Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: given2invest on March 15, 2011, 09:55:56 PM

Title: IBKR - Interactive Brokers
Post by: given2invest on March 15, 2011, 09:55:56 PM
I have recently made IBKR a rather large position.   Before I get into the long thesis, I'd like to ask a question:   How many people on this board use Interactive Brokers?   If you don't, who do you use?

The short answer is this:  Any professional investor has no other option except IBKR, especially if they use leverage.   No other broker offers the commissions, direct access, and margin rates that they do. 

Why is IBKR interesting here?   Well, historically, they have made 80+% of their money as an option market maker.  The last 2 years the options market making business has been a disaster and the CEO, who owns 90% of the company and started it, has announced that they might wind it all down and just focus on the broker business.   This sparked my eye.   

The elevator pitch is this:  There are 400 Million shares, dilluted, outstanding - but only ~42 million float.  $2.8 Billion of capital, or $7 a share, is in the market making business.  $1.4 Billion is in the broker, and it's overcapitalized.   Thomas Peterffy (TP, the CEO) has stated that if the market making business doesn't return to making a decent ROI, they will shut the business down and return all this capital to shareholders.  They returned $1 Billion in Q4 to start.  Note:  The market making business once brought in almost $1b in pre tax earnings! It now only does ~150m a year and still shrinking.   It's basically long vol and needs the vix to be in the mid 20's for ideal conditions.   But, let's pretend it doesn't ever go back to earning a decent ROI and TP returns all $7 to shareholders.   What does that leave us?   

We have $8.50 left with a book value of $3 and change.   But it's a pure play brokerage that requires no capital to grow, has tiny cap ex needs, and has 50% pre tax profit margins!   It's all automated, growing new accounts 20% a year, and growing bottom line at 20% a year.  There are no true competitors (take it from me, I wanted to leave them or find a back up account and couldn't) and they currently have 164k accounts and TP estimates the addressable market (savvy financial professionals) to be 2 million globally.   

They will do ~55 cents in 2011 in EPS in the brokerage business, so you are paying 16x for this fantastic business.   It is very likely that in 2013 they do close to a $1 in EPS given growth in new accounts and a small uptick in fed funds rate.   Schwab, Ameritrade, etc, all trade at 20x.   This business has literally no need for capital and should not be valued off of book.   

The reason I really like it is what's your downside?   Todays book = $10.50 + a funky tax attribute that puts it at $12.  The tax situation is very odd and still trying to get to bottom of it but their effective tax rate is only 12% due to the way it was set up.   My numbers above (55 cents in 2011) assumes 35% tax rate and full G&A hit if they shut down market making.   The street expects them to earn 80-90 cents in 2011 combined with market making.   I think downside is extremely limited and upside is mid 20's in 18-24 months or so.

The way I played it is I sold Jan 12 and Jan 13 puts, strike $13.21 (funky cause of the 1 time dividend they paid) at 45 and 85 cents, respectively.   If I am put the stock, I'm put it below book which is highly liquid securities that can be run off in under 3 months.    I then bought Jan 13 18.21/23.21 call spreads for 85 cents which will pay $5 at max return, or almost 6x.   One could just put on the call spread and not sell the puts but I like the combo trade.   I also own the common given how low margin rates are on IBKR and how low the downside is, I have no problem using leverage to own this and have made it a pretty big position in my book, ~25%.     

I can answer questions.  In short, the catalyst is that Market Making, a crappy business, is being shut down/irrelevant, while the brokerage business has finally grown to a level where it's making real money.   It used to be <20% of profits and in 2011 will be >50%.   
Title: Re: IBKR - Interactive Brokers
Post by: Shane on March 16, 2011, 07:50:39 AM
Do they have any proprietary technology that allows them to stay low in costs?  What potential is there that other companies will enter their market and potentially be lower cost producers?  I know you stated a target for 18-24 months... but do you see anything beyond that?

I really like this idea, and every professional I am aware of uses them.
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on March 16, 2011, 08:10:37 AM
Good questions.

They have spent absurd amounts on technology.  This is not something that a competitor can just develop.  If you look at the competitors, namely Tradestation, MB  Trading, they can't come close to charging the prices that IB charges and earn a profit.  They don't have the scale and aren't as automated.  I use the term competitor loosely because I could never switch my account to those guys without a HUGE decline in their commissions and margin fees.   I mean huge decline.  Just got to Tradestations website and see.  I pay far less than half a cent a share on IB, more like .25 cents when you factor in rebates.  That's $2.50/1000 shares.  The competitors are leaps and bounds higher.  On margin rates, it's not even remotely close.

IB is also the leader in price improvement/execution which is a hidden cost/fee that other brokerages will cost you.  Of course, most investors don't see this.  They talk about it on their website. 

Basically, I think they have built a huge moat that is nearly impossible for a competitor to overtake.  The other companies are super tiny (TRAD EV is ~100 million vs IBKR's brokerage biz being valued at over 3b today if you use book for market making). 

As a customer, I would not go to a startup competitor that was not extremely well capitalized.   Basically, the only way I'd consider changing is if the commissions/margin were both lower and the company had a huge equity base >$1 billion.  Schwab, Ameritrade, E-Trade, have shown no desire to compete in this manner.   They all have active trader divisions and the fees/commissions are multiples of what IBKR's are.   

I have no reason to believe this is an 18-24 month idea then goes flat.  I think the broker will continue to compound for a decade or more at 20%.  The market opportunity is huge.   Imagine if they released a more intuitive trading platform and went after less sophisticated investors?   

The other edge IBKR has over competition is it's global.  Half their new customers are coming from overseas.    If you think we have no other options, they really don't.  I think they could develop a HUGE overseas market.     
Title: Re: IBKR - Interactive Brokers
Post by: Shane on March 16, 2011, 11:36:02 AM
So would you look at this almost like a commodity business that is the lowest cost producer?  Doesn't sound to me like they have franchise value but they are in a strong market position.

Something I think is very interesting is the lack of tradable shares... maybe they are being missed by analysts because it is difficult to get an sizable investment with them!  I wish I had more time to devote to reading about this, will spend as much time as I can during the week and hopefully be able to take a look further this weekend.  I like this idea!

Title: Re: IBKR - Interactive Brokers
Post by: Eric50 on March 16, 2011, 12:08:26 PM
given2invest -

I looked at this idea about a year ago and I liked it a lot. I passed as I found other businesses at that time that I liked better (no regret; stock price hasn't done anything in the past year). I remember that I liked the CEO a lot - running the show, very entrepreneurial, strong personality, speaks his mind and very honest. I think that he was in his mid-60s or something. I doubt he is the kind of guy who would retire soon but I wonder if you know about any succession plans? Does he have a strong #2? What would happen if he gets hit by a bus tomorrow?

Thanks,
Eric
Title: Re: IBKR - Interactive Brokers
Post by: watsa_is_a_randian_hero on March 16, 2011, 12:18:21 PM
I have recently made IBKR a rather large position.   Before I get into the long thesis, I'd like to ask a question:   How many people on this board use Interactive Brokers?   If you don't, who do you use?

The short answer is this:  Any professional investor has no other option except IBKR, especially if they use leverage.   No other broker offers the commissions, direct access, and margin rates that they do. 

Why is IBKR interesting here?   Well, historically, they have made 80+% of their money as an option market maker.  The last 2 years the options market making business has been a disaster and the CEO, who owns 90% of the company and started it, has announced that they might wind it all down and just focus on the broker business.   This sparked my eye.   

The elevator pitch is this:  There are 400 Million shares, dilluted, outstanding - but only ~42 million float.  $2.8 Billion of capital, or $7 a share, is in the market making business.  $1.4 Billion is in the broker, and it's overcapitalized.   Thomas Peterffy (TP, the CEO) has stated that if the market making business doesn't return to making a decent ROI, they will shut the business down and return all this capital to shareholders.  They returned $1 Billion in Q4 to start.  Note:  The market making business once brought in almost $1b in pre tax earnings! It now only does ~150m a year and still shrinking.   It's basically long vol and needs the vix to be in the mid 20's for ideal conditions.   But, let's pretend it doesn't ever go back to earning a decent ROI and TP returns all $7 to shareholders.   What does that leave us?   

We have $8.50 left with a book value of $3 and change.   But it's a pure play brokerage that requires no capital to grow, has tiny cap ex needs, and has 50% pre tax profit margins!   It's all automated, growing new accounts 20% a year, and growing bottom line at 20% a year.  There are no true competitors (take it from me, I wanted to leave them or find a back up account and couldn't) and they currently have 164k accounts and TP estimates the addressable market (savvy financial professionals) to be 2 million globally.   

They will do ~55 cents in 2011 in EPS in the brokerage business, so you are paying 16x for this fantastic business.   It is very likely that in 2013 they do close to a $1 in EPS given growth in new accounts and a small uptick in fed funds rate.   Schwab, Ameritrade, etc, all trade at 20x.   This business has literally no need for capital and should not be valued off of book.   

The reason I really like it is what's your downside?   Todays book = $10.50 + a funky tax attribute that puts it at $12.  The tax situation is very odd and still trying to get to bottom of it but their effective tax rate is only 12% due to the way it was set up.   My numbers above (55 cents in 2011) assumes 35% tax rate and full G&A hit if they shut down market making.   The street expects them to earn 80-90 cents in 2011 combined with market making.   I think downside is extremely limited and upside is mid 20's in 18-24 months or so.

The way I played it is I sold Jan 12 and Jan 13 puts, strike $13.21 (funky cause of the 1 time dividend they paid) at 45 and 85 cents, respectively.   If I am put the stock, I'm put it below book which is highly liquid securities that can be run off in under 3 months.    I then bought Jan 13 18.21/23.21 call spreads for 85 cents which will pay $5 at max return, or almost 6x.   One could just put on the call spread and not sell the puts but I like the combo trade.   I also own the common given how low margin rates are on IBKR and how low the downside is, I have no problem using leverage to own this and have made it a pretty big position in my book, ~25%.     

I can answer questions.  In short, the catalyst is that Market Making, a crappy business, is being shut down/irrelevant, while the brokerage business has finally grown to a level where it's making real money.   It used to be <20% of profits and in 2011 will be >50%.   

I use.  Best value for anyone who doesn't have access to a prime broker.
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on March 16, 2011, 12:19:33 PM
given2invest -

I looked at this idea about a year ago and I liked it a lot. I passed as I found other businesses at that time that I liked better (no regret; stock price hasn't done anything in the past year). I remember that I liked the CEO a lot - running the show, very entrepreneurial, strong personality, speaks his mind and very honest. I think that he was in his mid-60s or something. I doubt he is the kind of guy who would retire soon but I wonder if you know about any succession plans? Does he have a strong #2? What would happen if he gets hit by a bus tomorrow?

Thanks,
Eric

Yah, I looked at it a year and two years ago and passed both times cause market making was too big a % of the business and I had no interest investing in that.  

The CEO is extremely smart and well respected.  He gets it.  If he died, there would be no real #2 that could come in, however, he owns 90% of the company.  His heirs would almost certainly sell the company and I believe there would be tremendous demand for the broker asset from both PE and strategic acquirers at prices far north of today's valuation.  I'm not concerned about key man risk.  

One thing that's good is all the senior management team have been there for many years which shows how much they respect the CEO.  Also, most of their comp is in stock and has long vesting periods (as much as 7 years).  I was told the average employee gets over half of their bonus in stock.   The entire company is highly motivated to get the stock price up and to see the shareholders succeed.  
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on March 16, 2011, 12:23:16 PM
So would you look at this almost like a commodity business that is the lowest cost producer?  Doesn't sound to me like they have franchise value but they are in a strong market position.

Something I think is very interesting is the lack of tradable shares... maybe they are being missed by analysts because it is difficult to get an sizable investment with them!  I wish I had more time to devote to reading about this, will spend as much time as I can during the week and hopefully be able to take a look further this weekend.  I like this idea!



Yes, there is almost no analyst coverage and the ones that do don't "get it" for the most part.  One of them values it off of book, etc.   The free float is very small compared to the size of the company.   It's more like a small cap than a large mid cap. 

I guess it is a commodity business but how many commodity businesses do you know with 50% pre tax margins with absolutely no competition and extremely low cap ex?  Also, switching costs are mildly high - changing brokers is a pain in the ass, especially from tax perspective. 
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on March 16, 2011, 12:56:59 PM
This is the last quarters conference call.  Great read.

http://seekingalpha.com/article/247719-interactive-brokers-group-ceo-discusses-q4-2010-results-earnings-call-transcript?source=yahoo
Title: Re: IBKR - Interactive Brokers
Post by: rtgross on March 21, 2011, 06:04:53 PM
they currently have 164k accounts and TP estimates the addressable market (savvy financial professionals) to be 2 million globally.   

My numbers above (55 cents in 2011) assumes 35% tax rate and full G&A hit if they shut down market making.   The street expects them to earn 80-90 cents in 2011 combined with market making.   

Do you have any other estimates for the size of the market opportunity?

Along with that, what is the market size for investors that trade these volumes?  Average annual trades are far higher than the competition, if they continue to grow new accounts will profit growth increase at a far slower pace from less frequent trades?

Do you think competition will increase with Schwab's purchase of OptionsExpress?

What do you calculate for an EBIT impact as the result of a 25, 50, 100 bps move in rates?

I established a position in IBKR at the end of February for similar reasons.  The questions above are some of the things I've been working on.
Title: Re: IBKR - Interactive Brokers
Post by: misterstockwell on March 21, 2011, 07:32:29 PM
I had an account there. I found the interface awful, customer service non-existent, and the records brutal. I closed it.
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on March 23, 2011, 02:46:58 PM
they currently have 164k accounts and TP estimates the addressable market (savvy financial professionals) to be 2 million globally.   

My numbers above (55 cents in 2011) assumes 35% tax rate and full G&A hit if they shut down market making.   The street expects them to earn 80-90 cents in 2011 combined with market making.   

Do you have any other estimates for the size of the market opportunity?

Along with that, what is the market size for investors that trade these volumes?  Average annual trades are far higher than the competition, if they continue to grow new accounts will profit growth increase at a far slower pace from less frequent trades?

Do you think competition will increase with Schwab's purchase of OptionsExpress?

What do you calculate for an EBIT impact as the result of a 25, 50, 100 bps move in rates?

I established a position in IBKR at the end of February for similar reasons.  The questions above are some of the things I've been working on.

CEO has estimated market size at 2-3 million people.  I have not a clue but know its much larger than their current customer base, especially on a worldwide basis. 

Anything above fed funds 50bp is the same and I think its a 30-50 million EBIT bump - not a lot.  10 cents a share. 

Optionsexpress prices are 2x (or more) IBKR.  I do not view them as a threat at all regardless of them being rolled into Schwab. 
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on April 01, 2011, 10:33:08 AM
Monthly metrics out...they are exploding.

They should grow accounts this year ~40-45k, which would be total growth of 27% y/y.

Also, customer margin and credit balances exploding. 

Title: Re: IBKR - Interactive Brokers
Post by: enoch01 on August 05, 2011, 09:23:04 AM
Thread resurrection.  IBKR dropping today, even as VIX climbs and (I'm guessing) DARTs rise.
Title: Re: IBKR - Interactive Brokers
Post by: fenris on August 11, 2011, 05:43:07 PM
Hey given2, do you have an opinion on IBKR's tax expense?

From what I understand, IBKR should be taxed on the 11% of pre-tax profits they own of the IBG LLC (11.5% after the share swap?).

In Q2, EBT was $149m. Income tax expense was 12.5m and IBG Holdings LLC (NCI) received $127m.

10-Q:
"The Company’s provision for income taxes is comprised of two principal components: (1) the Group’s consolidated income tax expense, and (2) the Company’s U.S. Federal and state income taxes on its proportionate share of the Group’s income that is subject to tax."

Does this mean that the $12.5m are the taxes on IBKR's proportionate share of the EBT? If so, it would be $12.5m on (149-127)= 22m. That seems a little high..

Also, I read their comment on a $1bn step-up related to the IPO. It appears that IBKR pays (or paid) 85% of a tax timing benefit (DTA) to the LLC? As a result they have a $284m liability (payable to affiliates). I may misunderstand this but it strikes me as a bad trade to pay 85% of a tax timing benefit which will inevitably reverse. If anything, it would be appropriate to calculate the NPV of the expected timing benefit and reimburse the LLC for that?
Title: Re: IBKR - Interactive Brokers
Post by: yadayada on October 24, 2014, 03:15:55 PM
Thoughts? Seems expensive at 20x earnings. But still low market penetration, and that whole HFT thing is only good for them. Low cost provider best tech etc. I'm not sold though at this valuation with the black box element
Title: Re: IBKR - Interactive Brokers
Post by: ItsAValueTrap on October 24, 2014, 03:23:51 PM
HFT is the worst thing that happened to their market making segment.  (This is my opinion.)
Interactive Brokers is not in the game of shaving miliseconds off their trades.  This requires a huge investment in high-speed networks.  Because of this, IB is at a disadvantage when they are a market maker.  They will get picked off because they have slow quotes.

On the retail brokerage side, payment for order flow is a problem.  Because their competitors take kickbacks for selling out their clients, they can advertise lower rates.

On the institutional brokerage side, dark pools are a small problem.  But many institutional investors have figured out that they have been getting screwed by their brokers, exchanges, market makers and other intermediaries on order execution.

------------------

Peterffy complains about HFT in one of his speeches.  Sorry I don't have the link.

Here's a news article where Peterffy talks about HFT:
http://www.huffingtonpost.com/2012/08/28/thomas-peterffy-high-frequency-trading_n_1835802.html
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on October 24, 2014, 04:14:29 PM
Suggest we move this discussion to the thread that already exists.

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ibkr-interactive-brokers/msg51374/#msg51374
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on October 24, 2014, 04:32:26 PM
Or this. :)

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/interactive-brokers-(ibkr)/20/

So many threads...
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on March 10, 2015, 05:41:08 PM
https://oraclefromomaha.wordpress.com/2015/03/10/the-security-i-like-best-interactive-brokers/
Title: Re: IBKR - Interactive Brokers
Post by: philly value on March 10, 2015, 07:59:25 PM
On the valuation, in the VIC writeup and the writeup just posted, the treatment of a substantial portion of the excess capital as effectively an excess asset seems a bit aggressive. I suppose it is possible that the % excess over regulatory requirements could be reduced over time, but has management shown any inclination to reduce this figure? The assumption here does make a sizable difference in returns on capital today and going forward.

I've thought previously about the GEICO comparison which the author obviously is implying. However, based on market cap, IBKR is already substantial enough today that it seems hard to underwrite the level of growth forecasted. Market cap is $13B today, if the business grows at 20%/yr for a decade and the multiple didn't decline, you'd be looking at a $80B business. Schwab, TD Ameritrade, and E*Trade have a combined market cap of $67B today. The business models are obviously very different, but at some point you wonder how much economic market share IBKR could capture. They do have the ability to tap significant markets that the others mentioned do not (smaller hedge funds, for example) but, as great as IBKR's product is, I also don't see your average retail investor being satisfied with the platform vs. the features you get at the higher cost brokerages.

Would like to hear other's thoughts especially on the size issue.
Title: Re: IBKR - Interactive Brokers
Post by: Rust Belt Capital on March 11, 2015, 06:53:46 AM
$13B mkt cap is a typo I'm assuming? It's ~1.9 billion as of this morning
Title: Re: IBKR - Interactive Brokers
Post by: philly value on March 11, 2015, 07:04:29 AM
$13B mkt cap is a typo I'm assuming? It's ~1.9 billion as of this morning

You're only seeing the publicly traded shares. If you buy IBKR you are buying stock in IBG Inc, which has a market cap of $1.9 billion. IBG Inc is a holding company that owns a 14.5% economic interest in IBG LLC. The rest is held predominantly by Peterffy.
Title: Re: IBKR - Interactive Brokers
Post by: Rust Belt Capital on March 11, 2015, 07:10:14 AM
Ahh I see, thanks for the heads u
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 11, 2015, 07:14:06 AM
On the valuation, in the VIC writeup and the writeup just posted, the treatment of a substantial portion of the excess capital as effectively an excess asset seems a bit aggressive. I suppose it is possible that the % excess over regulatory requirements could be reduced over time, but has management shown any inclination to reduce this figure? The assumption here does make a sizable difference in returns on capital today and going forward.

Thomas has been pretty clear that the capital in the brokerage is not excess. Having that excess capital is part of IB's competitive advantage.
Title: Re: IBKR - Interactive Brokers
Post by: LowIQinvestor on March 11, 2015, 07:19:38 AM
(Newbie to IBKR)

Can someone explain why they believe IBKR is the lowest cost broker? They advertise as having the lowest commission rate. But it is based on 100 shares.
https://www.interactivebrokers.com/en/index.php?f=1590

If I have a Schwab account I can buy/sell $10M worth of Apple stock for under $10 (fee). If I placed the same order through IBKR wouldn't I pay significantly more based on their fixed pricing structure of (USD 0.005 per share). In this case more like a $400 commission.

What am I missing?

Thanks
Title: Re: IBKR - Interactive Brokers
Post by: philly value on March 11, 2015, 07:33:56 AM
(Newbie to IBKR)

Can someone explain why they believe IBKR is the lowest cost broker? They advertise as having the lowest commission rate. But it is based on 100 shares.
https://www.interactivebrokers.com/en/index.php?f=1590

If I have a Schwab account I can buy/sell $10M worth of Apple stock for under $10 (fee). If I placed the same order through IBKR wouldn't I pay significantly more based on their fixed pricing structure of (USD 0.005 per share). In this case more like a $400 commission.

What am I missing?

Thanks

For someone trading those volumes, the fixed pricing (0.005 per share) is unlikely to be the best option. IB also has tiered pricing, where the price depends on the number of shares traded and also on the type of orders you are putting through: https://www.interactivebrokers.com/en/index.php?f=commission&p=stocks2
Title: Re: IBKR - Interactive Brokers
Post by: writser on March 11, 2015, 07:37:06 AM
On average hardly anybody enters single orders for 100k shares AAPL. Almost everybody is better off paying $.005 per share rather than a $10 fixed fee per order.

Also IB allows you to collect rebates from exchanges.

And IB probably gives you better fills since it doesn't sell its order flow, as opposed to Schwab.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 11, 2015, 07:57:10 AM
Market cap is $13B today, if the business grows at 20%/yr for a decade and the multiple didn't decline, you'd be looking at a $80B business. Schwab, TD Ameritrade, and E*Trade have a combined market cap of $67B today.

If Schwab grows at 7% per year, it would also be worth about $80 B in 10 years. Is it conceivable that IBKR will be worth as much as Schwab in 10 years? 20%/yr seems unlikely buy 15% seems achievable.
Title: Re: IBKR - Interactive Brokers
Post by: writser on March 20, 2015, 05:02:10 AM
Just a brainfart: I really like IB as a broker and I would love to own the stock but it just looks to expensive for my taste. Has anybody considered setting this up as a pair trade? E.g. long IBKR, short AMTD and/or ETFC. All brokers have relatively high valuations, if you can set this up with low margin requirements it might be a nice bet 'on the side' that IBKR will perform better than its competitors.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 20, 2015, 07:59:43 AM
If IBKR has spent tons of money for their backend in order to provide cheap trades, why don't they spend some money on improving the UI? Having good front end is cheaper than their backend systems and it would attract more customers. Right now their interface is atrocious. I would not recommend them to anyone except day traders desperate for low commissions. Fidelity experience is light years above IB. And I am fine with paying Fidelity commissions: it's still less than 0.2% drag on something like $5K trade, much less for bigger ones.

