Interactive Brokers

Interactive Brokers reported strong second-quarter results, with sales growth of 28% on the back of 34% growth in client accounts, 36% growth in trading volume, and a strong equity market backdrop. Despite topping FactSet consensus estimates, shares fell modestly in aftermarket trading.

Why it matters: We view the quarter as net positive, but maintain that long-term investors should wait for a better entry point. On one hand, we're really encouraged by the firm's ability to accelerate customer acquisitions. Interactive Brokers posted sensational 34% annual growth in customer accounts, adding a record 431,000 accounts sequentially with strong payback periods. In response, we've raised our near-term growth forecasts to include astounding five- and 10-year compound annual account growth of 25.6% and 17.3%, respectively, up from 21.7% and 14.6% previously, given the firm's robust pipeline and best-in-class return on advertising spending. On the other hand, the growing skew toward retail trading accounts could weigh on the broker's assets and trading volume per funded account, margin loan growth, and potentially even revenue per employee. We'd caution investors against assuming that new accounts come with similar asset levels, activity levels, monetization, and service costs, which may be embedded in current market prices.

The bottom line: After digesting these results, we've raised our fair value estimate for wide-moat Interactive Brokers to $70 per share from $64, reflective of our more constructive account acquisition forecasts. We now expect 10-year revenue, operating profit, and EPS compound annual growth rates of 14.2%, 14.7%, and 14.7%, respectively, meaningfully ahead of our prior 11.5%, 11.9%, and 12.0% estimates.

Key stats: For context, our updated forecast implies about 21 million customers on Interactive Brokers' platform in 2035. To frame this, Charles Schwab and Robinhood Markets have 48 million and 27 million funded accounts, respectively.

After digesting the firm's second-quarter results, we've raised our fair value estimate for Interactive Brokers to $70 per share from $64, reflective of more optimistic customer growth expectations and time value. More concretely, we now expect 5- and 10-year compound annual growth of 25.6% and 17.3%, respectively, up from 21.7% and 14.6% at our prior update. Our revised valuation corresponds with 25.6 times price/forward earnings and 4.8 times EV/EBITDA ratios. We use a 10.8% cost of capital in our valuation.

While we see significant uncertainty regarding our updated forecast--the global competitive set includes regional powerhouses like Futu Holdings, Swissquote, and Tiger Brokers--there is no denying that Interactive Brokers has managed to ramp up customer acquisition seamlessly, adding a record 431,000 accounts during its most recent quarter at best-in-class returns on marketing investment. The platform is undoubtedly appealing, even to retail investors, offering best-in-class trade execution and very competitive margin borrowing rates. It has unparalleled product, market, and currency access, allowing for seamless multicurrency holdings in the same account. And it grows incrementally better each quarter, with the firm innovating and launching new products at a truly blistering pace.

The big risk to our revised forecast, which calls for 21 million customer accounts by 2035 (compared with 48 million and 27 million at Charles Schwab and Robinhood markets today), is the potential need for incremental income statement investments in customer service, where the firm has historically lagged its peers materially. If this becomes table stakes to maintain heady growth rates in the retail channel (likely the firm's strongest prospective growth vector), then our forecasts for near-80% midcycle operating margins would prove optimistic, even as we appropriately capture the dilutive effect of retail accounts on per-account assets, trading activity, and margin borrowing.

Consistent with other retail brokerage firms, the key variables driving our valuation for Interactive Brokers are balance sheet growth, net interest margin, trading volume, revenue per trade, and operating margin.

Addressing these in sequence, we expect 14.7% compound annual growth in earning assets over the next decade, driven by 5.9% annual market returns and 17.3% annual growth in active accounts, partially offset by a mix shift toward accounts with fewer assets as the firm's mix of retail and international traders, which tend to have fewer assets per account, continues to grow. Married with our forecast for declining interest rates and net interest margin, which we expect to average 1.89% through the cycle (compared with 2.09% in 2025), we project 15.4% compound annual growth in net interest income over the decade to come.

On the trading side of the ledger, newer accounts tend to trade at least somewhat less frequently on a per-account basis than the firm's existing clientele, although this effect should ease over time as customer acquisition growth slows. In the background, ongoing fee compression drives our forecast for a roughly 0.6% annual decline in commission per cleared commissionable order, with customers continuing to demand better service levels at lower prices with few signs of easing. Still, driven by strong customer account growth, we project 13.3% annual growth in customer revenue trades and a bit shy of 13% consolidated growth in trading revenue over the next 10 years.

