IBKR - Interactive Brokers

[Lowlight]

I didn't get a chance to do much today on IBKR other than take a glance at the May numbers and a quick look at updated comments on VIC. 

From a market share basis, it is pretty interesting to read Cuyler's posts on VIC showing his projections through 4Q18.  Even at the extreme growth rates in his assumptions (17% y/y account growth and 25% y/y customer equity growth), IBKR will still only have about half as much in clients assets as E-trade and a fraction of SCHW (1/18th) and AMTD (1/6th) client assets.  He is extremely bullish on the stock and gets to a $100/share price in 2018 and $60-$70/share by the end of 2016.  It is worth the read even if you think his projections are very rosy.

I just haven't had any time to work on this tonight but plan to do so again tomorrow and post further on some possible scenarios.  I'm still in the camp of this isn't an obviously cheap stock but is one where the virtues are: 1) they are the low cost provider by miles, 2) there's a growing awareness of this cost advantage, 3) they have a difficult to replicate platform, 4) untapped pricing power, 5) growing service offering that attracts larger, more active accounts, and 6) pricing dominance in many international markets. 

[KCLarkin]

7) Long runway for profitable growth, significant operating leverage.

To me this seems similar to Mastercard several years ago. Not cheap but still a good investment.

[rpadebet]

There are many things to like about this.

1. Owner operator
2. Big runway
3. low cost provider
4. competitors with legacy structure they cant move away from
5. cost plus business model focused on profitable clients
6. Loyal customers like me who really swear by the products advantages over competitors
7. Operating Leverage with no financial leverage.

I will admit not chasing this stock has been a mistake personally. I have always wanted it a few dollars lower and it keeps going up. It has been on my radar for a long time, but till now it has been a mistake of omission.

I will however play a little devils advocate and bring up a concern of mine. This has mainly to do with brokerage business in general rather than IB specific.

The recent trend has been to index funds and ETFs away from single stock picking. Most retail investors/traders are moving to low cost index providers and I believe this trend will only continue to strengthen, as frankly it is an intelligent way to operate for 99% of the investors in the long run.

The more recent trend among younger investors has been towards robo advisors like Betterment, Wealthfront and even Charles Schwab getting into it. these guys typically invest in ETFs etc and provide an easy to manage service for the average retail crowd.

If these two trends persist and continue to strengthen, the actual runway available for IB and other legacy brokerages is going to be smaller than what appears. There will always be people like us and other RIA's who will continue to trade in individual stocks, options and futures, but it is a decent possibility that this population is slowly shrinking. The counter trend to this is growth in international accounts, but slowly but surely the index fund trend and robo advisor trend will catch up even there.

I agree the competitive landscape here is very much like GIECO's competitive landscape, but the major difference being there is no legislation here forcing people to buy the product like it is in auto insurance. That kind of captive market is worth a lot. IB might still do better compared to other legacy brokerages, but is still susceptible to "Silicon Valley" competition like most legacy business models.

That said I would still buy it @$30 if the market presents me with that opportunity.

[TwoCitiesCapital]

I've had an account with them for a few months and have been impressed with their execution and the low transaction fees. Something tells me I wouldn't have had the same issues with my orders for EGFEY filling back when it was at $0.05 like I did with Scottrade based on how I've seen my limit orders for shares and options fill at IBKR.

I do have some confusion about the actual transaction fee schedule and would like to better understand it for both investment and personal purposes. I know they have two types: fixed and tiered.

For U.S. trades, the fixed schedule charges $0.005 per share and caps the expense at 0.5% of the transaction. For the tiered subscription, the most expensive option is for those who trade fewer than 300,000 shares and it charges $0.0035 per share and also caps 0.5% of the transaction. I'm trying to understand when the fixed schedule would ever be more desirable than the tiered.

Even foreign transactions in the European market are cheaper on the tiered schedule if you're trading more than EUR 1200 each trade which seems like a ridiculously low floor for a volume based discount. Even the minimum trade commissions are lower on the tiered schedule than the fixed fee. The only thing that I can really pick out is there appears to be a slight difference in what markets are available on which fee platform. That can't be the only difference and I imagine they'd just default to the fixed/tiered fees for markets that have the limitation of only have one fee schedule regardless of what schedule you selected. I feel like I'm must be missing something.

Are there other benefits to the fixed fee over the tiered fee platform?

[namo]

The $0.035 fee is only IB's commission: you have to add Exchange, Clearing and Transaction fees. I recommend you re-read the Tiered page and check out the examples.

For us "poor" individual investors, Fixed price generally makes sense, I believe. I haven't made simulations, but the Tiered structure is less transparent.

[constructive]

Are there other benefits to the fixed fee over the tiered fee platform?

I don't see it on their website, but I thought tiered pricing had a higher minimum account size (something like $50k or $100k).

[benhacker]

Tiered gets rebates directly as well... so if you add liquidity, it can be better, but if you aren't huge and you usually hit the bid (sell) or ask (buy), it's probably better to stay with fixed.

[wachtwoord]

Tiered costs are excluding all sorts of additional costs:

Interactive Brokers, also referred to as “IB”: IB mainly works with two pricing schemes: fixed commission plan and tiered commission plan. The fixed plan is a flat rate for each transaction (e.g. per trade or per contract) and is inclusive (e.g. VAT, exchange and regulatory fees are included). Not all fees are included in the fixed rate commission, rather some (e.g. transaction fees) are passed along to the trader. The tiered commission plan is a non-inclusive plan whereas exchange, regulatory and clearing fees, as well as VAT are “add-ons,” and is inversely related to the number of contracts or the volume traded (decreasing as the transaction value increases). Savings passed along to the traders include a share of the rebates from the exchanges.

Read more: http://www.investopedia.com/articles/active-trading/040715/brokerage-reviews-tradestation-vs-interactive-brokers.asp#ixzz3c4tv8rQ4
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[Hielko]

I think going for the tiered option is almost certainly better, even when you are usually a liquidity taker. When I hit the bid/ask for a 100 share trade I usually pay something like $0.70 (depending on value/exchange) which is already better than the normal $1/trade. If you provide liquidity the trade cost is even lower and usually something like $0.30.

[wachtwoord]

Really? Is there a minimum portfolio size or minimum number of trades per month?

What are your fees on top of the 70 and 30 cents?