(Yeah, I know IB has couple advantages: some international markets with cheap commissions, international positions in IRAs, cheap options, great margin rates. Almost none of these apply to me or most people)
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on March 20, 2015, 08:16:12 AM
I think perhaps IB has designed their offering / interface / business model in a way to encourage the kinds of customers they want, and also to discourage (and thus, leave with competitors) the kind of customer they don't want.

A business doesn't have to go after all customers to be successful, I think there is a place for Fidelity / SCHW... I just think in the long run, the more frequent traders, and investors desiring IB's rates / commissions will migrate.  This will allow IB to continue to grow, and probably have a disproportionate impact on the competition as these customers I would think tend to be higher margin.
Title: Re: IBKR - Interactive Brokers
Post by: TwoCitiesCapital on March 20, 2015, 08:27:10 AM
I think perhaps IB has designed their offering / interface / business model in a way to encourage the kinds of customers they want, and also to discourage (and thus, leave with competitors) the kind of customer they don't want.

A business doesn't have to go after all customers to be successful, I think there is a place for Fidelity / SCHW... I just think in the long run, the more frequent traders, and investors desiring IB's rates / commissions will migrate.  This will allow IB to continue to grow, and probably have a disproportionate impact on the competition as these customers I would think tend to be higher margin.

I can attest to this. I've recently opened an account with IB while I have two other accounts at Scottrade. The interface is a bit intimidating at first but I certainly appreciate the (generally) cheaper fills and the better execution. Limit trades with Scottrade take forever to get filled, and occasionally don't get filled, even if the price is below the limit price. I don't have this issue with IB and IB gives me greater access to foreign markets which Scottrade is lacking.

There are a few frustrations with IB, but as I learn the system more I'm seriously considering moving my other two accounts over to it and having them all with IB.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 20, 2015, 08:36:48 AM
It's good to know that they don't want me as a customer. Makes me feel fuzzy and happy inside.  :-X
Title: Re: IBKR - Interactive Brokers
Post by: philly value on March 20, 2015, 08:46:12 AM
It's good to know that they don't want me as a customer. Makes me feel fuzzy and happy inside.  :-X

Honestly I'm wondering what is so bad about the interface, because this is a relatively common complaint from others. The only thing I found annoying about IB is the security card thing, which is a pain to have to look up / enter everytime I log in. Otherwise, things may not be as colorful as other brokers, but functionally I haven't had any real issues. And regardless of anything, bought 75 shares this morning for a grand total commission of $0.25, so screw the interface  :D
Title: Re: IBKR - Interactive Brokers
Post by: oddballstocks on March 20, 2015, 08:51:44 AM
It's good to know that they don't want me as a customer. Makes me feel fuzzy and happy inside.  :-X

Maybe they're going the Bloomberg Terminal route.  Such a terrible UI and so cryptic that once users figure it out they feel like they have some special skill.  Bloomberg styles themselves as this black box super secret type of thing.  It's like they're telling users "sure you just move money around, but when you use our software you feel like a fighter jet pilot....you rockstar you...go get 'em."

Here's my guess.  IB had no idea how to design a UI when they started.  It just grew haphazardly.  Now users are used to the haphazard.  I don't think there's a science to it, it's just users get used to the pain.

I had a conversation with a few people last night about systems like this.  We'd all seen companies who had green-screen terminal systems that once users got up over an enormous learning curve they could be fast with the software.  Existing users who made the investment figured out tricks and ways to be fast.  But the system wasn't designed for that, it just grew that way.  We were sharing experiences of watching companies redesign those systems to be user friendly.  Power users, the ones who were well indoctrinated hated the new systems.  It slowed them down and they felt they couldn't get their job done as quickly.  Is that a failure for the new system?  It depends.  In one context it wasn't.  The company had high turnover and needed new employees to get up to speed fast.  Whatever productivity was lost with power users was more than made up by reduced training costs and reduced errors by new users.

The simplest interface to making a trade is picking up the phone and calling the broker.  Call the broker and say "buy 1,000 MSFT at 42".  Some brokers implement that phone type of interface online.  It's easy to make a straight forward trade.  And my guess is if you looked at usage patterns 90%+ of trades at brokers are simple trades.  It makes sense to make the simple things straight forward.  From my limited experience with IB's UI they wanted to cover all aspects.  They put all of the assumptions up front.  You want to buy MSFT, what type of MSFT?  Stock, option?  What market do you want to trade on?  And on and on.  This gives the power user a lot of options.  I'm idling wondering as I type this how many users actually use some of these options.  I've seen a lot of systems that provide a TON of configurability and no one uses it.  I'll share a story of my own.  In our product CompleteBankData.com we have the ability to search over 10,000 banks on 2,000 criteria over any quarter in the past 10 years.  A ton of power right?  It is, you can create the most customized searches on the planet for bank data.  So what do our users do?  99.9% search on ROE over the most recent quarter.  That's it.  I could remove all of that other functionality only include a ROE field and users would be happy.

The experience on my system isn't unique.  In designing and working with complex IT systems for years I've seen this pattern repeated over and over.

In my view the best interface is actually two interfaces.  One is the simple path, a wizard or toolbar to do simple repeatable tasks that happen most of the time.  And an advanced view for complex behaviors that happen occasionally.  It seems IB took the advanced route and never implemented a simple route. 

I am probably the company's target user.  But after using their demo for a few days I decided it wasn't worth the time to learn the UI.  I'm satisfied with Fidelity and have no desire to learn some warped system.  I want to switch and IB offers a lot of features I want.  But the UI holds me back.  It's like handing someone an iPhone with a rotary dial attached.  Why limit yourself like that?
Title: Re: IBKR - Interactive Brokers
Post by: oddballstocks on March 20, 2015, 08:53:14 AM
It's good to know that they don't want me as a customer. Makes me feel fuzzy and happy inside.  :-X

Honestly I'm wondering what is so bad about the interface, because this is a relatively common complaint from others. The only thing I found annoying about IB is the security card thing, which is a pain to have to look up / enter everytime I log in. Otherwise, things may not be as colorful as other brokers, but functionally I haven't had any real issues. And regardless of anything, bought 75 shares this morning for a grand total commission of $0.25, so screw the interface  :D

Maybe this argument could be analogous to a Walmart/Target argument.  A Walmart shopper says "who cares that the store is dirty, aisles filled with crap and long lines at the cashier.  I saved $6 on my purchase so I could care less."  Verses the Target argument which is that the stores are nicer but you pay a bit more.  I prefer to shop at Target.  My guess is most IB users are Walmart shoppers?
Title: Re: IBKR - Interactive Brokers
Post by: Ham Hockers on March 20, 2015, 08:54:29 AM

Maybe this argument could be analogous to a Walmart/Target argument.  A Walmart shopper says "who cares that the store is dirty, aisles filled with crap and long lines at the cashier.  I saved $6 on my purchase so I could care less."  Verses the Target argument which is that the stores are nicer but you pay a bit more.  I prefer to shop at Target.  My guess is most IB users are Walmart shoppers?

That seems so unlike you :)
Title: Re: IBKR - Interactive Brokers
Post by: writser on March 20, 2015, 08:55:15 AM
I am probably the company's target user.  But after using their demo for a few days I decided it wasn't worth the time to learn the UI.  I'm satisfied with Fidelity and have no desire to learn some warped system.  I want to switch and IB offers a lot of features I want.  But the UI holds me back.  It's like handing someone an iPhone with a rotary dial attached.  Why limit yourself like that?

I really don't understand why you, of all people, think this way. You're leaving a lot of money on the table in the long run just because you are too lazy to spend half a day on their software? Because, frankly, it's not _THAT_ difficult to use and if you get to know it actually works very good - I now prefer it above almost all alternatives.

Their software should appeal to deep value investors like you. It's ugly at first glance & unloved but very cheap! The Walmart comparison is way off the mark. IB is like a wholesale store compared to a retail store around the corner. Sure, it looks a little bit less cosy but if you are a professional you can't do without it.


Anyway, back ontopic: nobody likes my idea? Opinions would be appreciated.

Quote
Just a brainfart: I really like IB as a broker and I would love to own the stock but it just looks to expensive for my taste. Has anybody considered setting this up as a pair trade? E.g. long IBKR, short AMTD and/or ETFC. All brokers have relatively high valuations, if you can set this up with low margin requirements it might be a nice bet 'on the side' that IBKR will perform better than its competitors.
Title: Re: IBKR - Interactive Brokers
Post by: philly value on March 20, 2015, 09:02:20 AM
It's good to know that they don't want me as a customer. Makes me feel fuzzy and happy inside.  :-X

Honestly I'm wondering what is so bad about the interface, because this is a relatively common complaint from others. The only thing I found annoying about IB is the security card thing, which is a pain to have to look up / enter everytime I log in. Otherwise, things may not be as colorful as other brokers, but functionally I haven't had any real issues. And regardless of anything, bought 75 shares this morning for a grand total commission of $0.25, so screw the interface  :D


Maybe this argument could be analogous to a Walmart/Target argument.  A Walmart shopper says "who cares that the store is dirty, aisles filled with crap and long lines at the cashier.  I saved $6 on my purchase so I could care less."  Verses the Target argument which is that the stores are nicer but you pay a bit more.  I prefer to shop at Target.  My guess is most IB users are Walmart shoppers?

I look at it a bit differently. Personally at least I look at choice of a broker almost like I would buying car insurance. I need access to the exchanges to invest, and a broker provides me that, but I don't get much pleasure out of the relationship. I want a broker that I can trust is a stable institution, gives me flexibility in accessing many different markets/products from one platform, and most importantly gives me the lowest cost (both in terms of fees and in terms of execution).

On the other hand, shopping for food or shopping for clothes is much closer to a "pleasure" activity. I suppose if I looked at food and clothes as merely means to survival, then the function of the stores would be similiar to the function of the auto insurer / broker I outlined. But instead, I am inclined to spend way more on food than I need to survive because it's enjoyable.

So bottom line is, I shop at Whole Foods much more than Wal-Mart, but I use Interactive Brokers.
Title: Re: IBKR - Interactive Brokers
Post by: oddballstocks on March 20, 2015, 09:05:27 AM
I am probably the company's target user.  But after using their demo for a few days I decided it wasn't worth the time to learn the UI.  I'm satisfied with Fidelity and have no desire to learn some warped system.  I want to switch and IB offers a lot of features I want.  But the UI holds me back.  It's like handing someone an iPhone with a rotary dial attached.  Why limit yourself like that?

I think that's irresponsible. You're leaving a lot of money on the table in the long run just because you are too lazy to spend half a day on their software? Because, frankly, it's not _THAT_ difficult to use.  Their software should appeal to value investors. It's ugly, unloved, but very cheap!

Is it that much? IB hits you with a $10 per month minimum trade fee plus a $10 per month real time quote fee as well as an IRA fee.  That's $240 year in minimum fees.  And that's real-time quotes for the US only.  At Fidelity I get real-time quotes worldwide.  If I were to pay for that at IB there's no comparison, but let's leave that out.  There's also a $30 per year fee for each IRA.  I have 4 IRA accounts, that's another $120.  I'd be looking at $360 a year in minimum costs with less information than I get now.  That's 45 trades at Fidelity to break even.  I just checked Fidelity, I've made 44 trades in the last year.  IB would be slightly more expensive.

If you add in all the real-time data from all the markets I get at Fidelity I'd have to trade a lot more to make it worthwhile.
Title: Re: IBKR - Interactive Brokers
Post by: oddballstocks on March 20, 2015, 09:07:37 AM
I am probably the company's target user.  But after using their demo for a few days I decided it wasn't worth the time to learn the UI.  I'm satisfied with Fidelity and have no desire to learn some warped system.  I want to switch and IB offers a lot of features I want.  But the UI holds me back.  It's like handing someone an iPhone with a rotary dial attached.  Why limit yourself like that?

I really don't understand why you, of all people, think this way. You're leaving a lot of money on the table in the long run just because you are too lazy to spend half a day on their software? Because, frankly, it's not _THAT_ difficult to use and if you get to know it actually works very good - I now prefer it above almost all alternatives.

Their software should appeal to deep value investors like you. It's ugly at first glance & unloved but very cheap! The Walmart comparison is way off the mark. IB is like a wholesale store compared to a retail store around the corner. Sure, it looks a little bit less cosy but if you are a professional you can't do without it.


Anyway, back ontopic: nobody likes my idea? Opinions would be appreciated.

Quote
Just a brainfart: I really like IB as a broker and I would love to own the stock but it just looks to expensive for my taste. Has anybody considered setting this up as a pair trade? E.g. long IBKR, short AMTD and/or ETFC. All brokers have relatively high valuations, if you can set this up with low margin requirements it might be a nice bet 'on the side' that IBKR will perform better than its competitors.

I buy value.  In real life (not my portfolio) I purchase high quality things that are well designed and last.  I learned long ago that buying cheap junk is more costly in the long run in most cases.

Sometimes I get the impression that my investing style translates into the perception that I'm some miser living in a mobile home driving a 1992 Tarus and wearing worn out clothes to save a few bucks.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on March 20, 2015, 09:20:11 AM
A few comments on IB, and to Nate's note:

"It seems IB took the advanced route and never implemented a simple route.  "

They do have a simple webtrader interface which is what you propose, I don't think you used it.  It's not great, but more SCHW like, no Java application involved.  I think in general folks that *need* a simpler UI (not saying that is folks here), demand more customer service, and I think it's a conscious trade off by IB to focus their business on high volume, but fewer accounts.  To that point Nate, I think your comment about 90%+ of *users* just wanting to buy MSFT, you are right... but 90% of IB's trade volume is done by the minority of clients, and I think those are the MM and automated trading funds, so again, I think you can use the webtrader interface if the TWS interface is too complex (by the way, I'm not throwing stones, I used webtrader interface for the first 4 years I had an IB account, it was fine... only starting using TWS when I moved my RIA to IB).

Also note for those that thinks IB charges a $10 / month minimum... they have eliminated this for $100k+ accounts, they did it last year.  Agree that IRAs have $7.5 / quarter fee, and real time quotes are extra, so those obviously should be factored in.  I think the big things for IB over Fido are real easy to quantify:
1) If you trade internationally (online, not by phone)
2) If you short
3) If you borrow on margin
4) If you trade options
5) If you trade futures
6) If you trade foreign exchange
7) If you are an RIA / HF

If you meet any of the seven, I think IB is clearly better.  If you don't, then I think IB is probably on par for most folks, and more complex than Fido.

Again, I don't think it's the best for everyone, but it's pretty good.  I think the characterization of the UI as super complex is pretty amusing.  Yeah, it has a two hour learning curve and it's made by Java programmers and option traders, not by Steve Jobs, but it's functional and easy to use... it's not like some black box.

Ben
Title: Re: IBKR - Interactive Brokers
Post by: frommi on March 20, 2015, 09:29:24 AM
If you want a simpler interface you can always use the IB phone or ipad app. Nate what you pay at fidelity sounds like a good deal, but i don`t know one european broker that comes even close to the low commissions at IB that has the same stability/trustworthy background. At Cortalconsors/BNP Paribas for example i pay nearly 1% in commisions for every US/canadian stock transaction. And then they split each big transaction into smaller ones to get even more commissions, regardless if necessary or not. And most other brokers earn even more on your transaction when they frontrun your trade without you not even taking notice.
Title: Re: IBKR - Interactive Brokers
Post by: writser on March 20, 2015, 09:37:10 AM
I am probably the company's target user.  But after using their demo for a few days I decided it wasn't worth the time to learn the UI.  I'm satisfied with Fidelity and have no desire to learn some warped system.  I want to switch and IB offers a lot of features I want.  But the UI holds me back.  It's like handing someone an iPhone with a rotary dial attached.  Why limit yourself like that?

I think that's irresponsible. You're leaving a lot of money on the table in the long run just because you are too lazy to spend half a day on their software? Because, frankly, it's not _THAT_ difficult to use.  Their software should appeal to value investors. It's ugly, unloved, but very cheap!

Is it that much? IB hits you with a $10 per month minimum trade fee plus a $10 per month real time quote fee as well as an IRA fee.  That's $240 year in minimum fees.  And that's real-time quotes for the US only.  At Fidelity I get real-time quotes worldwide.  If I were to pay for that at IB there's no comparison, but let's leave that out.  There's also a $30 per year fee for each IRA.  I have 4 IRA accounts, that's another $120.  I'd be looking at $360 a year in minimum costs with less information than I get now.  That's 45 trades at Fidelity to break even.  I just checked Fidelity, I've made 44 trades in the last year.  IB would be slightly more expensive.

If you add in all the real-time data from all the markets I get at Fidelity I'd have to trade a lot more to make it worthwhile.

I rephrased my reply while you replied, it was maybe a bit over the top. You are correct in the sense that IB isn't very well suited for small accounts. Still your comparison isn't really fair. The IB minimum trade fee is waivered if you have > $100k equity. Also, any commission you pay during a month cancels out the monthly minimum fee. The same thing happens with US quote fees. In other words, with a small account all your trading is effectively free: the $360 package is all-in.

Foreign dividends cost 1% through Fidelity (IB 0%). Margin interest is higher (IB is 1% - 2% cheaper.) Corporate actions through Fidelity: $38 (IB: free). Also you are potentially leaving more money on the table because Fidelity is selling your order flow to HFT firms instead of routing it to exchanges directly. But the most egregious are the FX fees. If you trade international stocks through Fidelity you pay 1% FX fees for every trade assuming you have a small account (IB 0.0001%). That means that if you buy and sell a ~$20k European stock position during a year you are already paying $400 in hidden forex fees - you can trade a whole year for free with that if you had an IB account!

All these things add up quickly and as soon as you pass the $400 / year hurdle (which I am pretty sure you are currently paying with Fidelity, _EVERYTHING_ considered) you would be better off with IB. And the more you trade / the bigger your account gets the better proposition IB becomes. With $10k it's probably not the best choice (but why would you be investing anyway), with $100k it probably is and with $1m+ you are a fool if you park the majority of your assets at a different broker.

Quote
Sometimes I get the impression that my investing style translates into the perception that I'm some miser living in a mobile home driving a 1992 Tarus and wearing worn out clothes to save a few bucks.
Yes. You definitely give off that impression  :P.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on March 20, 2015, 09:41:09 AM
If you want a simpler interface you can always use the IB phone or ipad app. Nate what you pay at fidelity sounds like a good deal, but i don`t know one european broker that comes even close to the low commissions at IB that has the same stability/trustworthy background. At Cortalconsors/BNP Paribas for example i pay nearly 1% in commisions for every US/canadian stock transaction. And then they split each big transaction into smaller ones to get even more commissions, regardless if necessary or not. And most other brokers earn even more on your transaction when they frontrun your trade without you not even taking notice.

I use IB, and most of the time I just use their simplified web interface because I don't need all the bells and whistles that are in the java application.
Title: Re: IBKR - Interactive Brokers
Post by: oddballstocks on March 20, 2015, 10:33:09 AM
I am probably the company's target user.  But after using their demo for a few days I decided it wasn't worth the time to learn the UI.  I'm satisfied with Fidelity and have no desire to learn some warped system.  I want to switch and IB offers a lot of features I want.  But the UI holds me back.  It's like handing someone an iPhone with a rotary dial attached.  Why limit yourself like that?

I think that's irresponsible. You're leaving a lot of money on the table in the long run just because you are too lazy to spend half a day on their software? Because, frankly, it's not _THAT_ difficult to use.  Their software should appeal to value investors. It's ugly, unloved, but very cheap!

Is it that much? IB hits you with a $10 per month minimum trade fee plus a $10 per month real time quote fee as well as an IRA fee.  That's $240 year in minimum fees.  And that's real-time quotes for the US only.  At Fidelity I get real-time quotes worldwide.  If I were to pay for that at IB there's no comparison, but let's leave that out.  There's also a $30 per year fee for each IRA.  I have 4 IRA accounts, that's another $120.  I'd be looking at $360 a year in minimum costs with less information than I get now.  That's 45 trades at Fidelity to break even.  I just checked Fidelity, I've made 44 trades in the last year.  IB would be slightly more expensive.

If you add in all the real-time data from all the markets I get at Fidelity I'd have to trade a lot more to make it worthwhile.

I rephrased my reply while you replied, it was maybe a bit over the top. You are correct in the sense that IB isn't very well suited for small accounts. Still your comparison isn't really fair. The IB minimum trade fee is waivered if you have > $100k equity. Also, any commission you pay during a month cancels out the monthly minimum fee. The same thing happens with US quote fees. In other words, with a small account all your trading is effectively free: the $360 package is all-in.

Foreign dividends cost 1% through Fidelity (IB 0%). Margin interest is higher (IB is 1% - 2% cheaper.) Corporate actions through Fidelity: $38 (IB: free). Also you are potentially leaving more money on the table because Fidelity is selling your order flow to HFT firms instead of routing it to exchanges directly. But the most egregious are the FX fees. If you trade international stocks through Fidelity you pay 1% FX fees for every trade assuming you have a small account (IB 0.0001%). That means that if you buy and sell a ~$20k European stock position during a year you are already paying $400 in hidden forex fees - you can trade a whole year for free with that if you had an IB account!

All these things add up quickly and as soon as you pass the $400 / year hurdle (which I am pretty sure you are currently paying with Fidelity, _EVERYTHING_ considered) you would be better off with IB. And the more you trade / the bigger your account gets the better proposition IB becomes. With $10k it's probably not the best choice (but why would you be investing anyway), with $100k it probably is and with $1m+ you are a fool if you park the majority of your assets at a different broker.

Quote
Sometimes I get the impression that my investing style translates into the perception that I'm some miser living in a mobile home driving a 1992 Tarus and wearing worn out clothes to save a few bucks.
Yes. You definitely give off that impression  :P.

Interesting, I guess I didn't know about the $100k account thing.  How do they manage accounts are they all combined for a household value?  I have some IRA's with $10k in them.  They're well worth investing as part of the larger portfolio, but getting slammed with the fees on those isn't fun.

Where is Fidelity charging 1% on foreign dividends?  I've never paid a cent on those.  I think there's a misconception.  You get hit with the FX fee if you convert back and forth.  I converted a chunk of cash to EUR years ago and have traded that.  I paid 1% once to get in, but once in there are no fees.  Now I've taken a bath on the USD/EUR and that bath makes FX look like nothing but that's another story.  I did this for JPY, GBP and CAD.  I held some CHF that I converted back, but otherwise I just leave my foreign currency.  It doesn't cost me to receive a dividend.  Making a new trade is just commission cost.

Does IB force a FX back to the home currency?  Not sure I'd like this.

If your account is over $100k (I think, maybe $250k? Some number they don't publicize) at Fidelity corporate actions are free.  I've never paid for them and I've participated a number of times.

What it boils down to is the cost comparison isn't perfectly clear cut.  I agree with Ben's assessment.  The only item on his list I trade is foreign stocks.  For now the edge isn't clear enough.

I do want to dip my toe in the water.  My wife has a $30k IRA at Vanguard that I'll probably move to IB.  I almost never trade at Vanguard, their stock selection is limited and the UI is beyond terrible.  I recognize I will get taken to the cleaner in fees compared to Vanguard ($30/yr IRA plus $120 min), but will be able to invest overseas and in OTC stocks whereas I can't right now in that account.

I wish I were at the $1m level, unfortunately I'm not.