While Interactive Brokers has done an excellent job keeping a lid on fixed costs, we don't envision much incremental operating margin expansion, driven in no small part by a competitive labor market for software engineers. Our forecasts contemplate a 10-year revenue and operating profit compound annual growth rate of 14.2% and 14.7%, respectively.

The financial-services industry is intensely competitive, marked by a quick pace of innovation, ever-improving service levels, and, particularly in recent years, consolidation around a small cadre of winners that can provide their clientele with quality service at ever-lower prices. We believe that Interactive Brokers is poised to emerge as one of the long-term winners in this environment, with its heavily automated platform and superior trade execution allowing it to carve out a defensible niche in retail and institutional brokerage. More concretely, we believe that the company warrants a wide economic moat, enabled by a durable cost advantage—attributable to a high degree of automation that allows Interactive Brokers to operate at structurally lower costs than even much larger competitors—and by intangible assets in the form of superior order execution, underpinned by the firm’s BestX suite of execution tools. Quantitatively, our view is corroborated by average historical ROICs of 25% over the past decade, comfortably exceeding our 9% cost of capital estimate.

Below, we consider Interactive Brokers’ competitive position, the cost advantage and intangible asset moat sources that we believe it exhibits, and close with a discussion of the appropriate horizon for expected generation of economic profit.

In 1993, Interactive Brokers was separated from Timber Hill, the options market-making operation founded by Thomas Peterffy in 1977. While it looks very different from its progenitor, the retail brokerage business retains its DNA, establishing a reputation for automation and low-cost execution. Today, Interactive Brokers boasts a purpose-built, organically developed platform able to juggle increasingly sophisticated trading and sequencing demands, regulatory requirements, and real-time risk monitoring with limited human intervention. Every quarter, that platform gets incrementally better, as the firm continues to roll out access to new markets and products at a blistering pace.

In many ways, Interactive Brokers was purpose-built for the most sophisticated institutional traders, with its hallmark Trader Workstation, or TWS, offering APIs that allow demanding institutional clients like hedge funds and proprietary traders to execute exceedingly complex trades across more than 170 markets, 40 countries, and 29 currencies as of the end of 2025. The firm prides itself on superior order execution, with its SmartRouting algorithm probing a variety of lit exchanges, dark pools, and alternate trading systems, or ATS, for the best possible venue through which to execute clients’ orders, even going so far as splitting legs of option strategies to secure better pricing.

While comparable data is challenging to come by, a 2021 IHS Markit survey estimated that Interactive Brokers provided its clients with execution prices $0.62 per lot better than the national best bid and offer, head and shoulders above its competitors’ $0.15 figure. For our part, we estimated from the firm’s recent SEC Rule 605 filings that it achieved $0.15 in cost savings per lot on US-listed equities in early 2025, perhaps the most liquid and competitive market in the world (where spreads are expected to be extremely small). We can only imagine that the firm saves its clients substantially more in more opaque options trading, where it runs its own dark pool and where spreads and commissions are materially higher.

On the credit side of the ledger, Interactive Brokers’ advanced risk management tools, sophisticated client base, and automatic margin calls have effectively eliminated credit losses, with the firm’s allowance for doubtful accounts peaking at 1% in 2008 amid the global financial crisis and clocking in at roughly 0.03% in late 2025. This, in tandem with an asset base that reprices against the federal-funds rate almost instantly by design, allows Interactive Brokers to offer margin rates that have averaged 6.2% to 6.3% cheaper than Charles Schwab and privately held Fidelity over the past decade.

While Interactive Brokers settles for a lower net interest margin, or NIM, than peers, it has attracted an extremely active, profitable client base as a result, which tends to trade frequently, in large amounts, and often on margin. For perspective, in 2025, Interactive Brokers’ 3.9 million average active customers generated 206 cleared trades per account, or roughly 800 million trades. They held roughly 21% of their assets in cash to opportunistically take advantage of market mispricing, and their margin loan balances were equivalent to 10.4% of average assets. By our estimates, Schwab’s 38.5 million average brokerage clients, by contrast, generated 50 revenue trades per account, held 9.7% of their assets in cash, and saw margin borrowing account for just 0.81% of average assets during that timeframe.

As we see it, Interactive Brokers’ no-frills, trader-focused model allows the firm to carve out a defensible niche around a valuable, actively trading clientele that is underserved both by major prime brokerage firms like JPMorgan, Goldman Sachs, Morgan Stanley, and Citibank, as well as an often-ignored international customer base in tier II and tier III markets. While there’s likely very modest overlap with retail brokerage competitors like Charles Schwab and Fidelity in the US, we suspect that this is de minimis and largely confined to clients who do their trading on Interactive Brokers and maintain most of the remainder of their financial lives with Interactive’s large competitors. Corroborating this, more than 80% of Interactive Brokers’ active accounts are held by non-US customers (as well as 56% of assets), and the firm is the fifth largest prime broker in the US, with particular strength among smaller hedge funds that were abandoned by the largest banks in the wake of Dodd-Frank and Basel III regulations in the early 2010s.

