Interactive Brokers

Interactive Brokers benefits from multiple reinforcing moats. Cost advantage: decades of proprietary automation reduce unit costs in clearing, margining, routing and risk control, enabling very low commissions and margin rates while still delivering 75% to 79% pre‑tax margins in recent quarters.

Scale and efficient scale: global market access across 160+ venues, 36 countries and 28 currencies is hard to replicate due to technology, regulatory licenses and risk systems. Switching costs: sophisticated users integrate TWS/Desktop, APIs, advisor tools and portfolio margin into workflows, raising migration friction.

Intangibles: a reputation among pros for best execution and breadth, reinforced by transparent monthly metric disclosures and execution statistics. Network effects are modest but present via introducing brokers, RIAs and small funds that gather clients onto the platform.

Risks to the moat include large incumbents subsidizing pricing, or new technologies eroding execution edges, but IBKR’s automation and pace of product rollouts continue to deepen its advantages.

IBKR is intentionally a price leader, which limits overt pricing power on commissions. However, it demonstrates latent pricing flexibility through product mix, securities lending, FX and margin balances, and by sharing but not fully passing through interest on idle cash.

Net interest income rose 21% year over year in Q3 2025 on higher securities lending activity and larger client balances, indicating the firm can monetize assets even in competitive pricing environments. Because Pro accounts eschew PFOF and rely on SmartRouting quality, price competition is offset by execution benefits valued by active clients.

Overall, margins are already excellent, so we score pricing power as solid but not dominant given the strategy to underprice rivals.

Recurring components include commissions from a large and growing account base and interest/safety‑lending income on substantial client balances. Yet results are sensitive to short‑term trading activity and interest rates, which can boost or compress net interest spreads.

The firm’s transparency on monthly DARTs, accounts, client equity and margin loans improves visibility, and long‑term secular shifts toward self‑directed, low‑cost global investing support durable growth. Recent data show accounts +32%, DARTs +34% and client equity +40% year over year, illustrating momentum.

Nevertheless, we discount predictability for cyclicality tied to rate cuts or quieter markets that could trim NII and volumes.

Financial resilience is a core strength: low capital intensity, large excess regulatory capital, conservative risk management and minimal reliance on long‑term debt. Operating subsidiary IB LLC carries an A‑ stable S&P rating.

The balance sheet is dominated by customer assets and offsetting liabilities, with company equity rising to about $19.5 billion consolidated and $5.1 billion attributable to common stockholders by Q3 2025. Cash outlays for property, equipment and internal software are modest (about $30 million in the first half of 2025), and dividends remain small, preserving flexibility.

The firm routinely highlights regulatory capital compliance across subsidiaries.

Management prioritizes organic investment in technology and automation with minimal capex, occasional tactical investments, and disciplined expense control. Shareholder returns combine a small regular dividend (raised in April 2025 and reset post split to $0.08 per quarter) and limited net buybacks mainly to cover employee tax withholdings.

The dual‑class/LLC structure channels material distributions to noncontrolling interests and imposes TRA payments, so cash returns to IBKR common remain modest. Given strong reinvestment economics and the founder’s long‑term orientation, we view the policy as rational, though pure buyback flexibility is structurally constrained.

Founder Thomas Peterffy remains Chairman and key strategic voice; CEO Milan Galik has three decades at the company and became CEO in 2019. The team is deeply technical and frugal, consistent with the firm’s culture. Alignment is strong through controlling noncontrolling interests at IBG LLC, albeit with governance complexity.

Execution through market events, including handling of idiosyncratic losses (e.g., a 2024 NYSE anomaly) and continued platform enhancement, supports confidence. We deduct a few points for key‑person and control risk typical of founder‑controlled structures.