One thing that intrigues me is their API access.  I'd love to write something that connects and executes trades through this.  In browsing the documentation it appears I could integrate this with our desktop software.  But I don't know how many users have a Bloomberg but trade through IB, seems like a strange combo..
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on March 20, 2015, 11:00:29 AM
"Interesting, I guess I didn't know about the $100k account thing.  How do they manage accounts are they all combined for a household value?  I have some IRA's with $10k in them.  They're well worth investing as part of the larger portfolio, but getting slammed with the fees on those isn't fun."

All accounts are independent (if you are an advisor, there is a more nuanced answer, and I think you can aggregate fees to kill the minimums if you do a friends and family setup)... so your IRAs would get hit baring the prior provisos.

"Does IB force a FX back to the home currency?  Not sure I'd like this."

No, I think there was an assumption in the original comment that you (as in Nate) would want to do this, I agree based on what you shared about your trading, that you pay 1% one time, and then you can keep your earnings/returns in the foreign currency with no penalty at Fido.

"One thing that intrigues me is their API access.  I'd love to write something that connects and executes trades through this.  In browsing the documentation it appears I could integrate this with our desktop software.  But I don't know how many users have a Bloomberg but trade through IB, seems like a strange combo.."

I think the combo is becoming less strange.  But selfishly, if you do ever decide to go down that path, please keep me posted on your experience(s)!

I always get too jacked up and post to much on IBKR when it comes up, but if I had to say one thing about them that I like most is that they essentially are very similar to Costco in the brokerage space.  They provide a somewhat premium service (not necessarily for everyone) and they provide it with a cost plus model.  They don't try to nickel and dime you unless it goes back to their cost structure (eg, IRAs have additional paperwork for the custodian, so they charge for this vs. taxable accounts).  IB's motto is to make sure that every account they have is at least a breakeven proposition... and beyond that, if they build it, people will trade.  The beauty is that in my almost 10 years with them, you see steady improvements, and continual (but lumpy) cost reductions.  It's not always pretty, but it's always getting better, and somewhat amazingly it gets better without you knowing it (which is frustrating as an investor...).

I can't speak badly of Fidelity as I think they do a good job, but I find companies like IB very rare in that they acknowledge what they are good at, and they try to keep doing it better, and they treat their customers fairly with very transparent pricing.  To me as both an investor and user, I just like it.  I know it's not everyone's cup of tea, but I think most on this board, if forced to start from scratch, would probably be happiest / wealthiest by choosing IB.

Fanboy out. :)
Title: Re: IBKR - Interactive Brokers
Post by: writser on March 20, 2015, 11:30:40 AM
Nate, sorry, I misunderstood the FX fees. As a non-US resident I can't open a Fidelity account (unfortunately, would've liked to try it out) so I had to figure things out from their fee schedule. This is also where I got the info about foreign dividends:
Quote
Foreign Dividends / Reorganizations 1% of principal; charged when a dividend is paid or a reorganization event occurs on a foreign asset held in an account in USD

I might also have misunderstood this. Nevertheless, an 1% FX charge is still ridiculous in 2015. If I understand correctly if you buy an Australian asset, then sell that to buy something in Singapore you would still have to pay FX fees inbetween, correct? I imagine this will add up over time if you have a global portfolio. Have you ever checked how much it did cost you over the years?

The IB API is actually quite easy to work with - I fiddled around a little bit with it. You should be able to integrate it with pretty much everything - it opens a socket to your local version of TWS.

Again, I would be quite interested in hearing anyone's opinion on a IBKR / ETFC pair trade. Seems like a decent idea at first glance.
Title: Re: IBKR - Interactive Brokers
Post by: oddballstocks on March 20, 2015, 11:34:33 AM
"Interesting, I guess I didn't know about the $100k account thing.  How do they manage accounts are they all combined for a household value?  I have some IRA's with $10k in them.  They're well worth investing as part of the larger portfolio, but getting slammed with the fees on those isn't fun."

All accounts are independent (if you are an advisor, there is a more nuanced answer, and I think you can aggregate fees to kill the minimums if you do a friends and family setup)... so your IRAs would get hit baring the prior provisos.

"Does IB force a FX back to the home currency?  Not sure I'd like this."

No, I think there was an assumption in the original comment that you (as in Nate) would want to do this, I agree based on what you shared about your trading, that you pay 1% one time, and then you can keep your earnings/returns in the foreign currency with no penalty at Fido.

"One thing that intrigues me is their API access.  I'd love to write something that connects and executes trades through this.  In browsing the documentation it appears I could integrate this with our desktop software.  But I don't know how many users have a Bloomberg but trade through IB, seems like a strange combo.."

I think the combo is becoming less strange.  But selfishly, if you do ever decide to go down that path, please keep me posted on your experience(s)!

I always get too jacked up and post to much on IBKR when it comes up, but if I had to say one thing about them that I like most is that they essentially are very similar to Costco in the brokerage space.  They provide a somewhat premium service (not necessarily for everyone) and they provide it with a cost plus model.  They don't try to nickel and dime you unless it goes back to their cost structure (eg, IRAs have additional paperwork for the custodian, so they charge for this vs. taxable accounts).  IB's motto is to make sure that every account they have is at least a breakeven proposition... and beyond that, if they build it, people will trade.  The beauty is that in my almost 10 years with them, you see steady improvements, and continual (but lumpy) cost reductions.  It's not always pretty, but it's always getting better, and somewhat amazingly it gets better without you knowing it (which is frustrating as an investor...).

I can't speak badly of Fidelity as I think they do a good job, but I find companies like IB very rare in that they acknowledge what they are good at, and they try to keep doing it better, and they treat their customers fairly with very transparent pricing.  To me as both an investor and user, I just like it.  I know it's not everyone's cup of tea, but I think most on this board, if forced to start from scratch, would probably be happiest / wealthiest by choosing IB.

Fanboy out. :)

Ben,

Appreciate the response.  The minimum is a killer for a retail investor with a lot of accounts.  I have a larger taxable account and then various IRA's.  For a husband/wife I don't think it'd be unusual to have 4 IRA's (2 Roth's each, 2 Traditionals from 401k rollovers).  That's killer, $480 a year in minimum trades plus the $120 in IRA management fees for a total of $600 a year without realtime feeds etc. 

I bring up IRAs for a reason.  For many investors the IRA is where a significant portion of their assets reside from 401ks in the past. 

----------------------

On the API.  I dug into this further and read a lot of their docs.  Their API is a lot simpler than what Bloomberg provides.

It looks like if we wanted, and users wanted this I could create a version of CompleteBankData that runs entirely from an Interactive Brokers account.  We'd pull some fundamental data (pricing) from IB and combine it with our bank data.  You'd be able to trade out of the application.  If there is real demand for this please email me.  If I find some users who'd commit to saying they want this and they will pay for it upfront we will build it.  We'd take our Bloomberg app and just change the datasource and add in trading (if desired).  If there's a market demand for this (read: people will commit to paying) I'd love to create this.  Looks like users would need to pay for realtime data ($10 a month plus Reuters fundamentals $39 a month so $49/mo).  Really interesting...


---------------------

One thing that blows me away by IB is the fanatical attitude of users.  This is very appealing.  There are few brands where users are fanatical about how great a product is even if it isn't.  To me that says a lot.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 20, 2015, 11:39:56 AM
Honestly I'm wondering what is so bad about the interface, because this is a relatively common complaint from others. The only thing I found annoying about IB is the security card thing, which is a pain to have to look up / enter everytime I log in. Otherwise, things may not be as colorful as other brokers, but functionally I haven't had any real issues. And regardless of anything, bought 75 shares this morning for a grand total commission of $0.25, so screw the interface  :D

Maybe I am looking at wrong places. This is based on their web browser interface:
- Seeing the trade history requires contortions to generate a report instead of just clicking a single button. Even then the report is almost incomprehensible.
- Going between positions and lots requires contortions.
- Exporting trades to Quicken is the same.
- Do they even support TurboTax online version? Will I have to type in all trades at tax time?

I'd mention more but I try to avoid going to IB as much as I can, so I'm sure I forgot some other atrocities.

Perhaps I should say that this is adviser managed account. I assume the interface is the same as with regular IB account, but perhaps not.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 20, 2015, 11:43:29 AM
I am probably the company's target user.  But after using their demo for a few days I decided it wasn't worth the time to learn the UI.  I'm satisfied with Fidelity and have no desire to learn some warped system.  I want to switch and IB offers a lot of features I want.  But the UI holds me back.  It's like handing someone an iPhone with a rotary dial attached.  Why limit yourself like that?

Great post Oddball. +1 all the way.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 20, 2015, 11:47:08 AM
I think the big things for IB over Fido are real easy to quantify:
1) If you trade internationally (online, not by phone)
2) If you short
3) If you borrow on margin
4) If you trade options
5) If you trade futures
6) If you trade foreign exchange
7) If you are an RIA / HF

Out of these, I only use 1. And Fido has it somewhat covered (not all markets, expensive commissions, no IRA support). I'd love if Fido lowered commissions on international trades and offered them in IRA, but I guess I have to keep pushing them, threatening that I will leave for IB.  :P

Edit: I wonder how IB handled TESB.BE rights release. I had to talk to couple Fido reps to get this through. I might have jumped the gun by calling them before things were settled. This may have worked better or much worse in IB. :)

Anyway, the branch and live person support is a great perk to have sometimes.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on March 20, 2015, 11:53:02 AM
Oh, Writser, to your question. :)

"Again, I would be quite interested in hearing anyone's opinion on a IBKR / ETFC pair trade. Seems like a decent idea at first glance."

The problem for me with this pair trade is that it's pretty dirty.  I think you have a lot of basis risk because IB succeeds and fails in different ways than other brokers.  Long term, I think it's an interesting bet, and both should have similar macro themes which they will correlate with (say, rising rates are good for both), but for example if we have a retail driven stock bubble, I would think ETFC would do well, and IB, maybe just ok...  The most difficult part of this kind of pair trade is that I think ETFC / SCWH etc are in good businesses, so if all goes well, IBKR goes up 12-15%, and ETFC goes up 6-10%... basically, the gross size of this position will start to suck regardless eventually, right?  But maybe you just reduce the position in the next down market? (just talking about loud).

But, I do hear you on wanting to participate in the goodness of IBKR, but not knowing how / wanting to swallow the valuation.  I've owned for a long time, and the position is too big, and I have begun paring it back.  I don't have a good answer, but I still like the company, and think they have a clear competitive advantage that will lead to high incremental ROIC, so I don't want to lighten up too much due to valuation alone.

The other thing about IB alluded to above, which is nearly completely left out of this discussion is that their story in the US is IMO quite amazing, but it looks like a sick dog compared to the story they have in the rest of the world.  In Asia and Europe, IB is like SCHW was in the US in 1992... it's just comical to see the "competition" they are up against.  Eventually, the world will get more in gear like Fidelity, but Fidelity in the US vs. Fidelity for a resident of Spain is a totally different bag (just as an example); I think IB has a huge runway.

I think this also addresses (kind of?) the note above by KC about how big IBKR can get, and comparing to SCHW... SCHW is primarily US domiciled investors only (last I checked), I think IB's runway overseas makes the comparison not as directly relevant.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 20, 2015, 11:53:24 AM
with $1m+ you are a fool if you park the majority of your assets at a different broker.

Let's not start hurling insults
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on March 20, 2015, 12:02:36 PM
One last thing, a few have noted that for certain transactions (high share count buys/sells) a fixed commission is better... well IB has a solution for that as well.  You can set accounts up to be able to trade awat at a different broker (this is an institutional, fund only service now I think), so you transact penny stocks or high volume blocks at ETFC, and then just bring them back to IB as your Prime broker.

A great thing for IB as they get to let you take advantage of other broker's loss leader pricing, and it's seamless to you. :)

Ok, enough from me today ...
Title: Re: IBKR - Interactive Brokers
Post by: Packer16 on March 20, 2015, 12:02:57 PM
Fido offers the only international Roth IRA platform I could find.   In addition it has markets IB does not like S. Korea.  I think you cannot hold foreign currency in an IRA so the FX fees are required no matter what.

Packer
Title: Re: IBKR - Interactive Brokers
Post by: philly value on March 20, 2015, 12:04:58 PM
On valuation, depending on your assumptions about how to treat the market making business and corporate overhead, if you assume $600M after-tax 2015 net income from the brokerage business I get it trading at a low-20s forward multiple of brokerage net income. The stock is up more than 40% over the past 6 months, which never feels good, but the valuation still does not seem that expensive for a business with the growth trajectory, runway, and competitive advantages.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on March 20, 2015, 12:06:27 PM
Packer,

it's true that certain markets IB doesn't support (yet), but their IRAs are fully international, and I can (and have) held currency other than USD in them.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 20, 2015, 12:07:54 PM
Fido offers the only international Roth IRA platform I could find.   In addition it has markets IB does not like S. Korea.  I think you cannot hold foreign currency in an IRA so the FX fees are required no matter what.

Packer

Yeah, I think you mentioned this before. I have talked with Fido reps couple of times and they always say that you cannot do international trades in IRAs... I guess I just don't feel the need for it enough to push them to acknowledge that it's possible. I'd hate to call for trades anyway and they don't support online IRA international trades I believe (I think you said it too).
Title: Re: IBKR - Interactive Brokers
Post by: writser on March 20, 2015, 12:32:53 PM
Benhacker: thanks for your considerations. More or less matches with my own thoughts - I haven't pulled the trigger despite my religious zeal for their brokerage accounts.

with $1m+ you are a fool if you park the majority of your assets at a different broker.

Let's not start hurling insults

I only insulted millionaires. They should be able to withstand some criticism from a random troll. I still stand by my statement but to please you I will make two exceptions: you are not a fool if 1) you are not in the slightest bit tech-savvy or 2) you understand that IB is much cheaper but you invest the majority of your assets in markets they do not offer. The third argument, which is: "I understand it is cheaper but I don't like the interface" is just nonsense if you have a 7-digit account. Spend one day getting used to it and you save a ~$1000 / year or more.

Though granted, people also like to pay 1%+ p.a. for the 'right' to invest in an arbitrary horrible mutual fund so perhaps this isn't the largest investment sin possible!
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 20, 2015, 12:36:47 PM
On valuation, depending on your assumptions about how to treat the market making business and corporate overhead, if you assume $600M after-tax 2015 net income from the brokerage business I get it trading at a low-20s forward multiple of brokerage net income. The stock is up more than 40% over the past 6 months, which never feels good, but the valuation still does not seem that expensive for a business with the growth trajectory, runway, and competitive advantages.

My estimate for the brokerage business is 22.6x 2015E. I value MM at book. Expensive but not so outrageous that I would feel the need to hedge with a pair trade.
Title: Re: IBKR - Interactive Brokers
Post by: Packer16 on March 20, 2015, 12:57:33 PM
Packer,

it's true that certain markets IB doesn't support (yet), but their IRAs are fully international, and I can (and have) held currency other than USD in them.

Unless I am reading something wrong on the IB site - "IRA accounts may be opened in any base currency, but when trading in a non-base currency product a currency trade must be executed first as you cannot borrow currencies."

Packer
Title: Re: IBKR - Interactive Brokers
Post by: leeway on March 20, 2015, 01:09:56 PM
I for one likes IB more and more as I started to use it more in the last 1.5 years. I hated the interface initially, but as I am getting more used to it, it starts to make more sense. I think the basic idea is similar to Reuters screens that are used widely on wall street. Maybe just by chance my IB account has performed much better than my TD and Fido accounts, so I have been shifting money over to IB from other accounts (ie doing more that has been working).
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on March 20, 2015, 01:24:42 PM
Packer, yes, you are confused as the wording you are reading.

What IB is saying could be rewritten as this:

***You can't borrow foreign currencies.***

If you have $100k USD in an IRA, and you want to buy XYZ on the Spanish exchange, XYZ trades in Euro, so you can't buy it without Euro.  So at IB (in an IRA) it's two steps, you "buy" Euro vs. USD, and then you buy XYZ (with the Euros).

In a taxable account, IB allows margin, so they can combine the forex / XYZ purchase into an attached order (they can, it's not the default) where the buy / borrow happen simultaneously.  I think the reason they can't attach the forex order in an IRA is that there is no guarantee on pricing since forex and equity moves could theoretically gap between purchases... because IB is not acting as a forex dealer (like Fidelity is... charging 1%), they are just executing forex at the best bid/ask on the OTC market, they can't "guarantee" that a simultaneous dual trade like this would be limited to a specific value.  (This is probably why Fido just says "they can't do this in an IRA" which is total BS, it's just that they can't guarantee you won't use margin if you executed badly in a volatile market... I wonder if Fido let's you trade overseas if your taxable account isn't a margin account?  Anybody know?)

Does that make sense?

Thanks,
Title: Re: IBKR - Interactive Brokers
Post by: thepupil on March 20, 2015, 01:25:17 PM
Packer,

it's true that certain markets IB doesn't support (yet), but their IRAs are fully international, and I can (and have) held currency other than USD in them.

Unless I am reading something wrong on the IB site - "IRA accounts may be opened in any base currency, but when trading in a non-base currency product a currency trade must be executed first as you cannot borrow currencies."

Packer

All that means is that you have to execute the currency trade first before buying the stock. You can hold currencies in the IRA; you just can't hedge out the currency by being short it.

In my taxable account at IB, if I buy a foreign stock, with one click it basically shorts out the currency and buys the stock. It executes the currency trade using a normal bid-ask spread which for most currencies is measured in pips; they don't not rape you by charging you 1% like Fido. In an IRA you just have to swap into currency first and then you buy the stock with that currency. You wear the currency risk (unless you do what I do and short the corresponding amount of currency in the taxable account).

My dad has Fido. I have IB. On the same trade we did recently, he underperformed by several percentage points since he had to got jammed by Fido's currency bid offer through which you can fit a double wide. The difference amounted to about $2K. That's a lot of monthly minimums.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 20, 2015, 01:26:37 PM
"I understand it is cheaper but I don't like the interface" is just nonsense if you have a 7-digit account. Spend one day getting used to it and you save a ~$1000 / year or more.

This is not true. Productivity loss may cost more than savings. You also just picked $1000 number out of thin air.

Peace
Title: Re: IBKR - Interactive Brokers
Post by: oddballstocks on March 20, 2015, 01:42:26 PM
Packer, yes, you are confused as the wording you are reading.

What IB is saying could be rewritten as this:

***You can't borrow foreign currencies.***

If you have $100k USD in an IRA, and you want to buy XYZ on the Spanish exchange, XYZ trades in Euro, so you can't buy it without Euro.  So at IB (in an IRA) it's two steps, you "buy" Euro vs. USD, and then you buy XYZ (with the Euros).

In a taxable account, IB allows margin, so they can combine the forex / XYZ purchase into an attached order (they can, it's not the default) where the buy / borrow happen simultaneously.  I think the reason they can't attach the forex order in an IRA is that there is no guarantee on pricing since forex and equity moves could theoretically gap between purchases... because IB is not acting as a forex dealer (like Fidelity is... charging 1%), they are just executing forex at the best bid/ask on the OTC market, they can't "guarantee" that a simultaneous dual trade like this would be limited to a specific value.  (This is probably why Fido just says "they can't do this in an IRA" which is total BS, it's just that they can't guarantee you won't use margin if you executed badly in a volatile market... I wonder if Fido let's you trade overseas if your taxable account isn't a margin account?  Anybody know?)

Does that make sense?

Thanks,

I don't have margin and purchase foreign stocks at Fidelity.  I have also purchased foreign stocks in a Roth at Fidelity.  I had to call to execute the order but it worked out fine.  Broker executed orders cost more but if you call they can execute almost anything on the phone.  I was told I could trade anywhere in the world except Africa (South Africa excluded) through the phone.  They first look for a US market maker with the foreign stock then go directly to the foreign market makers.  At one point I called about a Danish stock in the morning, maybe 8am.  While I was on the call they pulled the ask from the Danish market maker directly.  They gave me a good quote although I ultimately never executed.

Fidelity claims they can't execute foreign trades on a foreign exchange for amounts less than $50k, but that's not true.  They will execute orders for $5k or less if you ask.  The $50k is some boilerplate language they must need to read to clients on the phone.

Simply calling the international desk on a few occasions has been very instructional.  I get the feeling these guys are bored.  They'll do a lot of digging for you if asked.  At one point I called about a stock and mentioned that IB could do the trade and the broker was doing backflips to keep me happy.

This is anecdotal but when Fidelity came out with their international platform they had a limited market offering.  I kept emailing them with additional markets I wanted to see supported and in v2.0 of their international offering everything I had requested was available.  I don't know if this is coincidence or not, just an anecdotal story.

Compared to Europeans I think we have it great on commissions!
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 20, 2015, 02:05:59 PM
I wonder if Fido let's you trade overseas if your taxable account isn't a margin account?  Anybody know?

Yes, they do.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on March 20, 2015, 02:13:50 PM
Thanks for the additional color on Fido!
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on March 27, 2015, 10:57:28 AM
http://alphavulture.com/2015/03/27/interactive-brokers-as-a-garp-investment/
Title: Re: IBKR - Interactive Brokers
Post by: merkhet on May 30, 2015, 08:51:04 AM
I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.
Title: Re: IBKR - Interactive Brokers
Post by: frommi on May 30, 2015, 09:18:53 AM
I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

He probably added the day in january when the swiss central bank depegged CHF from the €. That was at 30% lower prices and at the moment the business is growing faster than 10%.
Title: Re: IBKR - Interactive Brokers
Post by: merkhet on May 30, 2015, 09:57:15 AM
I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

He probably added the day in january when the swiss central bank depegged CHF from the €. That was at 30% lower prices and at the moment the business is growing faster than 10%.

Ah, that would make sense.

As far as I can tell, the account adds are increasing greater than 10% but the revenue is not necessarily growing at greater than 10% -- but I could be wrong...
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on May 30, 2015, 10:50:16 AM
I can't figure out why IBKR is attractive at this valuation. It's clearly a good business, but the valuation is sky high. Curious to see if anyone else has a variant view here. (Clearly, Mecham likes it since he added in Q1.)

Are people just assuming a significantly higher revenue growth than me? It doesn't seem that great of an investment assuming a 10% growth rate in revenues.

He probably added the day in january when the swiss central bank depegged CHF from the €. That was at 30% lower prices and at the moment the business is growing faster than 10%.
But he initiated his position before that - in Q4. Where it wasn't "cheap" either. I've been wondering what he sees as well.
Title: Re: IBKR - Interactive Brokers
Post by: frommi on May 30, 2015, 10:58:23 AM
Ah, that would make sense.

As far as I can tell, the account adds are increasing greater than 10% but the revenue is not necessarily growing at greater than 10% -- but I could be wrong...