Pivoting to the firm’s cost advantage moat source, we believe that Interactive Brokers’ roots as an algorithmic market maker and its historical focus on price-sensitive institutional clientele have resulted in an extraordinarily lean global trading platform that provides the firm with a durable edge relative to its peers. We see this in a couple of areas: exceedingly low expense on client assets for its size, an ability to generate strong returns on margin lending at roughly half the earning asset yield of larger competitors, and unparalleled labor productivity.

Taken together, we believe that Interactive Brokers maintains a durable cost advantage over its peers that would likely persist even if benefits from its superior order routing were to disappear in one fell swoop—an advantage that is particularly pronounced in fragmented international markets. In the retail brokerage industry, the gold standard metric for operational efficiency is expense on average client assets, and Interactive Brokers’ 0.21% ratio in 2025 was comfortably better than much larger prime brokerage peers like Bank of America (0.41%) and Morgan Stanley (0.26%) despite an asset base that was roughly 10% of their size. Only Charles Schwab, with an expense ratio of just 0.12% (by our estimates), topped Interactive Brokers on this front.

Second, despite charging industry-low margin rates, we project a 15% return on equity for Interactive Brokers over the next half decade, comfortably topping our 9% cost of equity estimate, reflective of both less onerous capital and (particularly) liquidity requirements than banks are subject to and the firm’s negligible credit losses. Finally, the firm’s $1.95 million in revenue per employee in 2025 is head and shoulders above large, full-service competitors (we expect Schwab to generate $725,000, while Fidelity posted $425,000 in 2024, by our math).

Altogether, Interactive Brokers’ low-touch, automation-focused approach has resulted in structurally lower costs and structurally higher profitability than its peers, with its 77% operating margins in 2025 comfortably outpacing Schwab (48%, estimated), Robinhood (45% through September 2025), and Futu Holdings (61% through September 2025). Importantly, we believe that this approach would be exceedingly difficult for existing competitors to replicate at this juncture, both because of client expectations and self-selection for higher-touch interaction and because of meaningful challenges in tweaking trading infrastructure (to this point, it took Charles Schwab the better part of five years to fully integrate TD Ameritrade’s trading platform after its 2020 acquisition).

Turning to the firm’s intangible asset moat source, we view Interactive Brokers’ BestX suite of trade execution tools and superior order execution as a stand-alone moat source, and don’t see any clear threats on the horizon that could compete away its edge in the foreseeable future. While order execution is a black box, not unlike narrow-moat Applovin’s advertising placement engine, it’s overwhelmingly clear that something about Interactive Brokers’ approach, mediated through its SmartRouting algorithm and its options and US equity and ETF alternate trading system offerings, is generating superior order execution for clients.

Qualitatively, the firm’s offering makes sense, with the SmartRouting algorithm sifting through lit exchanges, dark pools, and the firm’s own ATS for the best possible execution prices for orders—even considering the minuscule rebates and fees that exchanges mandate for providing or absorbing liquidity. With direct market access across 160 exchanges and access to a handful of dark pools, the firm’s reach is broader than many of its peers, and the ability to split orders—separating multiple legs of a complex options trade, for instance—allows the firm to fill tricky orders across venues effectively instantly.

The clearest proof of the firm's trade execution efficacy lies in the client base it has attracted, with 45% of commission revenue coming from price-sensitive institutional clients such as hedge funds, proprietary traders, RIAs, and introducing brokers. The latter category, representing roughly 10% of commissions and 20% to 25% of customer equity, is particularly intriguing, as it implies that Interactive Brokers’ Pro pricing is competitive enough on a stand-alone basis to layer incremental fees on top of it and still be price competitive.

When confronted with the option to build a sprawling global trading platform from scratch—with no guarantee of cost competitiveness—or the option to outsource trade execution and clearing to Interactive Brokers, a handful of even sizable banks, like HSBC (for its WorldTrader program), have elected to lean on Interactive Brokers for the back end.

Ultimately, the total trade cost reflects both fixed-cost discipline and effective order routing. As of December 2025, Interactive Brokers’ execution cost for clients was 2.6 basis points of trade value over the past year, split between commissions (lower fixed costs enable charging lower commissions) and market movements. Ultimately, we believe that the moat sources feed off one another. A highly scalable, automated platform permits lower commissions at similar contribution margin rates. On the other side of the coin, intelligent order routing helps minimize differences between volume-weighted average prices and execution prices. Get both pieces right, and you have a brokerage with a really powerful competitive edge.

