Growth for Interactive Brokers Is Likely to Slow Over the Next Several Years

Interactive Brokers is a unique brokerage in our coverage. It serves a more niche client base. In addition to retail investors, the company caters to the trading of institutional clients like hedge and mutual funds, proprietary trading groups, introducing brokers, and financial advisors. The commission mix of retail and institutional clients is about 55%/45%. Most of Interactive Brokers' clients still choose to pay commissions, even though many other retail brokerages have switched to a zero-commission model for US stock trading. The clients of Interactive Brokers are more sophisticated than those of Charles Schwab and E-Trade. They trade more frequently, maintain higher cash balances to make opportunistic moves, and use more leverage. These trading-savvy customers are attracted by Interactive Brokers’ low margin rates, comprehensive trading platform, sophisticated trading execution capabilities, and high interest paid on idle cash.