Revenue not, but profits are growing a lot faster because of the operating leverage. I think in the VIC writeup fair value was mentioned to be around 40-45$.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on May 30, 2015, 12:22:21 PM
I calculate 25x PE and 15% EPS growth for the broker business. Due to operating leverage, they should have 10+ years of above average EPS growth. Current price also assumes that interest rates will rise, which will raise margin rates. Seems like a steal compared to Schwab (which is also held by value investors).
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on May 30, 2015, 12:25:54 PM
The other nice thing about the business is that it is somewhat counter-cyclical. Volatility helps both the market maker and broker business. Current earnings are low due to low volatility, low trading volumes, and low interest rates.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on May 30, 2015, 12:46:45 PM
The other nice thing about the business is that it is somewhat counter-cyclical. Volatility helps both the market maker and broker business. Current earnings are low due to low volatility, low trading volumes, and low interest rates.
I'm not quite sure why people think higher interest rates will be good? Almost (if not all?) of the rates they charge are based on benchmark rates plus a fixed percentage. Charging BM + 1,5% actually seems to be a better deal when rates are low since the 1.5% will be a larger part of the overall rate relatively speaking.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on May 30, 2015, 01:17:31 PM
Deposits are zero bound so the initial rate rise will increase the spread between deposits and margin rates. The impact will be muted once they start paying for deposits.
Title: Re: IBKR - Interactive Brokers
Post by: Lowlight on May 30, 2015, 08:40:36 PM
I own IBKR shares and was a buyer in 2015 as well.  While I won't say they are categorically cheap, I do think the company is currently undervalued by the market.  I show the brokerage division doing about $700 million in 2015 EBT given current run rates (this excludes the loss due to the Swiss franc).  If you assume a 25% tax-rate, you get NI of $525 million for the brokerage business.  At 25x earnings (significantly less than SCHW trades for), the brokerage business is worth $32.40/share.  The market maker division isn't easy to value so I assume they should be valued around $1.2 billion (roughly book value) or $3/share.  I do provide some value for the excess capital but assume that it isn't all available to be paid out as a dividend.  Therefore, I use $2/share.  This gets me to a value for the existing assets of $37.40 or ~4% higher than the current stock price.  Obviously no one is writing home to tell their family about this price discrepancy.

I believe there are three other elements attracting investors to the name. 
1) Margin expansion - The brokerage business runs at 60% operating margins but these should expand another 10% as revenues grow due to operating leverage.  Roughly $1.2 billion in run-rate revenues will produce another $120 million in pre-tax income if margins expand 10%.  At a 10x multiple this is another $3/share.
2) Pricing Power - IBKR is obviously the low cost leader.  The company has the capacity to raise the cost to use their brokerage platform at some point in time.  Today they are focused on growing the number of users and the products they offer to these users (I am perfectly happy with this focus).  At some point they will have a density and product offering large enough that they (or whomever they sell to) can price services significantly higher.  While they aren't really comps, think about the pricing power of Bloomberg and Intex.  Both currently exploit this pricing power to a meaningful degree and I think IBKR is building something (with admittedly much lower pricing power) that has value to a growing niche market throughout the world.  But admittedly, I can't begin to place a value on this pricing power.
3) Margin Costs - IBKR will benefit from rising rates as their customers are consistent users of margin and borrow on floating rates.  The spread over LIBOR IBKR charges could probably be increased fairly significantly without causing the typical margin account to leave.  I estimate they could raise the spread another 100bps without losing many accounts.  At $20 billion in margin balances, this equates to a $200 million pre-tax boost worth about $5/share.  - I know this is a form of pricing power, but it is one for which I can value...

Even with these other elements, to get to a 20%+ IRR you need to envision 1) a sale in the near term that unlocks value (highly unlikely in my opinion) or 2) high growth rates continuing.  With the growth in accounts in Asia and IBKR's cost structure being so much lower than competitors in China, I think it is fair to assume high growth rates continuing.  At 25x earnings for the brokerage division, I am assuming fairly healthy growth rates myself.  But I can see the case for an even higher multiple of earnings than that.  I think Peterffy expects brokerage to do $1 billion in EBT in 2016.  This implies ~20% growth if you assume no margin expansion. 

While I am not going to back the truck up at today's price, it wouldn't surprise me if I come to regret this 3-5 years down the road.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on May 31, 2015, 08:40:36 AM
Thanks for the insight. I like the business, business model and management after doing some more reading, but I'm not so fond of the valuation. Will keep following. It might be a positive if company structure was simpler and there was more float but on the other hand exactly that might be one more reason to get in.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on May 31, 2015, 08:51:33 AM
I think IBKR is probably fairly valued under a reasonable analysis, but I think I can imagine several scenarios where they create new revenue streams that increase their value a lot.

1) maybe market maker stops sucking (I know I know... but maybe)
2) Check the last con call... Covestor acquisition looks real interesting...
3) Scottrade deal looks kind of game changing to me (not necessarily for immediate $$$, but what it represents)

At the end of the day, it's a well run company, that looks (as I've said before) to have a pretty unassailable position.  From that safe base, the company is leveraging itself into new areas which could grow for a long time. 

Future areas that may increase revenue - speculating on potential changes:
1) Bonds moving from dealer traded to exchange traded - I think this could be huge for IB
2) exchange traded IR Swaps, CDS, etc
3) ???

It's a great company, run by a smart operator with a history of absolutely killing it with capital allocation.  I wouldn't *bet* that amazing stuff will keep coming, but I wouldn't bet against it...

Ben - Still long and strong...
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on May 31, 2015, 09:03:27 AM
Their numbers, prices and deal with Scottrade does indicate that their brokerage business is superior but can anyone explain in plain English why and what stops other from copying? I understand the massive operating leverage but not how they got there.
Title: Re: IBKR - Interactive Brokers
Post by: 60°North Investments on May 31, 2015, 09:29:42 AM
Their numbers, prices and deal with Scottrade does indicate that their brokerage business is superior but can anyone explain in plain English why and what stops other from copying? I understand the massive operating leverage but not how they got there.

From what I understand, it's about the software/infrastructure that they've built over the years. I'm not sure at all whether it's doable to copy and/or whether some comp is seriously considering that option or not. Having the whole system online gives them a cost advantage that would be very hard/expensive to replicate for comps that already have a large offline base. Still, how likely is it that this advantage will be threatened? I honestly don't know. It seems quite telling though that Scottrade wanted to use their platform.
Title: Re: IBKR - Interactive Brokers
Post by: Lowlight on May 31, 2015, 09:37:52 AM
Their numbers, prices and deal with Scottrade does indicate that their brokerage business is superior but can anyone explain in plain English why and what stops other from copying? I understand the massive operating leverage but not how they got there.

For me it comes down to the cost and channel used to execute trades. At other online discount brokerages the order flow is sold and therefore price execution is worse.  The online brokers don't mind because they sell the order flow and make money on the order, not just on the discrepancy between the cost for them to execute and what they charge their clients. Their models are designed to attract retail clients who don't calculate the cost of executing an order for $9.99 (and usually don't think about what kind of price execution they received).  IBKR's clients are very aware of their total cost to execute and therefore seek out the lowest cost provider.  They trade more frequently and price execution is often critical to success.  Additionally, IBKR's customers need little in the way of back office support on a day-to-day basis so they cost far less than the retail accounts at other brokerage firms. 

IBKR designed and built their infrastructure out of the needs of the market maker business.  So the platform seeks the probabalisticly lowest cost avenue to fill an order.  This therefore nearly ensures their clients better execution than elsewhere (at least against order flow being sold).  I think the software and systems they provide are also miles ahead of anyone else's.  It is possible that someone could build a platform that completes with IBKRs but it would require a new entrant to do so.  I just don't think the online brokers have the ability to spend what would be necessary to compete.  And since IBKR isn't going after their customers, it seems more logical that they might do what Scottrade did and just route their active trading account orders through IBKR. It allows Scottrade to retain accounts while cutting down their cost to service these trades.

Also as someone who manages a bond portfolio in my day job I can attest to the idea of bonds moving onto an electronic platform being a real concern for brokers.  There are many things occurring in fixed income that make me think this is likely to happen at some point.  Prices are far easier to discover now than just a few years back and consolidation is occurring to try and combat this. 

I don't that was all in plain English but hope it is somewhat helpful.
Title: Re: IBKR - Interactive Brokers
Post by: Schwab711 on May 31, 2015, 04:04:50 PM
In less than 12 months IBKR has increased their US FX Broker market share by >3% from 7% to 10.2%.

http://www.financemagnates.com/forex/brokers/cftc-fcm-data-us-retail-forex-funds-drop-2-august-interactive-brokers-steady/
http://www.financemagnates.com/forex/brokers/interactive-brokers-retail-fx-funds-spike-11-8-in-march-cftc-data-shows/

Also, they were rated the best online broker in 2014 by Barron's:
http://online.barrons.com/articles/SB50001424053111904628504579433251867361162


What is the best estimate of their US equity broker market share? Can IBKR realistically realize 20% compound growth in earnings over a 10-20 year period? What is the implied 2025 or 2030 market share of the US equity/FX broker markets? IBKR is pretty close to the GEICO Warren Buffett described as it is the low-cost provider in a commoditized, large market and their cost advantage is significant. However, 25x takes away too much of the upside in my opinion. You need extremely optimistic expectations to expect returns >10% unless you feel you will get substantially more than 25x at time of sale.

https://docs.google.com/spreadsheets/d/1Vw7vtF-lhbLP3hXqcA9dxJz5i6NQELNu3XBuBismnx0/edit?usp=sharing
Assumptions:
* Price multiple at sale = purchase
* 20% compounded growth in earnings is sustained for 15 years
Title: Re: IBKR - Interactive Brokers
Post by: Lowlight on May 31, 2015, 07:44:55 PM
In less than 12 months IBKR has increased their US FX Broker market share by >3% from 7% to 10.2%.

http://www.financemagnates.com/forex/brokers/cftc-fcm-data-us-retail-forex-funds-drop-2-august-interactive-brokers-steady/
http://www.financemagnates.com/forex/brokers/interactive-brokers-retail-fx-funds-spike-11-8-in-march-cftc-data-shows/

Also, they were rated the best online broker in 2014 by Barron's:
http://online.barrons.com/articles/SB50001424053111904628504579433251867361162


What is the best estimate of their US equity broker market share? Can IBKR realistically realize 20% compound growth in earnings over a 10-20 year period? What is the implied 2025 or 2030 market share of the US equity/FX broker markets? IBKR is pretty close to the GEICO Warren Buffett described as it is the low-cost provider in a commoditized, large market and their cost advantage is significant. However, 25x takes away too much of the upside in my opinion. You need extremely optimistic expectations to expect returns >10% unless you feel you will get substantially more than 25x at time of sale.

https://docs.google.com/spreadsheets/d/1Vw7vtF-lhbLP3hXqcA9dxJz5i6NQELNu3XBuBismnx0/edit?usp=sharing
Assumptions:
* Price multiple at sale = purchase
* 20% compounded growth in earnings is sustained for 15 years

As the people I work with can tell you, I am a little slow at understanding excel files.  And I think I am missing something in the one you provided.  This feels like a stupid question and I will preface it by saying I haven't thought through this enough, but if earnings grow 20% per year and you sell at the same multiple as your purchase, why wouldn't your return be 20%?  For instance, if I buy a company for $20 today ($1 in earnings) and it earns 50% (using to make the math simple) and I sell at a 20x multiple 1 year later, I earn 50% as well ($30 divided by $20 initial price).  I believe the math would keep working the same way years into the future but I am typing on a phone so I'm not going to test it out.

To the point on IBKR, I think you have to take into account the fact that the pie is growing. Market share is one thing if the market size is constant but if the market grows 8-10% a year (given foreign market growth and prospects switching to online prime brokers), IBKR doesn't need to steal all of the business from someone else.  They can steal some and capture the growth in the market itself.  Now, I have no idea what the market growth rate will be but I suspect the pie will be much larger 20 years from now and IBKR will own a significantly larger piece of that pie.

I don't have my notes at hand but will come back to you on IBKR's current market share tomorrow.  Also, I like the GEICO comparison.  I think it is apt in many ways. If memory serves me correctly people didn't think BRK got a steal when they acquired the remaining 50% of GEICO.
Title: Re: IBKR - Interactive Brokers
Post by: Schwab711 on June 01, 2015, 12:09:58 AM
In less than 12 months IBKR has increased their US FX Broker market share by >3% from 7% to 10.2%.

http://www.financemagnates.com/forex/brokers/cftc-fcm-data-us-retail-forex-funds-drop-2-august-interactive-brokers-steady/
http://www.financemagnates.com/forex/brokers/interactive-brokers-retail-fx-funds-spike-11-8-in-march-cftc-data-shows/

Also, they were rated the best online broker in 2014 by Barron's:
http://online.barrons.com/articles/SB50001424053111904628504579433251867361162


What is the best estimate of their US equity broker market share? Can IBKR realistically realize 20% compound growth in earnings over a 10-20 year period? What is the implied 2025 or 2030 market share of the US equity/FX broker markets? IBKR is pretty close to the GEICO Warren Buffett described as it is the low-cost provider in a commoditized, large market and their cost advantage is significant. However, 25x takes away too much of the upside in my opinion. You need extremely optimistic expectations to expect returns >10% unless you feel you will get substantially more than 25x at time of sale.

https://docs.google.com/spreadsheets/d/1Vw7vtF-lhbLP3hXqcA9dxJz5i6NQELNu3XBuBismnx0/edit?usp=sharing
Assumptions:
* Price multiple at sale = purchase
* 20% compounded growth in earnings is sustained for 15 years

As the people I work with can tell you, I am a little slow at understanding excel files.  And I think I am missing something in the one you provided.  This feels like a stupid question and I will preface it by saying I haven't thought through this enough, but if earnings grow 20% per year and you sell at the same multiple as your purchase, why wouldn't your return be 20%?  For instance, if I buy a company for $20 today ($1 in earnings) and it earns 50% (using to make the math simple) and I sell at a 20x multiple 1 year later, I earn 50% as well ($30 divided by $20 initial price).  I believe the math would keep working the same way years into the future but I am typing on a phone so I'm not going to test it out.

To the point on IBKR, I think you have to take into account the fact that the pie is growing. Market share is one thing if the market size is constant but if the market grows 8-10% a year (given foreign market growth and prospects switching to online prime brokers), IBKR doesn't need to steal all of the business from someone else.  They can steal some and capture the growth in the market itself.  Now, I have no idea what the market growth rate will be but I suspect the pie will be much larger 20 years from now and IBKR will own a significantly larger piece of that pie.

I don't have my notes at hand but will come back to you on IBKR's current market share tomorrow.  Also, I like the GEICO comparison.  I think it is apt in many ways. If memory serves me correctly people didn't think BRK got a steal when they acquired the remaining 50% of GEICO.

You are completely right on the first part. My assumptions are wrong and I didn't include terminal growth. Luckily it's worthless despite those mistakes. :)

I was attempting to find the expected returns for a given earnings yield and growth. I still don't have an adequate answer. Maybe a better idea is to calculate expected earnings for various traded vol, margins, and market share inputs to estimate the range of potential earnings power?

Look forward to whatever you have on IBKR market share or other facts. Haven't found anything on equity broker share yet.

As to what stops others from copying IBKR, there's a Buffett MBA talk floating around where Buffett mentions that he estimated it would cost $100b to have KO's market share in the soda industry at the time of his purchase (they had ~$1b in profit at the time). This meant a potential competitor would need $100b in capital just to earn <1% returns (KO is not going to sit idly as you fill every airway with your new soda ads). IBKR is using a business model that is initially capital intensive and heavily reliant on operating leverage/volume. Buffett's KO purchase rationale is not perfect since the broker market is much more complicated than beverages.

Another possible risk for IBKR is that the broker market could fracture over time as competitors become better at identifying their customers and tailoring their prices to dominate these sub-broker markets. Also, is the current record-low market volatility influencing IBKRs recent success since IBKR tailors to large-block trades?
Title: Re: IBKR - Interactive Brokers
Post by: merkhet on June 01, 2015, 09:23:12 AM
I'm reading the most recent conference call, and the Scottrade discussion is very interesting. Peterffy mentions that:

Quote
Our business is growing faster now than it did in the past several years and I believe that this will continue to grow faster.

Why? Let's look at the following developments during the quarter. Scottrade chose to use our platform to service their more sophisticated option trading customers. These are customers who maintain a complex set of option position and want to trade several different series on the same underlying in one order. The broker realized that it's less expensive for them to use our platform than to develop and maintain their own. We maintain each of their customers' accounts separately in the customers' name and they get the same technology as our direct customers get.

Why don’t they worry that their customers will come to us directly? Because our commissions are based on volume and we charge Scottrade as though their customers came to us from one account. This setup allows them or for that matter any of our introducing brokers to charge their customers the same lower rate we will charge them if they came to us directly. And yet keep the bulk of that commission for themselves and pay us less than it would cost them to maintain their own technology around those accounts.

If the broker also provides live contact and assistance as Scottrade does so well, they may even charge a service premium that many customers are happy to pay. This is a milestone event for us because it is the first big household name to decide to use our technology. The fact that Scottrade chose us to provide this service is a vote of confidence in our platform that we are proud of. We think it is an example that other brokers will follow and that eventually we will become the industry utility providing exceptional technology to brokers and advisors at a very low cost cheaper and better that they could do it themselves.

It's like they're changing the front-end brokers over to an MVNO system. My only problem is that I have no idea how to handicap the additional/accelerated growth.
Title: Re: IBKR - Interactive Brokers
Post by: Lowlight on June 01, 2015, 07:37:30 PM
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. 
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on June 02, 2015, 07:14:01 AM
7) Long runway for profitable growth, 8) significant operating leverage.

To me this seems similar to Mastercard several years ago. Not cheap but still a good investment.
Title: Re: IBKR - Interactive Brokers
Post by: rpadebet on June 02, 2015, 08:48:38 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: TwoCitiesCapital on June 03, 2015, 01:02:26 PM
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?
Title: Re: IBKR - Interactive Brokers
Post by: namo on June 03, 2015, 04:54:33 PM
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.
Title: Re: IBKR - Interactive Brokers
Post by: constructive on June 03, 2015, 06:12:31 PM
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).
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on June 03, 2015, 10:23:03 PM
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.
Title: Re: IBKR - Interactive Brokers
Post by: wachtwoord on June 04, 2015, 12:59:33 AM
Tiered costs are excluding all sorts of additional costs:

Quote
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
Follow us: @Investopedia on Twitter
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on June 04, 2015, 01:51:16 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: wachtwoord on June 04, 2015, 02:36:49 AM
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?
Title: Re: IBKR - Interactive Brokers
Post by: writser on June 04, 2015, 02:40:39 AM
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?

https://www.interactivebrokers.com/en/index.php?f=commission&p=stocks2

Maybe you should do some research first. They literally created this page to answer your questions. First hit on Google for 'IB tiered pricing'.
Title: Re: IBKR - Interactive Brokers
Post by: wachtwoord on June 04, 2015, 05:09:37 AM
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?

https://www.interactivebrokers.com/en/index.php?f=commission&p=stocks2

Maybe you should do some research first. They literally created this page to answer your questions. First hit on Google for 'IB tiered pricing'.

Of course I read that. If you check the (sourced) quote in my previous post you'll find the result a few lines down on the same Google query.

It didnt answer my question however. I think Hielko forgot his additional costs over the 70 cents in the tiered model.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on June 04, 2015, 05:12:56 AM
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?

https://www.interactivebrokers.com/en/index.php?f=commission&p=stocks2

Maybe you should do some research first. They literally created this page to answer your questions. First hit on Google for 'IB tiered pricing'.

Of course I read that. If you check the (sourced) quote in my previous post you'll find the result a few lines down on the same Google query.

It didnt answer my question however. I think Hielko forgot his additional costs over the 70 cents in the tiered model.
I didn't.
Title: Re: IBKR - Interactive Brokers
Post by: wachtwoord on June 04, 2015, 05:17:00 AM
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?

https://www.interactivebrokers.com/en/index.php?f=commission&p=stocks2

Maybe you should do some research first. They literally created this page to answer your questions. First hit on Google for 'IB tiered pricing'.

Of course I read that. If you check the (sourced) quote in my previous post you'll find the result a few lines down on the same Google query.

It didnt answer my question however. I think Hielko forgot his additional costs over the 70 cents in the tiered model.
I didn't.

Cool thanks! Then I probably need to change (if the additional routing costs and such are indeed 0)
Title: Re: IBKR - Interactive Brokers
Post by: writser on June 04, 2015, 05:54:16 AM
To answer your question: the clearing & transaction fees are orders of magnitudes smaller than the exchange fees so these are not very relevant. VAT treatment is the same for both fixed and tiered pricing so in practice you only have to take into account the exchange fees. If you mostly provide liquidity you are definitely cheaper off with the tiered structure. So yes, you should probably switch unless you prefer the transparency of the fixed option. Again, all this information was on the IB tiered pricing information page.

I'm wondering why you even bother to give your own opinion about this trade-off because it is obvious that you A) don't understand the tiered pricing structure and B) have never tried it.
Title: Re: IBKR - Interactive Brokers
Post by: Ross812 on June 04, 2015, 06:09:05 AM
I rarely go over the $10 minimum monthly charge anyway... I may switch to tiered pricing for a few months and compare the cost differences. Right now I stick with 200 share orders for $1 and make ten or less trades a month...
Title: Re: IBKR - Interactive Brokers
Post by: rpadebet on June 04, 2015, 06:55:38 AM
I rarely go over the $10 minimum monthly charge anyway... I may switch to tiered pricing for a few months and compare the cost differences. Right now I stick with 200 share orders for $1 and make ten or less trades a month...

They have taken out the 10$ minimum for portfolios >$100K. So in that case tiered pricing works out better if u trade less frequently like few times a month.
Title: Re: IBKR - Interactive Brokers
Post by: Ross812 on June 04, 2015, 07:47:22 AM
I rarely go over the $10 minimum monthly charge anyway... I may switch to tiered pricing for a few months and compare the cost differences. Right now I stick with 200 share orders for $1 and make ten or less trades a month...

They have taken out the 10$ minimum for portfolios >$100K. So in that case tiered pricing works out better if u trade less frequently like few times a month.

Nice. I didn't notice. One of my on gripes about IB compared to other brokers is how all account systems are separated. Outside of running my yearly portfolio analysis I don't get into the 'Account Management' portal much as contributions are automatic. Is there a ledger of account actions on the 'Web Trader' portal or smartphone app? I used to use TWS for option trading but now 'web trader' is sufficient for what i need as far as order complexity. I wish the securities lending program was transparent within the trading portals as well. Accrued Interest is shown but I have to run a report to see what is currently being lent and at what rate.     
Title: Re: IBKR - Interactive Brokers
Post by: rpadebet on June 04, 2015, 07:56:51 AM
I rarely go over the $10 minimum monthly charge anyway... I may switch to tiered pricing for a few months and compare the cost differences. Right now I stick with 200 share orders for $1 and make ten or less trades a month...

They have taken out the 10$ minimum for portfolios >$100K. So in that case tiered pricing works out better if u trade less frequently like few times a month.

Nice. I didn't notice. One of my on gripes about IB compared to other brokers is how all account systems are separated. Outside of running my yearly portfolio analysis I don't get into the 'Account Management' portal much as contributions are automatic. Is there a ledger of account actions on the 'Web Trader' portal or smartphone app? I used to use TWS for option trading but now 'web trader' is sufficient for what i need as far as order complexity. I wish the securities lending program was transparent within the trading portals as well. Accrued Interest is shown but I have to run a report to see what is currently being lent and at what rate.   


I have not done any securities lending yet, but as i see in the full TWS app you can configure to see live rebate rates. Not sure if you are referring to that. And as far as the Account management section goes, can't you setup automatic reports to be generated and emailed to you each day, so that you can refer to it directly? I do that and rarely log on to either TWS or account management unless i need to trade. The mobile TWS app is also very nice. paired with the SecurID app, I don't even have to use the cumbersome security card thingy. Its pretty automatic and you can enter read only mode if thats what you want. They have a in built link to mobile account management as well, although the reporting there is pretty basic.
Title: Re: IBKR - Interactive Brokers
Post by: wachtwoord on June 04, 2015, 08:20:06 AM

I'm wondering why you even bother to give your own opinion about this trade-off because it is obvious that you A) don't understand the tiered pricing structure and B) have never tried it.