While the pace of innovation in financial services and a large, execution-price-sensitive customer base could imply that a narrow moat horizon for excess returns is warranted, we believe that a more thorough consideration of the competitive landscape suggests that a wide moat horizon is more appropriate. More concretely, we see no clear reason why any of the three most likely disruptors—large US retail brokerages, large bank prime brokerages, or market makers—could, or even might be incentivized to, compete with Interactive Brokers in the niche that it has carved out.

For the likes of Schwab and Fidelity, there is little reason to compete aggressively in Interactive Brokers’ sandbox. For starters, they perform proportionately worse among clientele looking for superior trade execution, direct market access, foreign currency trading abroad, and cheap margin lending. Their incentives to remedy this are limited.

Schwab and Fidelity offer limited trading on international exchanges, predominantly the largest, to help incentivize clients looking for this access to consolidate assets on their platform. The incremental benefits of adding access to tier II and tier III markets—held against the marginal costs—are probably quite low, particularly since clients who are actively seeking this exposure are likely already served by Interactive Brokers. On the margin-lending side, Schwab’s current rates are about 6.25 percentage points higher than Interactive Brokers’. If it cut its rates to achieve parity and won all of Interactive Brokers’ business, it would generate approximately the same total margin lending interest revenue it booked in 2025, obviating any potential benefit from market share inroads, and would almost certainly end up losing business (as it would only win a fraction of Interactive Brokers' customers by doing so).

Regarding order execution, both Schwab and Fidelity route most of their trades through market-making intermediaries for execution or send order flow directly to the exchange, suggesting a very steep learning curve for both operators if they elected to internalize and route trade execution—and not necessarily one that could be quickly replicated, or even necessarily replicated at all.

For large prime brokers like Morgan Stanley, Goldman Sachs, and JPMorgan, we see few incentives to displace Interactive Brokers as they couldn’t serve the smaller institutional clientele that Interactive Brokers does, even if they could provide superior execution, given liquidity and capital constraints. Most prime brokers have been rationalizing relationships with subscale institutions as a result of Basel III and Dodd-Frank regulations since the early 2010s. Those firms are likely to use fewer of the big banks’ suite of services—capital introduction, exotic, bespoke products, and custody—so they’ve been gradually trimmed over time. The clients those banks maintain, which often hold more than $1 billion in assets, are more sensitive to the prime brokers’ brand, capital-introduction prowess, and research than to their trade execution, reducing incentives to compete on that front.

Finally, while we initially thought that Citadel, Virtu, or Jane Street might pose a big risk to Interactive Brokers’ superior order execution, that thesis doesn’t hold water with a more thorough examination. On the retail brokerage side, direct competition would be tantamount to killing the golden goose. Their business model is built on carefully choosing low-risk retail order flow to buy in bulk from retail brokerages like Schwab, Fidelity, Robinhood, and Interactive Brokers (for non-pro clients). With minimal risk and limited capital exposure, they can earn as much as half the bid-ask spread on trades from those orders, while avoiding unnecessary regulatory scrutiny so long as they beat national best bid and offer prices.

On the institutional trading side, there is some risk that they provide trade execution tools as a service to institutions (Virtu does this with VTS)—but the competencies are quite different. Market makers operate within the spread, and are themselves the market. Superior performance on SEC 605 filings simply reflects that they’re choosing the best, easiest-to-exploit orders to execute, and letting the remainder pass them by. This is tantamount to self-grading a test, but choosing which questions you’d like graded. These market makers have very little experience with order routing but much more experience with hedging, risk management, and order selection, thereby blunting competitive risk.

Growing utilization of AI tools in trading and research could drive both higher retail participation in equity markets and, structurally rather than cyclically, higher trading volumes, to the benefit of retail brokerage firms like Interactive Brokers.

ForecastEx provides option value, especially if prediction markets prove better than expert forecasts or serve as a utility hedging instrument.

Ongoing growth in retail trading could favor firms like Interactive Brokers that specialize in the tools of the trade: cheap margin borrowing, competitive cash yields, and a deep product shelf.

Migration of passive institutional order flow toward dark pools and ATS's could result in wider bid-ask spreads and challenges sourcing liquidity for brokerage firms.

Without a full-service platform, the firm risks asset attrition if rivals like Schwab and Fidelity improve their margin rates, trading capabilities, and global investing tools.

Geopolitical fragmentation and commensurately lower interest in US risk assets would disproportionately affect Interactive Brokers relative to its peers, given that half of its client equity resides outside of the US.