their margin rate is so low it attracts customers that use a lot of margin. But the good thing is their margin calls are much more automated than other brokers and will liquidate within minutes in real time (no phone calls etc), which is good for them

[Spekulatius]

The price for trading is headed towards zero.An average investor us better off going to Fidelity. A day trader may be better if with IB because  of lower margin and fast execution. Also keep in mind that UB pays better interest rates on cash balances, which becomes an advantage again now that Money market interest rates are rising again. This is somewhat negated by minimum acvoubt fees and/ or fees for data feeds. I keep my IB account for international stocks and the occasional OTC stock trade.

 

Edit: Another advantage is that IB never quit on me, not in the ugliest days of 2008 or during flash crashes. During the same periods I could  not log in other accounts like Fidelity or couldn’t trade. I made sone very nice trades during the flash crash, as I recall.

[Hielko]

IB’s commission structure intends to attract the kind of customers that trade a lot, using margin and trade options and futures. If u trade multiple times per day, IB is cheaper

 

I don't understand why IB is cheaper if you trade multiple times a day vs a single trade a day. Fido has $4.95 flat fee, and IB can easily run up to $20-100 for small priced stocks like a $1 stock. If one trade is expensive, multiple trades is more expensive.

For margin, I don't use margin, but my understanding is that if you buy and sell within one day, there is no margin charge? If you hold margin positions overnight, then of course there is margin charge, and IB has advantage here.

I agree that IB's option and future commissions are low.

 

If u just trade 1 dollar stock, I agree IB is not cheap. But most retail day traders trade Apple, Tesla , index futures and oil futures etc. I couldn’t make myself invest in IBKR, because I think a lot of it’s clients lose in stock market. They need to keep getting new suckers that trade a lot. Their margin rate is so low it attracts customers that use a lot of margin. But the good thing is their margin calls are much more automated than other brokers and will liquidate within minutes in real time (no phone calls etc), which is good for them

I think you have a bit of a skewed view of the typical Interactive Brokers client. Average account equity is something like $250,000 which generates a bit more than one trade a month or something like that, and probably their clients as a group aren't significantly underperforming a relevant index. At least not like a typical day trader that throws a few hundred or a few thousand dollars on a site like plus500 to lose it all in a couple of months.

[KCLarkin]

When i place small market orders at IB, I still get bad fills. MSON for example two weeks ago. Bid 18.95 ask 19.3. I tried to sell 400 shares at Fido and at bid, and got 19.16 fill. Then I tried to sell 500 shares at IB at bid. I was filled right at the bid.

 

Have you tried reversing the order of trades? Sell on IB first then Fido? Market makers/HFT might be backing off after they see the first order.

 

Also, if you want to get filled between bid/ask, why don't you use one of IBKRs algos that are designed to do that? IBKR is very explicit in warning users to never use market orders.

[undervalued]

When i place small market orders at IB, I still get bad fills. MSON for example two weeks ago. Bid 18.95 ask 19.3. I tried to sell 400 shares at Fido and at bid, and got 19.16 fill. Then I tried to sell 500 shares at IB at bid. I was filled right at the bid.

 

Have you tried reversing the order of trades? Sell on IB first then Fido? Market makers/HFT might be backing off after they see the first order.

 

Also, if you want to get filled between bid/ask, why don't you use one of IBKRs algos that are designed to do that? IBKR is very explicit in warning users to never use market orders.

 

I experience the same thing, I don't trade pretty often though.

[muscleman]

When i place small market orders at IB, I still get bad fills. MSON for example two weeks ago. Bid 18.95 ask 19.3. I tried to sell 400 shares at Fido and at bid, and got 19.16 fill. Then I tried to sell 500 shares at IB at bid. I was filled right at the bid.

 

Have you tried reversing the order of trades? Sell on IB first then Fido? Market makers/HFT might be backing off after they see the first order.

 

Also, if you want to get filled between bid/ask, why don't you use one of IBKRs algos that are designed to do that? IBKR is very explicit in warning users to never use market orders.

 

I tried reversing the order of trades but that didn't help. I have not been using market orders. i always use limit order. The only question is whether I hit bid/ask with my order or not. I think the problem is that IB always tries to route to the exchange, and sometimes the other HFTs have better pricing that's unavailable to IB. But other retail brokers like Fido and TD would look at all those venues and find the best pricing.

IB's algo trades won't help much. They are just a fancy way to slice your order into multiples at different limit prices. That's it. If a single limit order fills poorly, then multiple orders won't improve.

 

That's my personal experience that I would like to share with you guys, and I will continue to experiment on this, but I am inclined to move my mother's account away from IB soon.