See my first post in this topic. Tiered is a fixed plus a variable amount where the variable amount is impossible to estimate. Because the amount of trades I make is low I guessed that fixed would be better for me but I still have no idea how you are even estimating the variable costs per trade of the tiered system.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on June 04, 2015, 08:43:22 AM

I'm wondering why you even bother to give your own opinion about this trade-off because it is obvious that you A) don't understand the tiered pricing structure and B) have never tried it.

See my first post in this topic. Tiered is a fixed plus a variable amount where the variable amount is impossible to estimate. Because the amount of trades I make is low I guessed that fixed would be better for me but I still have no idea how you are even estimating the variable costs per trade of the tiered system.
You can take the worst case scenario when estimating the variable fees, which would be the case when you take liquidity at the most expensive exchange. When you switch to variable rate you see an estimated fee range when you try to submit an order to IB:

For example:

buying 100 BRK shares @ 141 would cost between 0.01 and 0.67 USD
buying 100 CNRD shares @ 31 would cost between -0.63 and 0.67 USD
Title: Re: IBKR - Interactive Brokers
Post by: writser on June 04, 2015, 08:54:31 AM
Quote
See my first post in this topic. Tiered is a fixed plus a variable amount where the variable amount is impossible to estimate. Because the amount of trades I make is low I guessed that fixed would be better for me but I still have no idea how you are even estimating the variable costs per trade of the tiered system.

First of all, that just not true. You can determine variable costs exactly using the information in the IB pricing page. And second, as opposed to you I don't make random assumptions, I actually use the tiered structure. A few posts before I gave a detailed breakdown of variable costs and explained to you why they are largely irrelevant. I also explained to you that in practice the only relevant variable costs are the per-exchange liquidity charges / rebates and you can look these up. A couple of examples:

Quote
Remove liquidity @ NYSE: .0035 (tiered level 1 fee) + remove liquidity NYSE fee: .0027 (look up on website) + clearing fee: .0002 (look up on website) = .0064 cent / share. The FINRA fees etc. add up to ~ .0001 cent / share (again, look up on website). I just bought 100 lots of an unnamed stock on NYSE today and that cost me 64 cent. Exactly the calculated amount.

Add liquidity @ NASDAQ: .0035 (tiered level 1 fee) - add liquidity NASDAQ rebate: .0021 (look up on website) + clearing fee: .0002 (again, look up on website) = .0016 cent / share. Today I bought 500 shares MCGC (free idea (http://seekingalpha.com/article/3191476-accretive-capital-partners-believes-hc2-holdings-offer-for-mcg-capital-may-be-superior-than-pennantparks)) and it cost me exactly 80 ct. Again, exactly the calculated amount

Selling is slightly more expensive because of extra transaction fees (again, as is mentioned on the IB pricing info page).

Multiple people here have been using the tiered system and have been clearly explaining that tiered pricing would be cheaper for you but you are too stubborn to do the actual calculations and keep repeating claims about 'unknown hidden costs' while you have never even tried it. I'll stop trying to convince you. Just stick to the fixed pricing - much cheaper. ::)
Title: Re: IBKR - Interactive Brokers
Post by: Txvestor on June 04, 2015, 09:48:52 AM
Can any of you speak to the benefits other than trading costs with interactive brokers. I currently am with a brokerage that offers me $0 trades but the other charges and fees have been adding up to around $200 a year. I am also not real happy with their order execution as I sometimes see trades execute at prices just below or above my limit orders.
Finally there is no option to lend shorts etc. so thinking about making a move.
Title: Re: IBKR - Interactive Brokers
Post by: wachtwoord on June 04, 2015, 09:55:26 AM
Multiple people here have been using the tiered system and have been clearly explaining that tiered pricing would be cheaper for you but you are too stubborn to do the actual calculations and keep repeating claims about 'unknown hidden costs' while you have never even tried it. I'll stop trying to convince you. Just stick to the fixed pricing - much cheaper. ::)

You should have started with reading my posts. Since Hielko replied I have assumed his experience is correct and waited until I get home to figure out how to switch. Thanks Hielko!

The rest of the posts I've just been defending myself from your unfunded attacks. In the first post you make here you already started, get out at the wrong side of the bed much. I actually started to post here to help the people investigating the stock because I looked up how the tiered approach works and I thought others could benefit (I also explicitly sourced my finding so you can decide whether my source is trustworthy). After that I just asked how people are sure how much the additional costs are as they are described quite imprecisely by IB, and in general I would not think it would make sense for the tiered approach to be beneficial to me (because of my low volume) without looking it up. I mean why does the fixed approach even exist and who would use it. Of course I didn't try out the tiered approach yet as I believed it would be more expensive. I think all I asked were valid questions and you got your panties in a bunch.

Thanks again Hielko. I'm going to go look up how to switch :)
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on June 04, 2015, 10:05:10 AM
Quote
Can any of you speak to the benefits other than trading costs with interactive brokers. I currently am with a brokerage that offers me $0 trades but the other charges and fees have been adding up to around $200 a year. I am also not real happy with their order execution as I sometimes see trades execute at prices just below or above my limit orders.
Finally there is no option to lend shorts etc. so thinking about making a move.

I think this has been covered a few times over the years, but I'll reiterate my "pitch" for IB at the risk of being branded a zealot. :)

Cons:
1) Generally mediocre web interface for basic function (reports are not simple, webtrader is the web equivalent to Fido or Schwab, but it's not great).
2) Customer support while improving is much worse than other brokers.
3) Minimum account fees need to be factored in to any savings you expect ($20 / month for a <$10k account, $10 / month for a 10k - 100k account, $0 above.... for any IRA, add on an additional $7.5 / quarter)
4) For Foreign withholding of dividends, at least for US customers, IB withholds on IRAs in addition to taxable accounts.  This should be fixed some day, but basically is annoying and either you have to increase audit risk on your taxes by reclaiming the dividends, or writing it off.
5) Most don't like two factor login (edit)
6) No free real time quotes (edit)

Pros - Individual Investor:
1) Cost - Margin rates
2) Cost - commissions (both stock, option, currency, and future commissions are in the vast majority of real world experience lower.  You can do the math on their fees + commissions to see if you are in the vast majority I describe above)
3) Cost - Corporate actions (no BS corporate re-org fees)
4) Cost - Ability to lend out shares and capture part of borrow fees
5) Cost Transparency - Ability to see exact borrow rate costs on short sales in real time
6) Access - international and product access is *almost* unparalleled (exceptions are South African equities, Korean equities, and a few others.  I would bet money this will be solved in 2 years).
7) Features - For those wishing to do advanced stuff, IB is pretty amazing.  They have access to algos, automated trading tools, a probability tool for future stock price distribution at certain dates (based on option markets) and tools to tailor strategies to exploit a divergent view.
8) History of lowering costs to customers and being rationale about pricing - removed $10 / month fee for $100k accounts for example... and in general is just a cost plus model which I think is more fair.
9) I continue to get what I consider excellent fills at IB, I frequently get executed better than my limit and ask/bid.  I can't remember the last time something traded through my price and I didn't get filled.

Pros - Institutional Investor:
1) No minimums
2) Fully electronic sign up for clients which is pretty simple
3) Access to IB marketplace (maybe a pro for retail as well)
4) Block trading, rebalance tool, and other services like billing, etc seem well designed and simple from my experience.
5) Ability to have a trade-away account if you run a fund

Hope that helps.

Ben

Title: Re: IBKR - Interactive Brokers
Post by: tombgrt on June 04, 2015, 10:29:03 AM
6) Access - international and product access is *almost* unparalleled (exceptions are South African equities, Korean equities, and a few others.  I would bet money this will be solved in 2 years).



This would be so sweet given the relative cheapness of those markets. I'm a customer through Lynx in Belgium (they use the ib platform) and am very happy, no other broker available comes close here in Belgium imo. Service (both ib and Lynx) is great as well which is very important to me.

Also agree on the fills btw which is extremely important when buying those more illiquid and smaller stocks. A bad or missed fill could cost you quite a bit more than a few trades.
Title: Re: IBKR - Interactive Brokers
Post by: wachtwoord on June 04, 2015, 10:34:24 AM
6) Access - international and product access is *almost* unparalleled (exceptions are South African equities, Korean equities, and a few others.  I would bet money this will be solved in 2 years).



This would be so sweet given the relative cheapness of those markets. I'm a customer through Lynx in Belgium (they use the ib platform) and am very happy, no other broker available comes close here in Belgium imo. Service (both ib and Lynx) is great as well which is very important to me.

Also agree on the fills btw which is extremely important when buying those more illiquid and smaller stocks. A bad or missed fill could cost you quite a bit more than a few trades.

Why don't you use IB directly? It's cheaper.
Title: Re: IBKR - Interactive Brokers
Post by: undervalued on June 04, 2015, 10:37:51 AM
I just moved to IBKR. Do you guys subscribe to real time quotes? I mainly invest in US companies but I don't want to pay a $10 monthly fee just to get the real time of stock prices. This is going to make it more expensive than other brokerages. I rarely trades.. Probably 10-20 trades per year.
Title: Re: IBKR - Interactive Brokers
Post by: wachtwoord on June 04, 2015, 10:42:18 AM
I just moved to IBKR. Do you guys subscribe to real time quotes? I mainly invest in US companies but I don't want to pay a $10 monthly fee just to get the real time of stock prices. This is going to make it more expensive than other brokerages. I rarely trades.. Probably 10-20 trades per year.

Yahoo finance has real-time quotes, I use that.
Title: Re: IBKR - Interactive Brokers
Post by: tombgrt on June 04, 2015, 10:45:26 AM
6) Access - international and product access is *almost* unparalleled (exceptions are South African equities, Korean equities, and a few others.  I would bet money this will be solved in 2 years).



This would be so sweet given the relative cheapness of those markets. I'm a customer through Lynx in Belgium (they use the ib platform) and am very happy, no other broker available comes close here in Belgium imo. Service (both ib and Lynx) is great as well which is very important to me.

Also agree on the fills btw which is extremely important when buying those more illiquid and smaller stocks. A bad or missed fill could cost you quite a bit more than a few trades.

Why don't you use IB directly? It's cheaper.

I probably should but haven't bothered yet so far. I got with Lynx through an acquaintance and am happy with their service so I stuck with them. I don't trade often so difference wouldn't be that big. One difference I've heard is that IB doesn't charge the Belgian stock tax (0.25%) and Lynx does. So in theory you could evade the tax I guess.
Also, if anything ever happened to me, I want to make it easier on my family to contact my broker and get things in order. Their HQ is basically located 2km from my home.  :)
Title: Re: IBKR - Interactive Brokers
Post by: rpadebet on June 04, 2015, 10:51:52 AM
I just moved to IBKR. Do you guys subscribe to real time quotes? I mainly invest in US companies but I don't want to pay a $10 monthly fee just to get the real time of stock prices. This is going to make it more expensive than other brokerages. I rarely trades.. Probably 10-20 trades per year.

I use my etrade account to get my free real time quotes when I want to trade. I have a ira there. I rarely trade and I am quite happy with 15 min delayed data on my portfolio at other times.

Btw if you don't mind delayed data on options and otc stocks most of which rarely trade anyway, you can build ala carte real time subscription for only US stocks around 4-5 bucks a month. Its cheaper than the 10$ option, but I don't know why you would need it when there are plenty of free options.
Title: Re: IBKR - Interactive Brokers
Post by: rmitz on June 04, 2015, 01:16:41 PM
I just moved to IBKR. Do you guys subscribe to real time quotes? I mainly invest in US companies but I don't want to pay a $10 monthly fee just to get the real time of stock prices. This is going to make it more expensive than other brokerages. I rarely trades.. Probably 10-20 trades per year.

I don’t.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on June 04, 2015, 02:48:39 PM
I just moved to IBKR. Do you guys subscribe to real time quotes? I mainly invest in US companies but I don't want to pay a $10 monthly fee just to get the real time of stock prices. This is going to make it more expensive than other brokerages. I rarely trades.. Probably 10-20 trades per year.
I do, but if you generate enough commissions ($30/month or something like that) you get the value bundle for free. I also pay for the NYSE, NASDAQ and AMEX quotes, but that's mainly because I'm too lazy to look up real-time quotes at another broker since  I do almost all my trading at IB and it's just a couple of dollars a month.
Title: Re: IBKR - Interactive Brokers
Post by: marazul on October 14, 2015, 09:06:02 AM
This might be pretty obvious to some, but how does IBKR fund their margin loans? Thanks for the helpful information.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on October 14, 2015, 10:19:08 AM
CEO recently asked why a lot of IBKR investors use another broker; having tried to sign up twice, I think I know why. It's such a fucking hassle compared to my other brokers. They've returned three different proofs of address with a generic comment. Oh well - guess it means there are some low hanging fruits.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on October 14, 2015, 11:30:40 AM
CEO recently asked why a lot of IBKR investors use another broker;

Horrible website, interface, reports.

Also with Fido I know that I only need to call and any complex issue will be cleared. I haven't had an issue with Fido phone (or Internet chat) support yet (fingers crossed). Even if they can't resolve it immediately, they dig until they can. Also Fido has solo 401(k) support.

This for me is worth a lot.

Ah, sorry, I am not IBKR investor. :)
Title: Re: IBKR - Interactive Brokers
Post by: oddballstocks on October 14, 2015, 11:38:10 AM
CEO recently asked why a lot of IBKR investors use another broker; having tried to sign up twice, I think I know why. It's such a fucking hassle compared to my other brokers. They've returned three different proofs of address with a generic comment. Oh well - guess it means there are some low hanging fruits.

People on here LOVE IBKR, so I decided today to try to roll over my wife's IRA from Vanguard.  The process restarted on me once and is extremely confusing.  I'm trying to get my money to them and they keep putting up blockades to do so.

I just quit, I spent 30m trying to open the account and finally gave up.
Title: Re: IBKR - Interactive Brokers
Post by: doughishere on October 14, 2015, 12:20:39 PM
CEO recently asked why a lot of IBKR investors use another broker; having tried to sign up twice, I think I know why. It's such a fucking hassle compared to my other brokers. They've returned three different proofs of address with a generic comment. Oh well - guess it means there are some low hanging fruits.

People on here LOVE IBKR, so I decided today to try to roll over my wife's IRA from Vanguard.  The process restarted on me once and is extremely confusing.  I'm trying to get my money to them and they keep putting up blockades to do so.

I just quit, I spent 30m trying to open the account and finally gave up.


#FirstWorldProblems
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on October 14, 2015, 12:47:34 PM
#FirstWorldProblems

Perhaps. But ultimately I pay Fido <0.5% of my assets for all the services they provide. Sure, I might pay IBKR only 0.1%, but it's not worth the headache for me. (The percentages are somewhat crude estimates. They are likely lower for Fido and possibly for IBKR).
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 14, 2015, 12:58:52 PM
#FirstWorldProblems

Perhaps. But ultimately I pay Fido <0.5% of my assets for all the services they provide. Sure, I might pay IBKR only 0.1%, but it's not worth the headache for me. (The percentages are somewhat crude estimates. They are likely lower for Fido and possibly for IBKR).

One way to look at it: How long do you plan to invest and how much of a cumulative difference does that delta adds up to compounded over that period?
Title: Re: IBKR - Interactive Brokers
Post by: pocoapoco on October 14, 2015, 01:06:40 PM
CEO recently asked why a lot of IBKR investors use another broker

Buy 5000 shares of GM (where price execution will be equivalent due to high liquidity).

IB :  $25
Etrade:  $9
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on October 14, 2015, 01:07:06 PM
I actually think the sign-up process for an IBKR account is extremely user-friendly and easy. You can do everything online, and it takes just a few minutes. But I only have experience with setting up a regular new account, perhaps an IRA is more difficult?

With other brokers you often (read: almost always) have to fill in a ton of paperwork, scan the filled in forms, email the forms (if that is even possible, sometimes you have to mail them physically) and then you often find out that they want even more filled in forms. I have opened accounts with a lot of brokers, and I think the process at IB is by far the fastest and easiest.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on October 14, 2015, 01:08:56 PM
Buy 5000 shares of GM (where price execution will be equivalent due to high liquidity).

IB :  $25
Etrade:  $9
Not actually going to do that trade, but estimated commission are between 0.51 and 33.51 USD (it matters on what exchange you execute your order and if you provide or take liquidity)
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 14, 2015, 01:11:40 PM
CEO recently asked why a lot of IBKR investors use another broker

Buy 5000 shares of GM (where price execution will be equivalent due to high liquidity).

IB :  $25
Etrade:  $9

Buy those in more than 2 orders and IB is cheaper, though.
Title: Re: IBKR - Interactive Brokers
Post by: pocoapoco on October 14, 2015, 01:13:29 PM
Buy 5000 shares of GM (where price execution will be equivalent due to high liquidity).

IB :  $25
Etrade:  $9
Not actually going to do that trade, but estimated commission are between 0.51 and 33.51 USD (it matters on what exchange you execute your order and if you provide or take liquidity)

Assume taking liquidity.  I've generally seen about 1/2 cent per share at IB vs fixed all in commission for Etrade etc.  So my point is for higher share amounts (warrants, lower priced stocks etc) the commissions can diverge quite a bit.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on October 14, 2015, 01:28:03 PM
#FirstWorldProblems

Perhaps. But ultimately I pay Fido <0.5% of my assets for all the services they provide. Sure, I might pay IBKR only 0.1%, but it's not worth the headache for me. (The percentages are somewhat crude estimates. They are likely lower for Fido and possibly for IBKR).

One way to look at it: How long do you plan to invest and how much of a cumulative difference does that delta adds up to compounded over that period?

Another way to look at it: how often IBKR can give you a stroke or a heart attack because something is screwed up?
You might not survive to enjoy your cumulative difference.

#qualityoflifematters
Title: Re: IBKR - Interactive Brokers
Post by: doughishere on October 14, 2015, 01:29:36 PM
#FirstWorldProblems

Perhaps. But ultimately I pay Fido <0.5% of my assets for all the services they provide. Sure, I might pay IBKR only 0.1%, but it's not worth the headache for me. (The percentages are somewhat crude estimates. They are likely lower for Fido and possibly for IBKR).

At the risk of getting into an internet flame war(especially in a forum that i admire and respect).....What i was getting at was that I think we should re-evaluate what we think our problems are if we are complaining about transferring our IRAs....we should feel fortunate that a problem we have to deal with.

But yes you are right. At some point the value of your time spent switching over exceeds the benefits of actually switching over.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on October 14, 2015, 01:29:54 PM
#FirstWorldProblems

Perhaps. But ultimately I pay Fido <0.5% of my assets for all the services they provide. Sure, I might pay IBKR only 0.1%, but it's not worth the headache for me. (The percentages are somewhat crude estimates. They are likely lower for Fido and possibly for IBKR).

One way to look at it: How long do you plan to invest and how much of a cumulative difference does that delta adds up to compounded over that period?

Another way to look at it: how often IBKR can give you a stroke or a heart attack because something is screwed up?
You might not survive to enjoy your cumulative difference.
You have never used IB right? If there is a broker where almost everything almost always works and is processed correctly it is IB.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 14, 2015, 01:30:19 PM
#FirstWorldProblems

Perhaps. But ultimately I pay Fido <0.5% of my assets for all the services they provide. Sure, I might pay IBKR only 0.1%, but it's not worth the headache for me. (The percentages are somewhat crude estimates. They are likely lower for Fido and possibly for IBKR).

One way to look at it: How long do you plan to invest and how much of a cumulative difference does that delta adds up to compounded over that period?

Another way to look at it: how often IBKR can give you a stroke or a heart attack because something is screwed up?
You might not survive to enjoy your cumulative difference.

Never had a problem with them. Ymmv.
Title: Re: IBKR - Interactive Brokers
Post by: rmitz on October 14, 2015, 01:57:17 PM
Another way to look at it: how often IBKR can give you a stroke or a heart attack because something is screwed up?
You might not survive to enjoy your cumulative difference.

#qualityoflifematters

Hyperbole.  I’ve certainly never found any issues that would cause concern like that.  The interface isn’t great, and there is opportunity for other companies to come in and use their back-end services while providing a more friendly front-end.  While some have had issues with their customer service, they’ve always dealt with any of my questions or issues well.

I also like their approach to security.  They do take it quite seriously.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on October 14, 2015, 02:09:58 PM
You have never used IB right? If there is a broker where almost everything almost always works and is processed correctly it is IB.

Wrong. I have an account with IBKR. Like I said before: awful.

I only have it because it's managed by someone else and they rely on IBKR's platform to do this (this was covered in the thread about separately managed accounts).
To be honest, even though performance of person managing it is great, I have periodic thoughts to close the account because of IBKRs horribleness.
So far I endure.
Edit: Ask me again at tax time - I expect the online Turbo Tax nightmare. Perhaps I will be surprised on the bright side. This does not apply to you as you are not in USA.
Perhaps this also answers to Liberty regarding the pain threshold of delta compounding. ;)
Title: Re: IBKR - Interactive Brokers
Post by: thepupil on October 14, 2015, 02:13:17 PM
Jurgis, can you be more specific?

I'm an IBKR fanboy and don't understand how one can come to your conclusion. Everything seems very cheap and easy on IB.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on October 14, 2015, 02:21:50 PM
thepupil: I'd have to sit down with you and show the stuff that grates me on their website. I don't think I can express it easily with text. Sorry.

The tax worries are still in the future. This is right now second-hand info. AFAIK they support Turbo Tax, but not Turbo Tax Online. I'd be very happy to hear differently. (Also I am concerned about the foreign currency tax importing, but this would be the same for any broker).

I did not call their customer service - as I said, I don't have my main account there - so this is only second-hand info. Perhaps they are comparable to Fido. From what I hear, they are not.

I am pretty sure they don't support solo 401(k)s like Fido.

Edit: Do they allow buying individual bonds? I do that on Fido. Not a huge deal possibly.

I agree that their two-factor authentication is great and that commissions are great if you manage to setup things in the right way and you don't fall into one of their "beware" holes (so far I only saw "minimal monthly fee" because of too few trades or something like that).

Hope this helps.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on October 14, 2015, 02:54:38 PM
Quote
Edit: Do they allow buying individual bonds? I do that on Fido. Not a huge deal possibly.

Yes, they do (both US and globally)... limitation exists still on convertible bonds generally, so that is a problem.

On the upside, they allow you to place limits that are exposed on Bonddesk unlike FoK orders for bonds at Fido and all other retail brokers that I'm aware of.  This exists at IB because their model isn't to profit by being a dealer in bonds, only on transaction volume / commish.

As said before, I think there probably should be two brokers - Fido (SCHW is good too) and IBKR.  It's telling that everyone is arguing over those two, not whether the literally dozens of other mediocre brokers should exist.  Lots of consolidation is going to happen in this industry.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on October 14, 2015, 03:36:45 PM
I guess that's a good point, I'm very happy with IB, but since I'm not based in the US I can't use Fido (or SCHW).
Title: Re: IBKR - Interactive Brokers
Post by: kirkomi on October 14, 2015, 11:54:25 PM
Based in Switzerland. IB is hands down the best. Have had several interactions with the customer service, was always satisfied.

Don't like the web platform, use their TraderWorkStation (TWS) client in the simple form. Quite effective.
Title: Re: IBKR - Interactive Brokers
Post by: theasiareport on October 15, 2015, 06:18:27 AM
I've used IB since 2014, and have no complaints. Its the best broker I've used by far - although the interface takes a little time to get used to. Still, it isn't harder then using a Bloomberg terminal.
Title: Re: IBKR - Interactive Brokers
Post by: frommi on October 15, 2015, 06:33:48 AM
I've used IB since 2014, and have no complaints. Its the best broker I've used by far - although the interface takes a little time to get used to. Still, it isn't harder then using a Bloomberg terminal.

Same here, and after calling the support i was pleasantly surprised. When someone has problems with the interface i can only advise to use the iphone or ipad apps, they are very easy to use.
In europe there is nothing that comes even close to IB`s stability, security and pricing.
Title: Re: IBKR - Interactive Brokers
Post by: ABM on October 16, 2015, 07:35:22 AM
Anyone consider the credit risk embedded on the margin loans ?  My thesis relies on continued margin debt growth but as a % of net equity capital it is already the highest amoung peers.  It posted a 34% CAGR (2011-2014) vs. peer average of 14% growth.  I believe they want to hold excess capital  to absorb ST losses on its loan book in the events of severe market turmoil similar to the Swiss surprise revaluation in January. 

I compared them to SCHW, AMTD, and ETFC.  As of Q2 2015, it looks like for every dollar of capital they 3.63 dollars of loans compared to 1.77 at their peers.  I understand everyone's mix is a bit different as SCHW has a banking business but in terms of margin loans it still interesting.

Margin Loans - % of Equity Capital                
                     
                          2012      2013      2014    Q2 2015
Schwab                140%   134%   133%   130%
TD Ameritrade       195%   192%   245%   258%
Etrade                 118%   131%   143%   142%
IBKR                  205%   267%   329%   363%
Average               165%   181%   212%   223%
 

Anyone worried ?
Title: Re: IBKR - Interactive Brokers
Post by: rpadebet on October 17, 2015, 08:16:28 PM
Look up what IB does when customers hit margin limit and compare that to what others do...
I think that limits credit risk and that's why they can afford to have capacity to lend more...risk management.

The more I dig into this company, the more I like it. It is potentially the geico of our investing careers. All we need now is a regulation requiring everyone own a brokerage account and trade stocks. That would be perfect.
Title: Re: IBKR - Interactive Brokers
Post by: ERICOPOLY on October 17, 2015, 10:00:55 PM
Anyone consider the credit risk embedded on the margin loans ?  My thesis relies on continued margin debt growth but as a % of net equity capital it is already the highest amoung peers.  It posted a 34% CAGR (2011-2014) vs. peer average of 14% growth.  I believe they want to hold excess capital  to absorb ST losses on its loan book in the events of severe market turmoil similar to the Swiss surprise revaluation in January. 

I compared them to SCHW, AMTD, and ETFC.  As of Q2 2015, it looks like for every dollar of capital they 3.63 dollars of loans compared to 1.77 at their peers.  I understand everyone's mix is a bit different as SCHW has a banking business but in terms of margin loans it still interesting.

Margin Loans - % of Equity Capital                
                     
                          2012      2013      2014    Q2 2015
Schwab                140%   134%   133%   130%
TD Ameritrade       195%   192%   245%   258%
Etrade                 118%   131%   143%   142%
IBKR                  205%   267%   329%   363%
Average               165%   181%   212%   223%
 

Anyone worried ?


Shouldn't you be also looking at margin risk from naked options trades?  It seems incomplete to be looking just at loans.

Further, shouldn't you be looking at the netted risk?  I have a large margin loan with IBKR... but so what, they can't lose money on it because I've got put options that ensure my equity can't be wiped out.  So there is zero risk to IBKR from my margin loans.  They make money from my account without any risk. 
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on October 18, 2015, 09:12:53 AM
I think this is a hard one.  From my reading of IB over the years, I would be hard pressed to find a broker with the same risk management DNA.  They have a culture built from the Timber Hill market making group over decades and you can glean / read about what kinds of markets they will and won't make in options - and I think it is telling (they disclosed a lot of this before and during the financial crisis and it was all very logical / rational, and left money on the table which is the real sign IMO that it comes from solid DNA).

I do think competing on price in margin loans (or options as Eric rightly notes) they will potentially attract more fraudulent customers trying to catch them in a violent move of some weird stock or underlying index.... similar to what happened in Singapore trades last year or so.

However, I think the following makes me comfortable (in addition to what I listed above):
1) 2008, flash crash, 2011 all sailed through just fine for the company (every time they announced losses, like LEH options, or something, it was minor and often was recouped or partly in courts).
2) Unlike other brokers, IB has a very very draconian margin "call" procedure, roughly translating to "F you if you breach your margin limits, we liquidate you immediately" (by the way, this is partly why they charge less, or a supposed reason why others charge more)
3) Mr P has like $12B+ in market value in a first loss position with us on this kind of risk, which probably sharpens the mind. :)
4) I think the difference in the above makes me far more worried about TDA's 258% ratio, than IB's 363% ratio...

Just my 2 cents, I think leveraged financials are challenging for questions like these... how do we "know" what risk we are taking?  In this space, I only bet with those who I think understand they should avoid black swans.  I think Mr P and team get it... but there are no guarantees.
Title: Re: IBKR - Interactive Brokers
Post by: ABM on October 18, 2015, 02:37:55 PM
Look up what IB does when customers hit margin limit and compare that to what others do...
I think that limits credit risk and that's why they can afford to have capacity to lend more...risk management.


I am more concerned with market dislocation events where liquidity disappears and you have large down gaps in value.  Liquidity is key when your a leveraged lender. 


In Q1 2015, IBKR lost $121 million on the Swiss Franc exposure related to customer margin accounts.   You can all have all the controls in the world trigger a sell order once the customer's equity is wiped out but if the liquidity in the market has disappeared you are forced to exit at the prevailing rate.  This is a direct hit to company capital to cover the loss between customer.  Loss represented ~5% of brokerage capital which was lost in a fraction of a second. 2 years prior they lost $84 million in Singapore equities related to customer margin position where the same issue occurred. 


Disclosure from the company 10-Q
"As of June 30, 2015, we had $19.0 billion in margin credit extended to our customers. The amount of risk to which we are exposed from the margin credit we extend to our customers and from short sale transactions by our customers is unlimited and not quantifiable as the risk is dependent upon analysis of a potential significant and undeterminable rise or fall in stock prices."


Since the margin book is blackbox, how concerned should we be about IBKR's ability to cover losses on margin loans in rare market events ?  The CEO himself has implied this is why the company hold's such a large amount of excess capital. 

I am long the stock and subscribe to the low cost producer in consolidating industry with years of growth in front of it theme but I am just making sure I understand/fully appreciate the risks. 

Shouldn't you be also looking at margin risk from naked options trades?  It seems incomplete to be looking just at loans.

Further, shouldn't you be looking at the netted risk?  I have a large margin loan with IBKR... but so what, they can't lose money on it because I've got put options that ensure my equity can't be wiped out.  So there is zero risk to IBKR from my margin loans.  They make money from my account without any risk.

Cannot do anything you say based on disclosures...

Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on October 18, 2015, 03:18:39 PM
IB is in the business of promoting trading to customers. I get tons of Communiques and training emails. Why? Because they know that if people trade once for $1 and sell a stock in 5 years again for $1, IB has made a net total of $2 from that customer +/- margin loans and use of their cash if any. As long as people trade, for the right or wrong reasons, they will make money. It is my express goal to give them as little money as possible, sadly I never am able to minimize this but I'm trying and dream of the day when I will give them something like $10 per year while using their low cost loans. I yearn to kill their profits :)




Title: Re: IBKR - Interactive Brokers
Post by: 60°North Investments on October 20, 2015, 03:23:20 AM
Anyone have an idea what's up with the insider sales? Since August there's been a lot of them, all the way from Galik to other directors etc.

https://www.insidertracking.com/company?ticker=IBKR
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on October 20, 2015, 03:58:21 PM
I think the stock is statistically quite pricy.... Seems like a decent time to sell if you are overweight. I think probably as simple as that. I have had a large stake for a long time and have reduced this year a bit.
Title: Re: IBKR - Interactive Brokers
Post by: frommi on October 20, 2015, 09:45:44 PM
When you factor in untapped pricing power the stock is still pretty cheap. They could easily double prices and still be the cheapest broker. Of course they then wouldn't take market share at the same speed, but earnings would triple overnight.
Title: Re: IBKR - Interactive Brokers
Post by: Homestead31 on October 21, 2015, 03:07:14 AM
Anyone have an idea what's up with the insider sales? Since August there's been a lot of them, all the way from Galik to other directors etc.

https://www.insidertracking.com/company?ticker=IBKR

there is some talk about this on the VIC thread... the short version is that for tax reasons insiders can't hold more than X% of the company, so if their % ownership goes up due to share grants (or float shrink) they are incentivized to sell for tax reasons, not fundamental reasons.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on October 21, 2015, 12:31:13 PM
I think the stock is statistically quite pricy.... Seems like a decent time to sell if you are overweight. I think probably as simple as that. I have had a large stake for a long time and have reduced this year a bit.

How are you valuing this?

Here is my fuzzy math. In a bull market, a rapidly growing, capital light business should sell for 10 to 20x pre-tax income. Let's say 15x. Petterfy thinks the brokerage business will be on a $1B run rate by the end of 2016. So brokerage alone should be worth at least $15B in 2016. So 13.5B present value. So worst case, it is 20% overvalued?

I added today.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on October 21, 2015, 01:07:14 PM
Quote
How are you valuing this?

I think a (high) multiple to per-tax (brokerage) is a decent way to approach.  I think the growth assumptions, as well as how you treat MM capital (excess / cash like or not) changes the assumptions but probably easy to handle on an individual basis.

Generally, I tend to let these kinds of businesses run (insider owner, unrespected franchise, long term consolidation / growth potential, history of good capital allocation...), but I am also very mindful of:

1) Most great businesses in the past you could acquire at "statistically" (used loosely, TTM earnings, FCF, etc) average prices during their run (sometimes frequently), even if those prices turned out to be super cheap in hindsight... very few businesses have carried monster valuations from day one (MSFT, SBUX, maybe HD are exceptions I think).

2) I am biased to overvalue the business because I have made so much money here, and my thesis has largely played out as planned... I kind of force myself to sell a little in these cases to avoid biasing my brain.

I have a nearly 10% position in this for my accounts, but I was 15% recently (I sold a large ~20% chunk of my holdings above $44)... Long term I probably should have done nothing... but this stock could easily drop 30% without a ton of folks stepping up to the plate.  At <$30, I'd probably take it back up to 12-15% all else equal.  As they say, lots of reasons people sell (both me and IBKR insiders)... but only one reason to buy more. ;-)

Especially in times like these (long in the tooth, stupid bull markets, my opinion of course), I am mindful of short term drawdowns preventing me from being more aggressive when the time comes.

I think IBKR will prove to be underpriced as of today based on prospective returns... *but* when we start justifying business valuations based on 20+x forward pre-tax multiples, we should probably all take a deep breath and go to the beach for a while (no offense as I agree with your methodology generally, just a sign of where we are in the cycle).

My < 2 cents.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on October 21, 2015, 01:32:36 PM
I don't disagree with your logic. I am just curious how you are valuing it.

I am just using pretax as a quick rule of thumb. It is no bargain here, but when you compare to something like priceline it seems very reasonable.

I have a more complex model where it only looks 10% above 2010 and 2011 levels.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on October 21, 2015, 03:59:00 PM
Yeah, understand KC.  I have some beliefs about what premium to tangible book the franchise is likely, and could be worth.  I also have some rough thinking about global online brokerage profits, and what % IB can get in 5 or 10 years.  I also have some general guidelines about what Mr. P has done in terms of compounding since inception, and how that may be moderated due to his size, and also how it may increase given the business he is now in.

All together, think just about probabilities (rough numbers, don't have my notes in front of me):

1) Chance of a ~$10B premium to book being a bargain for Mr. P and the franchise in place (probably pretty good, but seems steep).

2) Chance that given the competitive dynamics at work and global brokerage structure IB will be able to grow to 10x their level of current profits? (probably good, maybe takes 15 years?  Could be earlier)

3) Downside if things don't work out well (maybe 50% down from here based on tangible equity value + modest premium)

4) Chance that it really goes sideways (close to zero in my mind).

Kind of just heuristics.

#2 is is what keeps me in the name (the potential to a $2, 3, 4B global brokerage powerhouse with economies of scale and low incremental capital for generating returns)... #1 and #3 are why I am not too scared to wait / hold.

I don't generally do explicit valuations (I look more in terms of expected returns from a long term hold which of course is essentially a transfer function of sorts of the same idea).  Not trying to hide a magic formula from you.... :)

Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on October 21, 2015, 06:28:04 PM
That's useful, thanks.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on October 22, 2015, 10:24:25 AM
I think this sounds pretty good - I still haven't finished my account, but this might help people like me who wants 1 foot hurdles or atleast some extra bait. From CC:

"Just this past week, we came out with our latest periodic communique that summarizes the many improvements we have made to our systems during the past several months. The most significant one of these is the way we deal with applications for new accounts that we expect will increase our number of account openings. Until now, only about 35% of new account applicants actually completed their applications and funded their accounts.

With this new system, as soon as the applicant enters their username, password, and email address, we immediately send to them our trading platform with 15 minute delayed prices. They can populate the screens and set up optional fields the way they would want to use the actual account."
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on October 22, 2015, 11:56:08 AM
i don't think the simulator will help conversions. I have an 8% position in this stock. Yet, I have started applications twice to open an account. i have never converted. The onboarding process is just too complicated.

The good news is they are growing 18% per year despite the 35% conversion.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 22, 2015, 12:00:30 PM
i don't think the simulator will help conversions. I have an 8% position in this stock. Yet, I have started applications twice to open an account. i have never converted. The onboarding process is just too complicated.

The good news is they are growing 18% per year despite the 35% conversion.

What is it that you found complicated? I don't remember it being harder than opening an account at TD Waterhouse or RBC Direct Investing (the other two that I've tried). I wonder if there's a difference between the process in Canada and the US... I'd guess it would be fairly similar, but maybe not.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on October 22, 2015, 12:05:51 PM
I don't think it will make a big difference by itself but at least they recognized there might be some low hanging fruit. I'm still surprised they haven't called me to ask why I got stuck but they probably checked my AUM and number of trades. :)
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on October 22, 2015, 12:23:04 PM
I am in Canada. I have opened up numerous (maybe two dozen) accounts with BMO investorline, BMO Nesbitt Burns, TD, and etrade (now scotia). In their defense, my wife had hassles with BMO. Otherwise, I don't recall any issues with the others.

My current stumbling block: I need to prove my identity by having a notary or similar attest to my identity. Not a big deal, but automatically gets sent to the back of my long to do list.

The other concerns:
- selecting your real-time quote packages is crazy complicated. i don't know why they don't offer some basic package free based on your assets.
- other brokers reimburse transfer fees, I don't think IBKR does. On a per account basis, this isn't much but if you have multiple accounts, this is a real switching cost.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 22, 2015, 12:30:01 PM
Weird, I never had to prove my identity using a notary. Probably just did fairly standard stuff, but I can't remember exactly what it was. Are you an edge case on that front (non-citizen or something like that)?
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on October 22, 2015, 01:07:26 PM
Weird, I never had to prove my identity using a notary. Probably just did fairly standard stuff, but I can't remember exactly what it was. Are you an edge case on that front (non-citizen or something like that)?

All financial institutions need proof of identity. IBKR attempts to use some automated 3rd party service to verify identification (probably credit bureau). I failed, for whatever reason.
Title: Re: IBKR - Interactive Brokers
Post by: rmitz on October 22, 2015, 02:58:37 PM
- selecting your real-time quote packages is crazy complicated. i don't know why they don't offer some basic package free based on your assets.

Simple; I don’t use one. Free delayed data.
Title: Re: IBKR - Interactive Brokers
Post by: writser on October 22, 2015, 03:36:47 PM
As far as I know they have a basic package; the US value bundle. It's free when you reach $30 commission / month otherwise it's $10. Real time quotes for a lot of US stocks. For all other stocks: if you don't have real-time pricing you can right click the ticker, select 'buy market data subscription' and you go to a page where you can see on which exchange the stock is traded, what package you need and how much it costs. Alternatively you can use the 'market data assistant' which you can find in account management. This is all explained in their online documentation.

Granted, you have to spend some time to figure it out but I wouldn't call it crazy complicated. I do agree that opening a new account is tedious (they pretty much acknowledged this in the latest conference call) but if you have a >80 IQ and a spare evening you should be able to figure things out.

Some things are difficult at first but if you take the time to learn to understand their platform it is much more powerful (and cheaper) than their competitors. If you want a broker where you can open an account in 5 minutes and buy & hold Berkshire through an easy-to-use web interface you should not be interested in IB and IB is not interested in you. Retail is not their target audience.
Title: Re: IBKR - Interactive Brokers
Post by: sternalot on October 22, 2015, 07:29:23 PM
I do agree that opening a new account is tedious (they pretty much acknowledged this in the latest conference call) but if you have a >80 IQ and a spare evening you should be able to figure things out.

This assumption is scary, and let me use a great man to help illustrate my concern with this seemingly indefinite growth that people assume for IBKR:

"Think of how stupid the average person is, and realize that half of them are stupider than that." - George Carlin

The IBKR platform is INCREDIBLY intimidating, and people really aren't that intelligent. As an investment professional, it took me at least two weeks to figure it all out and get set up. Maybe I'm a moron, but I'm not sure there are many outside the finance world that I would recommend IBKR to.

With that said, I believe there is most certainly a cap on market share for this business (as long as its platform remains as it is), and I'm guessing my estimate would be lower than most. So what do people expect the terminal market share to be?
Title: Re: IBKR - Interactive Brokers
Post by: sleepydragon on October 22, 2015, 07:38:15 PM
I used to have an account there.
Keep in mind the complicated stuffs is intentional. They want customers who are day traders, not someone who buy and hold. that's why their interface is complicated, with automated margin control and even order APIs.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 23, 2015, 05:09:42 AM
Second level thinking would imply that their complex sign up process and intimidating platform are opportunities. If these things were already perfect, we couldn't expect much improvement, but now, if they just fix this, they can accelerate growth.

And while IBKR is mostly aiming for the most profitable people (large AUM, lots of trades, sophisticated investments), they also offer back-end for other brokers. Over time, these others - if they can win enough of them - can have the simple interfaces and spend their own marketing dollars attracting more 'regular' people while IBKR focuses on a different slice of the market.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on October 23, 2015, 07:22:54 AM
Second level thinking would imply that their complex sign up process and intimidating platform are opportunities.

Exactly. My point was only that letting people trial there complicated software is probably not going to solve that opportunity. Lot's of low hanging fruit here though.
Title: Re: IBKR - Interactive Brokers
Post by: yitech on October 23, 2015, 07:56:02 AM
How do you guys feel about company issuing 8-10% stock options annually?  Growing at 20% is great, but should constant dilution be overlooked?

Check out the comments by @Psclfrst
https://twitter.com/noonsixcap/status/657248165628764160
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 23, 2015, 08:10:44 AM
How do you guys feel about company issuing 8-10% stock options annually?  Growing at 20% is great, but should constant dilution be overlooked?

Answer here https://twitter.com/NoonSixCap/status/657571760930463744
Title: Re: IBKR - Interactive Brokers
Post by: yitech on October 23, 2015, 08:49:48 AM
How do you guys feel about company issuing 8-10% stock options annually?  Growing at 20% is great, but should constant dilution be overlooked?

Answer here https://twitter.com/NoonSixCap/status/657571760930463744

Perfect!
Title: Re: IBKR - Interactive Brokers
Post by: marazul on October 23, 2015, 09:51:30 AM
How I currently see this. Let´s say the Brokerage segment earns $950mm pre-tax next year and MM segment earns $150mm. That is $1,100 pre-tax. Assuming a 30% tax-rate (I think this number is appropiate going forward for us the minority shareholders), I get $770 in net earnings in 2016. Current market cap is $15,900mm so IBKR is trading at 20.5x forward earnings. Question is how long will the business grow at 15%+. If the answer is for more than 5 years then we will do fine. Other interesting thing is how taxes work. We pay high taxes of ~30% but TP pays very low taxes. I think that if most of the earnings are reinvested into the business and then eventually IBKR gets acquired it will be great for us given our position. We would benefit over the years from some tax-shield as the equity compounds. We have the same economic interest per share as TP so in a possible acquisition we would receive the same value after taking advantage of some of the tax-shield.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on January 21, 2016, 05:50:08 PM
Quoting myself:

Quote
I have a nearly 10% position in this for my accounts, but I was 15% recently (I sold a large ~20% chunk of my holdings above $44)... Long term I probably should have done nothing... but this stock could easily drop 30% without a ton of folks stepping up to the plate.  At <$30, I'd probably take it back up to 12-15% all else equal.  As they say, lots of reasons people sell (both me and IBKR insiders)... but only one reason to buy more. ;-)

and here we are... sub $32 today.

Started nibbling a bit to build back up.

High priced growth stocks are always volatile I guess, why I size them down and up based on valuation.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on January 28, 2016, 06:26:50 PM
What did you think of the results? I really appreciate your thoughts on IBKR.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on January 29, 2016, 08:02:59 AM
IBKR is the stock that I looked at and drew a similar conclusion as this one:
https://punchcardblog.wordpress.com/2014/12/10/interactive-brokers-group-ibkr/

What make you think he is wrong?
Title: Re: IBKR - Interactive Brokers
Post by: KJP on January 29, 2016, 08:34:23 AM
IBKR is the stock that I looked at and drew a similar conclusion as this one:
https://punchcardblog.wordpress.com/2014/12/10/interactive-brokers-group-ibkr/

What make you think he is wrong?

Look at slide 30.  It (i) projects significant revenue growth but brokerage margins that are lower than they are today, despite acknowledging that the business enjoys economies of scale; (ii) assigns no value to the market maker; and (iii) puts a 15 PE on the 2023 business.  The author acknowledges he's being conservative, but this seems extreme to me.  If you put in 70% EBIT margins, 25% tax rate, assign value to the still profitable (and NAV positive) market maker and use 20 PE you get a significantly different result.  I'm not saying all of my assumptions will happen, but they are certainly reasonable.   
Title: Re: IBKR - Interactive Brokers
Post by: frommi on January 29, 2016, 09:34:53 AM
I see a big problem here that all earnings are just reinvested in the marketmaker at a very low return. If they would dividend out all or could find better uses for all the cash, this investment would probably be a no brainer. Its easy to extrapolate the past growth into the future, but will it really grow at that rate going forward?
Title: Re: IBKR - Interactive Brokers
Post by: 60°North Investments on January 29, 2016, 09:44:46 AM
In the Q4 conference call Peterffy talked about market shares. He mentioned them as 25% of proprietary trading groups, 15% of financially sophisticad individuals, 0.2% of hedge funds, <0.1% of RIAs. 1% hedge fund market share would be roughly $250m in commissions only, 1% of RIAs likely a nice sum too.

Currently the e-broker is doing about $1b revenues. I have no idea how big of a share IB could realistically capture of these markets over time. But if one believes that their technological advantage will enable them to win share over time across the board, then it's not hard to see how they could continue growing fast. As an example, getting a combined 5% share of HFs and RIAs would +2x sales.
Title: Re: IBKR - Interactive Brokers
Post by: frommi on January 29, 2016, 09:49:02 AM
In the Q4 conference call Peterffy talked about market shares. He mentioned them as 25% of proprietary trading groups, 15% of financially sophisticad individuals, 0.2% of hedge funds, <0.1% of RIAs. 1% hedge fund market share would be roughly $250m in commissions only, 1% of RIAs likely a nice sum too.

Currently the e-broker is doing about $1b revenues. I have no idea how big of a share IB could realistically capture of these markets over time. But if one believes that their technological advantage will enable them to win share over time across the board, then it's not hard to see how they could continue growing fast. As an example, getting a combined 5% share of HFs and RIAs would +2x sales.

With all thats going on right now and the rise of index funds, isn`t the hedgefund business a shrinking market?  ;D
Title: Re: IBKR - Interactive Brokers
Post by: KJP on January 29, 2016, 10:00:31 AM
I see a big problem here that all earnings are just reinvested in the marketmaker at a very low return. If they would dividend out all or could find better uses for all the cash, this investment would probably be a no brainer. Its easy to extrapolate the past growth into the future, but will it really grow at that rate going forward?

I thought the company was deemphasizing its market making.  Why do you say that all earnings are being reinvested in that business?
Title: Re: IBKR - Interactive Brokers
Post by: writser on January 29, 2016, 10:07:05 AM
I see a big problem here that all earnings are just reinvested in the marketmaker at a very low return. If they would dividend out all or could find better uses for all the cash, this investment would probably be a no brainer. Its easy to extrapolate the past growth into the future, but will it really grow at that rate going forward?

I thought the company was deemphasizing its market making.  Why do you say that all earnings are being reinvested in that business?

+1. I don't think that is a significant risk.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on January 29, 2016, 10:09:17 AM
I see a big problem here that all earnings are just reinvested in the marketmaker at a very low return. If they would dividend out all or could find better uses for all the cash, this investment would probably be a no brainer. Its easy to extrapolate the past growth into the future, but will it really grow at that rate going forward?

I thought the company was deemphasizing its market making.  Why do you say that all earnings are being reinvested in that business?

If I remember correctly, they are taking 10% of equity out of the MM unit per year, so if it earns less than 10% ROE, it'll shrink to nothing over time, but if it earns more than that, it'll keep going.

But the broker side is growing so much faster than the MM that over time the MM will become relatively less important even if it doesn't shrink in absolute numbers.

That's my understanding, anyway.
Title: Re: IBKR - Interactive Brokers
Post by: frommi on January 29, 2016, 10:37:10 AM
I thought the company was deemphasizing its market making.  Why do you say that all earnings are being reinvested in that business?

If I remember correctly, they are taking 10% of equity out of the MM unit per year, so if it earns less than 10% ROE, it'll shrink to nothing over time, but if it earns more than that, it'll keep going.

But the broker side is growing so much faster than the MM that over time the MM will become relatively less important even if it doesn't shrink in absolute numbers.

That's my understanding, anyway.

Maybe i misunderstood something, wouldn`t be the first time. But then what do they do with the money they earn for me in the brokerage business?
Title: Re: IBKR - Interactive Brokers
Post by: rpadebet on January 29, 2016, 10:45:01 AM
There is excess regulatory capital...
they hope to invest it in developing compliance systems globally to gain more customers and open up markets for existing customers. That will be a moat someday. It isn't easy for a new entrant to suddenly replicate all the complex regulations across the globe.

IBKR is to the brokerage industry what GIECO was to the auto insurance industry a few decades ago. Unfortunately it isn't required by law that everyone have a brokerage account :), that's pretty much the only difference in the model.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on January 29, 2016, 10:57:08 AM
What make you think he is wrong?

I like his work but he makes some very curious assumptions. As others have mentioned:
1. Terminal PE = 15. Schwab has averaged 27.7x over the last 15 years, so why 15x?
2. Assumes 50% margins vs 60% margins the last two years. Operating leverage should result in higher margins, not lower.
3. Market maker has $1.7 B in equity. Why do we ignore this value?
3b. ignores dividends in his return calculation
4. Tax rate of 35% seems high given the international operations.
5. Are there other growth opportunities (price increases, new products, better NIM)?

So, if you assume significant multiple compression, falling margins, higher taxes, and a write-off of the market making unit...then the returns will be mediocre.
Title: Re: IBKR - Interactive Brokers
Post by: flesh on January 29, 2016, 11:21:05 AM
What make you think he is wrong?

I like his work but he makes some very curious assumptions. As others have mentioned:
1. Terminal PE = 15. Schwab has averaged 27.7x over the last 15 years, so why 15x?
2. Assumes 50% margins vs 60% margins the last two years. Operating leverage should result in higher margins, not lower.
3. Market maker has $1.7 B in equity. Why do we ignore this value?
3b. ignores dividends in his return calculation
4. Tax rate of 35% seems high given the international operations.
5. Are there other growth opportunities (price increases, new products, better NIM)?

So, if you assume significant multiple compression, falling margins, higher taxes, and a write-off of the market making unit...then the returns will be mediocre.

Ya the guys valuation was horrid..... he's was right on the qualitative factors, interesting what makes a market.

They pay around 10% in tax and in the recent ec the cfo said they can continue in that range through some loophole for a long long time. Take his valuation and use a 15% tax rate and an 18 exit multiple and add some fcf earned on the cash piling up from the diff between 35 and 15% tax rate and you have a very nice result.

Q - Chris Harris

And then a quick question on the P&L. You guys have run this fairly low tax rate for some period of time and I'm just trying to think for modeling purposes is it fair to sort of use this sub 10% GAAP tax rate on a go forward basis or is there some benefit that rolls off that we should be thinking about for future quarters?

A - Thomas Peterffy

Paul?

A - Paul Brody

Well yes the original benefit embedded in the IPO transaction is a 15 year benefit and our IPO was in 2007, that kind of benefit, though we have nothing planned, that kind of benefit would be increased in renewed with each additional of any secondary offerings where the sale price was in excess of essentially the book value really the tax cost basis but call it the book value that is what generates that tax benefit, so each one of those is a 15 year amortization, so last for quite a well.

A - Thomas Peterffy

Paul that includes employees selling unregistered shares also, right?

A - Paul Brody

Yes, each time shares are sold into the public.

A - Thomas Peterffy

And including bonus shares right?

A - Paul Brody

Not including bonus shares.

A - Thomas Peterffy

Not including bonus shares. Okay so the shares that are originally owned shares that become a newly registered, yes?

A - Paul Brody

Yes, correct.

Q - Chris Harris - Wells Fargo Securities


OK, thanks for clarifying.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on February 01, 2016, 02:55:45 PM
What did you think of the results? I really appreciate your thoughts on IBKR.

Hey Kab, I don't have any great insights.  I thought the results were so-so.  As always, I feel quite confident in the investment after hearing the conference call.  They way they think about the business and the long run economics seem still compelling to me, even if the valuation, while better, isn't a screaming statistical bargain.

I think results will continue to trend in the right direction and I still think IB has a lot of optimizations in their business, and ways their can accelerate their share grab.  I continue to think the industry is in for a long run of consolidation, and IB seems to have a path to begin monetizing some competitors business and eroding their market position without being forced to buy them which I think is good.  Their market growth in RIAs and HFs is interesting, but I also really like some of the network effect aspects of their model that are falling into place (marketplace, etc).

Money quote from the call that made me smile:

Quote
Rob Koehn

Okay, okay. So I guess maybe last question. To what extent, and I probably know the answer to this, but to what extent do you ever – how often do you think about raising prices? I mean, I know for me as a customer –

Thomas Peterffy

I think about it almost every day and I always say I will never do it.

Rob Koehn

Okay. I mean, I think there are a lot of people out there that have nowhere else to go, and so they might –

Thomas Peterffy

I don’t want to be like Oracle.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on February 01, 2016, 04:11:30 PM
That one made me smile as well - espescially the next part where the analyst obviously didn't understand the reply. :) Thanks for the comment, I agree with your points but have so far waited for a better entry. Maybe it's silly when you consider their ability to increase prices. They have a long term focus but there is lots of optionality.
Title: Re: IBKR - Interactive Brokers
Post by: rpadebet on February 01, 2016, 04:29:20 PM
That one made me smile as well - espescially the next part where the analyst obviously didn't understand the reply. :) Thanks for the comment, I agree with your points but have so far waited for a better entry. Maybe it's silly when you consider their ability to increase prices. They have a long term focus but there is lots of optionality.

As long as they have customer accounts to gain, I don't think they need to raise prices. It could be a lot of years before they reach that point.

I like how they are licensing their technology and backend to other brokers. They are making themselves indispensable to the system and further strengthening their moat by doing so. This is a much better method than directly trying to compete with them for "less sophisticated" retail accounts.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on February 02, 2016, 02:08:23 AM
That one made me smile as well - espescially the next part where the analyst obviously didn't understand the reply. :) Thanks for the comment, I agree with your points but have so far waited for a better entry. Maybe it's silly when you consider their ability to increase prices. They have a long term focus but there is lots of optionality.

As long as they have customer accounts to gain, I don't think they need to raise prices. It could be a lot of years before they reach that point.

I like how they are licensing their technology and backend to other brokers. They are making themselves indispensable to the system and further strengthening their moat by doing so. This is a much better method than directly trying to compete with them for "less sophisticated" retail accounts.
Agreed. My point was that valuing them on current earnings is silly because they're kept low to gain additional accounts which probably have more long term value. So it's just my own valuation technique that needs to be refined, but I'm really not good at valuing growth. And I agree on the whilelabel/licensing strategy - I think that's brilliant and one of the options I like, but it could take a long time to play out.
Title: Re: IBKR - Interactive Brokers
Post by: JBTC on February 03, 2016, 06:11:20 AM
Lots of comparisons have been made from the technical/user standpoint between IB, Fido and SCHW.

I am wondering if someone can compare IB and SCHW from an investing point of view. Clearly the model is different and they go after different customers. Both have been owned by value investors. Lou Simpson has a lot of SCHW.

Are there any merits SCHW has that IB doesn't?

Title: Re: IBKR - Interactive Brokers
Post by: KJP on February 03, 2016, 07:03:34 AM
Lots of comparisons have been made from the technical/user standpoint between IB, Fido and SCHW.

I am wondering if someone can compare IB and SCHW from an investing point of view. Clearly the model is different and they go after different customers. Both have been owned by value investors. Lou Simpson has a lot of SCHW.

Are there any merits SCHW has that IB doesn't?

To me, Schwab is a different animal than IB.  It's not only that the customer profile is different (though there is overlap), but Schwab is also at least as much a money manager as a broker, and it also operates a bank.  One possible result of that business model is that Schwab could benefit more from higher interest rates:  http://brooklyninvestor.blogspot.com/2015/08/the-charles-schwab-corporation-schw.html
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 03, 2016, 07:04:48 AM
Schwab has many merits that IBKR doesn't have. Most notably, Schwab's revenue model is much more sensitive to rising interest rates. So Simpson and Greenberg are probably betting that current earnings don't represent the true earning power.

IBKR is a bet on the lowest cost provider with a strong moat in a niche market growing 15% per year.

If you look at a pie chart showing revenue distribution, you will see that they are two very different businesses.
Title: Re: IBKR - Interactive Brokers
Post by: yitech on February 03, 2016, 07:24:49 AM
Schwab has many merits that IBKR doesn't have. Most notably, Schwab's revenue model is much more sensitive to rising interest rates. So Simpson and Greenberg are probably betting that current earnings don't represent the true earning power.

IBKR is a bet on the lowest cost provider with a strong moat in a niche market growing 15% per year.

If you look at a pie chart showing revenue distribution, you will see that they are two very different businesses.

Just to add to that. SCHW deposit has been growing rapidly in the last few years. Bank deposit was up 26% YoY. More low-cost funding, but I guess it means nothing if interest rates don't rise. True earning power could stay low for a while.
Title: Re: IBKR - Interactive Brokers
Post by: valuefinder0525 on February 03, 2016, 06:16:54 PM
Anyone have any thoughts on the successor for the Peterffy? Milan Galik
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 12, 2016, 09:54:24 AM
Anyone have Goldman Sach's reports on IBKR?

--

I'm having a hard time understanding consensus estimate of $1.53 for 2016.

2015 was hit with a number of large items, that could be considered "one-time" costs.

Reported Earnings: $415
Currency Effects: 206
Swiss Franc Bad Debt: 119
Mark-to-market on Short Term Treasuries: 33
Adjusted Earnings: 773
Adjusted EPS: $1.90
Reported EPS: $0.78
Adjusted PE (ttm): 16.4

--
So far this year:
US Dollar is down, so currency effects could reverse
Treasuries are up, so mark-to-market losses could reverse
Bad debt - unknowable, but likely to reverse unless the Yuan is broken
Volatility and trading up
Margin debt and equity per account will be down
Client accounts will be up
Fed rates +0.25%

--
How is sell-side modelling the currency impact? What am I missing? Am I crazy to think that currency impact could actually be positive this year?
Title: Re: IBKR - Interactive Brokers
Post by: KJP on February 12, 2016, 11:09:57 AM
Anyone have Goldman Sach's reports on IBKR?

--

I'm having a hard time understanding consensus estimate of $1.53 for 2016.

2015 was hit with a number of large items, that could be considered "one-time" costs.

Reported Earnings: $415
Currency Effects: 206
Swiss Franc Bad Debt: 119
Mark-to-market on Short Term Treasuries: 33
Adjusted Earnings: 773
Adjusted EPS: $1.90
Reported EPS: $0.78
Adjusted PE (ttm): 16.4

--
So far this year:
US Dollar is down, so currency effects could reverse
Treasuries are up, so mark-to-market losses could reverse
Bad debt - unknowable, but likely to reverse unless the Yuan is broken
Volatility and trading up
Margin debt and equity per account will be down
Client accounts will be up
Fed rates +0.25%

--
How is sell-side modelling the currency impact? What am I missing? Am I crazy to think that currency impact could actually be positive this year?

Are the amounts you're adding back pre-tax number or post-tax numbers?  For example, I see the reference to $119 million in the Q4 press release, but is that after the tax benefit from the loss, or before it?

As for the currency issue, I suspect it's anybody's guess how the dollar will do against the GLOBAL basket.  I don't know what sell-side models are forecasting.

Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 12, 2016, 11:20:47 AM
Anyone have Goldman Sach's reports on IBKR?

--

I'm having a hard time understanding consensus estimate of $1.53 for 2016.

2015 was hit with a number of large items, that could be considered "one-time" costs.

Reported Earnings: $415
Currency Effects: 206
Swiss Franc Bad Debt: 119
Mark-to-market on Short Term Treasuries: 33
Adjusted Earnings: 773
Adjusted EPS: $1.90
Reported EPS: $0.78
Adjusted PE (ttm): 16.4

--
So far this year:
US Dollar is down, so currency effects could reverse
Treasuries are up, so mark-to-market losses could reverse
Bad debt - unknowable, but likely to reverse unless the Yuan is broken
Volatility and trading up
Margin debt and equity per account will be down
Client accounts will be up
Fed rates +0.25%

--
How is sell-side modelling the currency impact? What am I missing? Am I crazy to think that currency impact could actually be positive this year?

Are the amounts you're adding back pre-tax number or post-tax numbers?  For example, I see the reference to $119 million in the Q4 press release, but is that after the tax benefit from the loss, or before it?

As for the currency issue, I suspect it's anybody's guess how the dollar will do against the GLOBAL basket.  I don't know what sell-side models are forecasting.

It isn't clear if these are pre or post tax.
Title: Re: IBKR - Interactive Brokers
Post by: KJP on February 12, 2016, 12:03:03 PM
Is part of the issue that common stockholders to not get attributed net income that is proportional to their ownership interest in IBG LLC?  For example, common shareholders have a 15.7% interest in IBG LLC and EPS is calculated based on that number of shares, but they were attributed only 11.8% of net income in 2015 (49/415). 

That is why your adjusted EPS number more than doubles even though your adjusted income number does not.   
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 12, 2016, 01:08:26 PM
Is part of the issue that common stockholders to not get attributed net income that is proportional to their ownership interest in IBG LLC?  For example, common shareholders have a 15.7% interest in IBG LLC and EPS is calculated based on that number of shares, but they were attributed only 11.8% of net income in 2015 (49/415). 

That is why your adjusted EPS number more than doubles even though your adjusted income number does not.

Yes, that makes a big difference. Thanks. It is not immediately clear why the economic interest and the net income attribution are so different. Presumably, this is because the common shareholders are responsible for more tax? But I can't find an explicit disclosure on this attribution. Actually, I can and it contradicts the income statement:

"Our share of IBG LLC’s net income, excluding Holdings’ noncontrolling interest, for 2014 was approximately 14.0% and similarly, outstanding shares of our common stock represent approximately 14.5% of the outstanding membership interests of IBG LLC." 2014 annual report.

But this isn't true. Only 10% of Net Income is attributed to common shareholders.

--
I have asked IR for clarification.
Title: Re: IBKR - Interactive Brokers
Post by: KJP on February 12, 2016, 01:49:23 PM
Is part of the issue that common stockholders to not get attributed net income that is proportional to their ownership interest in IBG LLC?  For example, common shareholders have a 15.7% interest in IBG LLC and EPS is calculated based on that number of shares, but they were attributed only 11.8% of net income in 2015 (49/415). 

That is why your adjusted EPS number more than doubles even though your adjusted income number does not.

Yes, that makes a big difference. Thanks. It is not immediately clear why the economic interest and the net income attribution are so different. Presumably, this is because the common shareholders are responsible for more tax? But I can't find an explicit disclosure on this attribution. Actually, I can and it contradicts the income statement:

"Our share of IBG LLC’s net income, excluding Holdings’ noncontrolling interest, for 2014 was approximately 14.0% and similarly, outstanding shares of our common stock represent approximately 14.5% of the outstanding membership interests of IBG LLC." 2014 annual report.

But this isn't true. Only 10% of Net Income is attributed to common shareholders.

--
I have asked IR for clarification.

I remember this issue being discussed elsewhere and found it in the comments to a post on Punchcard's blog.  Here's what IR told him:

I asked: Per page 53 of the 2013 Form 10-K,IBG is entitled to 12.4% of the net income of LLC. But, per the income statement, IBG earned consolidated net income of 417M and the portion allocated to the common shareholders was 37M or 8.86%. Can you please explain why the common shareholders earned 8.86% of net income rather than 12.4%?
They responded:
Andrew,
Thanks for your email and interest in Interactive Brokers.
You cannot recalculate the 12.4% from our income statement because net income attributable to common shareholders for 2013 was 12.4% of IBG LLC’s net income. However, you’re looking at a consolidated income statement which includes IBG LLC in addition to IBG, Inc.
I hope that clarifies things and let me know if you have any questions.
Best regards,
Deborah Belevan, CPA
Director of Investor Relations, Institutional Sales
Interactive Brokers
8 Greenwich Office Park | Greenwich, CT 06831
Phone: (203) 618-5987
debbie@interactivebrokers.com

I don't fully understand what IR is saying, but it sounds like there is a layer of expense that is buried in one of the entities that is wholly owned by the common.

EDIT:  There must be, at a minimum, public company expenses that are borne only by IBG, Inc., the listed entity.  I have not calculated how these expenses have changed over time.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 14, 2016, 11:45:39 AM
You cannot recalculate the 12.4% from our income statement because net income attributable to common shareholders for 2013 was 12.4% of IBG LLC’s net income. However, you’re looking at a consolidated income statement which includes IBG LLC in addition to IBG, Inc.

Thanks. I will try to clarify with IR. It is important to know whether these corporate level expenses are variable (e.g. taxes) or fixed (public company expenses).

--

I'm surprised by the magnitude of currency effects on reported earnings. The earnings hit from currency alone was 22% of reported REVENUE. Kudos to Petterfy for avoiding non-GaaP earnings. But anyone relying on reported earnings will miss the underlying earnings power and growth of the broker business.
Title: Re: IBKR - Interactive Brokers
Post by: KJP on February 18, 2016, 01:30:09 PM


Thanks. I will try to clarify with IR. It is important to know whether these corporate level expenses are variable (e.g. taxes) or fixed (public company expenses).


Any luck with IR?
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 18, 2016, 01:35:08 PM
Any luck with IR?

No.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on February 21, 2016, 08:50:48 AM
The amount of stupidity on IB website defies all expectations.

If I could get rid of my IB account, I would immediately.

Who are the idiots who programmed it and why are they still employed.

How does this company survive.

FU********************************************K!

There.
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on February 21, 2016, 09:00:56 AM
The amount of stupidity on IB website defies all expectations.

If I could get rid of my IB account, I would immediately.

Who are the idiots who programmed it and why are they still employed.

How does this company survive.

FU********************************************K!

What is the issue with IB's website. I don't use it much except at tax time. The standalone apps for the Windows and the ipad are pretty good.

There.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on February 21, 2016, 09:35:07 AM
What is the issue with IB's website. I don't use it much except at tax time. The standalone apps for the Windows and the ipad are pretty good.

Yeah, tax time.

They don't fcking import to Turbo Tax Online. OK, I knew this already. Sucks.

So they want me to enter tax country and tax country ID. I click on ?-mark icon to see what they want. Instead of opening an explanation popup, this opens a new page that advertises their mobile apps. With no way to close the page. With no back button. With no information even remotely related to what I clicked. I had to close everything relogin and then avoid clicking anything looking even remotely like question mark.

Then I go to their message inbox. It's a fcking internal message inbox. And the message in it says:

Quote
Dear IB Customer,

Form 1099 for tax year 2015 is now available for account XXXXXXX. To view your tax form, please login to Account Management:

<login url>

This is in an internal IB message inbox. What are they thinking? That I somehow accessed this message without logging into Account Management? Why give a login URL instead of giving URL to tax form? Who wrote this????


And BTW, this is not the first and not the last time IB website does things that make no sense whatsoever.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on February 21, 2016, 10:34:21 AM
Yes, you can access that message without logging in account management. You can also get those messages emailed depending on your communication preferences.
Title: Re: IBKR - Interactive Brokers
Post by: Tim Eriksen on February 21, 2016, 03:27:27 PM
Is part of the issue that common stockholders to not get attributed net income that is proportional to their ownership interest in IBG LLC?  For example, common shareholders have a 15.7% interest in IBG LLC and EPS is calculated based on that number of shares, but they were attributed only 11.8% of net income in 2015 (49/415). 

That is why your adjusted EPS number more than doubles even though your adjusted income number does not.

Yes, that makes a big difference. Thanks. It is not immediately clear why the economic interest and the net income attribution are so different. Presumably, this is because the common shareholders are responsible for more tax? But I can't find an explicit disclosure on this attribution. Actually, I can and it contradicts the income statement:

"Our share of IBG LLC’s net income, excluding Holdings’ noncontrolling interest, for 2014 was approximately 14.0% and similarly, outstanding shares of our common stock represent approximately 14.5% of the outstanding membership interests of IBG LLC." 2014 annual report.

But this isn't true. Only 10% of Net Income is attributed to common shareholders.

--
I have asked IR for clarification.

I think there are more moving parts here than most realize.  It looks to me like the pretax number is for IBG LLC as a whole.  But some of the costs are only attributable to IBKR as a public company.  Only IBKR bears those costs (thus they earn less than their ownership % of the reported pre-tax number).  The income tax line appears to include some foreign taxes for IBG LLC but mainly income taxes for IBKR (but not IBG LLC). 

I still don't see an attractive valuation on a fully diluted basis.
Title: Re: IBKR - Interactive Brokers
Post by: Libs on May 20, 2016, 01:56:36 PM
Is part of the issue that common stockholders to not get attributed net income that is proportional to their ownership interest in IBG LLC?  For example, common shareholders have a 15.7% interest in IBG LLC and EPS is calculated based on that number of shares, but they were attributed only 11.8% of net income in 2015 (49/415). 

That is why your adjusted EPS number more than doubles even though your adjusted income number does not.

Yes, that makes a big difference. Thanks. It is not immediately clear why the economic interest and the net income attribution are so different. Presumably, this is because the common shareholders are responsible for more tax? But I can't find an explicit disclosure on this attribution. Actually, I can and it contradicts the income statement:

"Our share of IBG LLC’s net income, excluding Holdings’ noncontrolling interest, for 2014 was approximately 14.0% and similarly, outstanding shares of our common stock represent approximately 14.5% of the outstanding membership interests of IBG LLC." 2014 annual report.

But this isn't true. Only 10% of Net Income is attributed to common shareholders.

--
I have asked IR for clarification.

I think there are more moving parts here than most realize.  It looks to me like the pretax number is for IBG LLC as a whole.  But some of the costs are only attributable to IBKR as a public company.  Only IBKR bears those costs (thus they earn less than their ownership % of the reported pre-tax number).  The income tax line appears to include some foreign taxes for IBG LLC but mainly income taxes for IBKR (but not IBG LLC). 

I still don't see an attractive valuation on a fully diluted basis.

I don't either, as much as I love this idea. If I take Q1 and take out the "other income" line - which is currency related - I get close to $200MM pre-tax profit in total. But the common, as noted, seems to be getting 10.6% of that. That leaves us with $21MM net. There are 65MM diluted shares O/S, or .32 for the common.

Multiply that by 4 and you get $1.28 run - rate
Current price $37 / $1.28 = 29X.

What am I missing?



Title: Re: IBKR - Interactive Brokers
Post by: kab60 on May 20, 2016, 02:11:51 PM
Is part of the issue that common stockholders to not get attributed net income that is proportional to their ownership interest in IBG LLC?  For example, common shareholders have a 15.7% interest in IBG LLC and EPS is calculated based on that number of shares, but they were attributed only 11.8% of net income in 2015 (49/415). 

That is why your adjusted EPS number more than doubles even though your adjusted income number does not.

Yes, that makes a big difference. Thanks. It is not immediately clear why the economic interest and the net income attribution are so different. Presumably, this is because the common shareholders are responsible for more tax? But I can't find an explicit disclosure on this attribution. Actually, I can and it contradicts the income statement:

"Our share of IBG LLC’s net income, excluding Holdings’ noncontrolling interest, for 2014 was approximately 14.0% and similarly, outstanding shares of our common stock represent approximately 14.5% of the outstanding membership interests of IBG LLC." 2014 annual report.

But this isn't true. Only 10% of Net Income is attributed to common shareholders.

--
I have asked IR for clarification.

I think there are more moving parts here than most realize.  It looks to me like the pretax number is for IBG LLC as a whole.  But some of the costs are only attributable to IBKR as a public company.  Only IBKR bears those costs (thus they earn less than their ownership % of the reported pre-tax number).  The income tax line appears to include some foreign taxes for IBG LLC but mainly income taxes for IBKR (but not IBG LLC). 

I still don't see an attractive valuation on a fully diluted basis.

I don't either, as much as I love this idea. If I take Q1 and take out the "other income" line - which is currency related - I get close to $200MM pre-tax profit in total. But the common, as noted, seems to be getting 10.6% of that. That leaves us with $21MM net. There are 65MM diluted shares O/S, or .32 for the common.

Multiply that by 4 and you get $1.28 run - rate
Current price $37 / $1.28 = 29X.

What am I missing?
I don't think you're missing anything. But they're growing accounts +15% y/o/y, accounts are sticky and they could easily sacrifice some growth for increased profitability. No position but I was very close at buying @ 30. And am still considering.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on May 20, 2016, 04:44:01 PM
Another thing to keep in mind is that a rise in interest rates would help them. From the most recent call:

Quote
based on current balances, we estimate that a general rise in overnight interest rates of another 25 basis points would produce an additional $48 million in net interest income annually. Further increases in rates would produce smaller gains, because the interest we pay to our customers is pegged to benchmark rates, less a narrow spread.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on May 21, 2016, 07:01:54 AM
Multiply that by 4 and you get $1.28 run - rate
Current price $37 / $1.28 = 29X.

What am I missing?

The market maker business is extremely volatile. I don't think your simple 4x calculation will work in practice (your run-rate will be very volatile). As a starting point, you should strip out the market maker, currency effects, and mark-to-market gains of the treasuries. Then maybe normalize "bad margin debt" expenses. Then add back some value for the market maker. This would give you a less volatile "run-rate".

Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on June 24, 2016, 07:17:03 AM
Anyone have any thoughts on the impacts of Brexit on IBKR?

Swiss Franc Debacle: Although there were wild swings last night, they weren't as dramatic as the Swiss Franc. I think it also unlikely that people were positioned heavily in anticipation of a REMAIN vote. The increased margin rates seem sufficient.

Interest rates: Not a major factor. The increase in the 2 year should result in mark-to-market losses, but probably lead to slightly lower NIM? IBKR is not as interest rate sensitive as Schwab.

Currency: GLOBALS currency basket will take a big hit.

Volatility: increased volatility should be good for market maker and commissions.

Altogether, I don't think these add up to a significant impact.
Title: Re: IBKR - Interactive Brokers
Post by: Oreo on June 24, 2016, 07:22:42 AM
I think those are great points, and outages on competing platforms could help incremental customer equity to IBKR.
During days like these, I try to remind myself why I am in IBKR in the first place (strategic take-out value).
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on June 24, 2016, 09:48:55 AM
KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on June 24, 2016, 10:11:01 AM
KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.

It sounds like it was well-contained:
http://www.marketwatch.com/story/how-one-broker-weathered-the-brexit-storm-2016-06-24?mod=mw_share_twitter
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on June 24, 2016, 03:07:18 PM
Yeah, that's good to hear.

A side item that may be big or not (not sure) is that I head Etrade, Ameritrade and Fido had slow down issues today.  No issues I'm aware of either on quote delays or website / TWS issues at IB, so maybe a marginal form of marketing for folks who care about this stuff.

My general view is +vol is +ve for IB.
Title: Re: IBKR - Interactive Brokers
Post by: TwoCitiesCapital on June 24, 2016, 03:12:24 PM
KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.

Would you mind explaining how the loss from margin works? I'm envisioning that downward spiral of the markets left many people under their margin limits which would result in liquidations and forced sales. For heavily leveraged/highly volatile accounts, I can see how that might wipe out the equity value of the account and leave a deficiency that IBKR would carry as a liability, but is there no recourse to get that money back? No claims or courts or anything? That person just gets away without owing money to IBKR as long as they don't open another account with them?
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on June 25, 2016, 09:27:22 PM
KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.

Would you mind explaining how the loss from margin works? I'm envisioning that downward spiral of the markets left many people under their margin limits which would result in liquidations and forced sales. For heavily leveraged/highly volatile accounts, I can see how that might wipe out the equity value of the account and leave a deficiency that IBKR would carry as a liability, but is there no recourse to get that money back? No claims or courts or anything? That person just gets away without owing money to IBKR as long as they don't open another account with them?

IBKR has instant liquidation. They are the most brutal broker on margin calls. You will not be given a grace period to come up with extra money to keep your position.

So if you want to use their margin, go with portfolio margin and buy options to hedge your margin stock positions. Otherwise it will be extremely dangerous.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on June 25, 2016, 09:29:16 PM
I have taken some study on IBKR. I found that each year they have customer bad debts and currency fluctuations as one time gain/losses. Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Another concern: Their class A share count grows by about 7% a year. That's quite a dilution.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on June 26, 2016, 12:21:02 AM
I have taken some study on IBKR. I found that each year they have customer bad debts and currency fluctuations as one time gain/losses. Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Another concern: Their class A share count grows by about 7% a year. That's quite a dilution.
Their marketmaker business has historically been their golden goose, but not so much today. Earnings from MM have plummeted in recent years, dragging down overall profitability and somewhat masking the growth from brokerage. That might be it?

I see total sharecount rising from 400m in 2007 to 408m in recent Q.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on June 26, 2016, 07:14:22 AM
Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Based on my estimates for normalized earnings, broker pre-tax earnings have grown at 28% CAGR over the last 10 years.

(note: that disclosure was limited in earlier years so there is a wide margin of error here)

The biggest culprit is the market maker. This is a volatile melting ice cube. So you need to value the broker and market maker separately. Fortunately, the market maker is now a very small part of the business.

Title: Re: IBKR - Interactive Brokers
Post by: kab60 on June 26, 2016, 08:41:51 AM
When valuing this thing I also think one has to keep in mind they could easily increase profitability by raising prices. I don't think it will happen, the CEO said it in a sarcastic way on a recent conference call; we don't want to be like Oracle. From the perspective of increasing shareholder value I suppose it's wise considering they almost doubled accounts organically in 3 years. I suppose those accounts are very sticky. Anyone actually know what the "churn" is? I still don't have a position but keep getting interested below 35/share. My concern is how much a bear market would impact operations (profitability) as well as overall valuation.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on June 26, 2016, 11:17:21 AM
I have taken some study on IBKR. I found that each year they have customer bad debts and currency fluctuations as one time gain/losses. Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Another concern: Their class A share count grows by about 7% a year. That's quite a dilution.
Their marketmaker business has historically been their golden goose, but not so much today. Earnings from MM have plummeted in recent years, dragging down overall profitability and somewhat masking the growth from brokerage. That might be it?

I see total sharecount rising from 400m in 2007 to 408m in recent Q.


https://www.sec.gov/Archives/edgar/data/1381197/000104746916010549/a2227422z10-k.htm#da17001_item_1._business

Maybe I misunderstood this corp structure graph on page 4?

The real business is in IBG LLC at the bottom of the graph.
Public shareholders own 100% economic interest in IBG, the publicly traded holding company, whose primary asset is 15.7% of IBG LLC.

Thomas Peterffy owns 86.4% of IBG LLC.

Therefore when new shares are issued, only the public shareholders get diluted.  :o
Title: Re: IBKR - Interactive Brokers
Post by: frommi on June 26, 2016, 11:26:38 AM
I have taken some study on IBKR. I found that each year they have customer bad debts and currency fluctuations as one time gain/losses. Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Another concern: Their class A share count grows by about 7% a year. That's quite a dilution.
Their marketmaker business has historically been their golden goose, but not so much today. Earnings from MM have plummeted in recent years, dragging down overall profitability and somewhat masking the growth from brokerage. That might be it?

I see total sharecount rising from 400m in 2007 to 408m in recent Q.


https://www.sec.gov/Archives/edgar/data/1381197/000104746916010549/a2227422z10-k.htm#da17001_item_1._business

Maybe I misunderstood this corp structure graph on page 4?

The real business is in IBG LLC at the bottom of the graph.
Public shareholders own 100% economic interest in IBG, the publicly traded holding company, whose primary asset is 15.7% of IBG LLC.

Thomas Peterffy owns 86.4% of IBG LLC.

Therefore when new shares are issued, only the public shareholders get diluted.  :o

No, every time they issue new shares they increase the ownership interest so that there is no dilution.
Title: Re: IBKR - Interactive Brokers
Post by: cmlber on June 26, 2016, 12:14:01 PM
When valuing this thing I also think one has to keep in mind they could easily increase profitability by raising prices. I don't think it will happen, the CEO said it in a sarcastic way on a recent conference call; we don't want to be like Oracle. From the perspective of increasing shareholder value I suppose it's wise considering they almost doubled accounts organically in 3 years. I suppose those accounts are very sticky. Anyone actually know what the "churn" is? I still don't have a position but keep getting interested below 35/share. My concern is how much a bear market would impact operations (profitability) as well as overall valuation.

Are customers really "sticky"?  People are choosing IBKR because it has the lowest prices in the industry, not because of some affinity for the brand.  So they're only sticky to the extent that nobody else could possibly offer prices as low as IBKR. 
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on June 26, 2016, 12:19:25 PM
I think the real wealth for IB would come from becoming a semi-bank having banking features for brokerage clients like Schwab and also from better margin lending and higher interest rates will definitely help -when and if they occur. While daytrading in and out for $1 per trade is a nice little game, it implies your customers are casino customers. Really one might even look to casinos as a model for online brokers! They come to gamble, some make money, most lose, pay the house a commission... but the casinos have realized they need other streams of income like hotel rooms, buffets, shows, etc.. I see IB always adding more products, features, etc,, but all are like those brochures and seminars that teach you how to play blackjack, they are feeding the short-term trading machine.
Title: Re: IBKR - Interactive Brokers
Post by: gfp on June 26, 2016, 12:20:46 PM
Re: "Are customers really "sticky"?  People are choosing IBKR because it has the lowest prices in the industry, not because of some affinity for the brand.  So they're only sticky to the extent that nobody else could possibly offer prices as low as IBKR. "

It's not just price, but market access and technology as well.  If an advisor is set up with IB it is a fairly sticky relationship.  Most traders grow to like the platform over time after initially being a bit bewildered by the trader workstation java app.  Other brokers have seen IB's offering for over a decade now, and nobody seems much interested in offering direct access to more than a couple foreign markets or IB's pricing.
Title: Re: IBKR - Interactive Brokers
Post by: Haasje on June 26, 2016, 01:04:51 PM
I don't think casinos are making money on the hotel rooms
Title: Re: IBKR - Interactive Brokers
Post by: DTEJD1997 on June 26, 2016, 01:10:25 PM
I don't think casinos are making money on the hotel rooms
Most casinos most assuredly make money on the hotel rooms...

In Detroit, Casino hotels have $150+ rates for non-weekend days.  MGM Grand's cheapest rate is $239 on a Tuesday night for their entry level room.
Title: Re: IBKR - Interactive Brokers
Post by: Schwab711 on June 26, 2016, 02:17:11 PM
How does IBKR offer such low margin rates, relatively? Does anyone know their largest exposure?
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on June 27, 2016, 06:29:50 AM
https://www.sec.gov/Archives/edgar/data/1381197/000104746916010549/a2227422z10-k.htm#da17001_item_1._business

Maybe I misunderstood this corp structure graph on page 4?

The real business is in IBG LLC at the bottom of the graph.
Public shareholders own 100% economic interest in IBG, the publicly traded holding company, whose primary asset is 15.7% of IBG LLC.

Thomas Peterffy owns 86.4% of IBG LLC.

Therefore when new shares are issued, only the public shareholders get diluted.  :o

I recommend reading through the S-1. It helped me understand the corporate structure. Long story short, look at total share count, not just IBG Inc. We're not diluted nearly as much as it appears. While it's not the simplest corporate/tax structure, I think it's more shareholder friendly than not (and Peterffy has proven to be shareholder friendly IMO).

Are customers really "sticky"?  People are choosing IBKR because it has the lowest prices in the industry, not because of some affinity for the brand.  So they're only sticky to the extent that nobody else could possibly offer prices as low as IBKR. 

I think you're mixing the two concepts of brand power (Coke) and switching costs/stickiness (IBKR). Your last sentence is a big part of the reason that customers are extremely sticky. In addition to that, switching platforms/broker-dealers is a big headache. I manage money using IBKR and have absolutely zero desire to switch somewhere else, even if I could get slightly lower rates.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on June 27, 2016, 06:46:36 AM
I see people ITT and in various write-ups around the Internet constantly comparing IBKR to the other retail brokers, but I don't think that's their main competition. Peterffy has said multiple times that he has no desire to seriously market to retail investors because they require too much hand holding relative to the amount of commissions they bring in. Retail clients at Schwab don't even understand the execution advantage IBKR has over others. To change that, IBKR would have to spend a lot of marketing dollars to educate those retail investors. Even if successful, they're going to gain a bunch of individual investors that give IBKR $100 in commissions per year and probably require more customer service than money managers with millions in AUM. I think of IBKR as trying to be the most electronic and automated big bank in the world.

With respect to pricing power, I don't see the point in even discussing it because it's so unlikely (Peterffy has said it's never happening). It's tempting to want that in the short-term, but long-term having the lowest rates is going to benefit them the most. Lowest rates >> attract sticky customers >> more revenue to throw into technology >> lower rates even more >> repeat.

Churn rate. Peterffy has said their churn rate is around 7% if I remember correctly, but this sounds worse than it is. Most of these are small accounts (<$10k) that go bust. Another chunk of this is individuals who switch advisors and the new advisor uses a different broker. Only a small amount of the churn is both a meaningful account (in terms of dollars) and leaving because they're unhappy with IBKR.
Title: Re: IBKR - Interactive Brokers
Post by: TwoCitiesCapital on June 27, 2016, 06:59:06 AM
KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.

Would you mind explaining how the loss from margin works? I'm envisioning that downward spiral of the markets left many people under their margin limits which would result in liquidations and forced sales. For heavily leveraged/highly volatile accounts, I can see how that might wipe out the equity value of the account and leave a deficiency that IBKR would carry as a liability, but is there no recourse to get that money back? No claims or courts or anything? That person just gets away without owing money to IBKR as long as they don't open another account with them?

Just bumping this question since it's 2 pages back already.

Just want to learn how they could be expected to lose any significant sum of money on margin losses if they really are that strict on immediate/automatic liquidations.
Title: Re: IBKR - Interactive Brokers
Post by: roark33 on June 27, 2016, 07:20:24 AM
I have seen so many pitches on IBKR, but I thought I would merely add my two cents on why I keep passing. 

1. The market maker risk is much larger than people think.  When the swiss franc crisis hit, I think IB lost 120m, if I recall.  That's not a minor sum, and this happens at least once every two years. 

2.  This is a bigger point regarding growth profile.  The TAM for IB is much smaller than people think.  The platform disadvantages make it uniquely situated to pick up the 1m-50m traders/HFs, but anything below is retail going to TD or other retail arms, and above goes to a larger investment bank platform.  I would like someone to show me 5 different funds with over 100m that use IB as their prime broker?  If you can't, then I think you should estimate the TAM for the 1-50m crowd.  How big is that and I wonder if IB already has almost that entire group already.  Just my two cents.

Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on June 27, 2016, 07:20:42 AM
The Swiss Franc debacle is a good example. Investors were able to buy FX futures with 1% margin. The surprise move caused the Swiss Franc to move 20-30% in 10 minutes, IRC. There was no time for IBKR to liquidate the accounts.

The accounts were not in the USA, so recovery is difficult (assuming that the traders even have the financial ability to repay the loans).

That combination of a very large, sudden move coupled with very low margin requirements is very rare. Think of Black Friday 1987. The market dropped 20% in a single day but it didn't gap down 20%. IBKR would have had plenty of time to liquidate accounts. Plus margin requirements are 30-50% on equities (in Canada).

The Swiss Franc exposed the danger in pegged currencies. If the currency is unpegged, you can have equity-like volatility with FX margin rates.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on June 27, 2016, 07:49:52 AM
I have seen so many pitches on IBKR, but I thought I would merely add my two cents on why I keep passing. 

1. The market maker risk is much larger than people think.  When the swiss franc crisis hit, I think IB lost 120m, if I recall.  That's not a minor sum, and this happens at least once every two years. 

The Swiss Franc loss was from the broker not the market maker. But there is some blow-up risk (like any financial) so size appropriately.

Quote
2.  This is a bigger point regarding growth profile.  The TAM for IB is much smaller than people think.  The platform disadvantages make it uniquely situated to pick up the 1m-50m traders/HFs, but anything below is retail going to TD or other retail arms, and above goes to a larger investment bank platform.  I would like someone to show me 5 different funds with over 100m that use IB as their prime broker?  If you can't, then I think you should estimate the TAM for the 1-50m crowd.  How big is that and I wonder if IB already has almost that entire group already.  Just my two cents.

This TAM argument is misguided. The current TAM might be only the 1-50m crowd (not really but let's be conservative). But that doesn't mean that the future TAM is only the 1-50m crowd. They could expand their product upmarket or downmarket or horizontally. Or increase revenue per account by adding more services (or raising prices). Plus some funds use IBKR for execution but use a different prime broker.

IBKR's biggest growth opportunity is outside the U.S. So you need to look at the competitive dynamics outside the U.S. Most IBKR bears are U.S. biased. IBKR might be approaching TAM in U.S. but not internationally.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on June 27, 2016, 08:07:25 AM
Two years ago Peterffy stated their top 100 clients had a combined balance of $10 billion ($100M average). Like KCLarkin, I think their TAM ten years from now will be a lot bigger than their current TAM.

It'll be interesting to see if they have any "one-time" losses from Brexit. They've claimed multiple times that they learned a lot from the Swiss franc event and are better prepared for future events because of it. If Brexit was a "nonevent" like their COO claimed, that's pretty impressive and a good sign going forward.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on June 27, 2016, 08:22:35 AM
KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.

Would you mind explaining how the loss from margin works? I'm envisioning that downward spiral of the markets left many people under their margin limits which would result in liquidations and forced sales. For heavily leveraged/highly volatile accounts, I can see how that might wipe out the equity value of the account and leave a deficiency that IBKR would carry as a liability, but is there no recourse to get that money back? No claims or courts or anything? That person just gets away without owing money to IBKR as long as they don't open another account with them?

Just bumping this question since it's 2 pages back already.

Just want to learn how they could be expected to lose any significant sum of money on margin losses if they really are that strict on immediate/automatic liquidations.

It is possible if market gaps down as liquidity suddenly dries up, or if it is an illiquid stock from the beginning.
Title: Re: IBKR - Interactive Brokers
Post by: TwoCitiesCapital on June 27, 2016, 09:02:05 AM
Thanks all -

Was familiar with the gap risk and margin (as I use IB for a margin account), but wasn't certain how they actually lose money. The idea of the money being lost in foreign countries with different legal rules in terms of recoveries makes a lot of sense and wasn't something I had considered.

Thanks for the responses
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on June 27, 2016, 07:15:21 PM
I think their TAM ten years from now will be a lot bigger than their current TAM.

This is my "opportunities multiply as they are seized” thesis for IBKR.
Title: Re: IBKR - Interactive Brokers
Post by: AccentricInv on June 29, 2016, 09:03:42 AM
Random Question - Is there a way to get email alerts on press releases and SEC filings via IBKR's website?  They don't seem to have a subscription option, like many other IR sites.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on June 30, 2016, 06:27:41 AM
Random Question - Is there a way to get email alerts on press releases and SEC filings via IBKR's website?  They don't seem to have a subscription option, like many other IR sites.

I have their IR page setup through changedetection.com. Though I just set it up recently so I'm not sure if it works or not yet since the IR page hasn't been updated the past few days. Some websites work great through changedetection and some don't.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on July 21, 2016, 07:43:33 AM
CEO mentioned some interesting growth stats on last call:

"by region, America is 12%, Europe is 11% and Asia is 29%."

"individuals were 12%, hedge funds were 15%, prop traders were 9%, advisors were 14%, introducing brokers were 29%."

(Believe this is YoY growth in # of accounts).

Stock sold off sharply after earnings. Now trading at 22.5x earnings (ttm).
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on July 21, 2016, 08:06:52 AM
I finally started a position. I really like the prospects and think there is a lot of optionality. I didn't however understand the remarks on the CC re. the market maker business and how they might build their own platform - first via a simulated try (questions asked by Rob Koehn). Anyone caught that?
Title: Re: IBKR - Interactive Brokers
Post by: fisch777 on July 21, 2016, 08:41:13 AM
That was pretty out of left field and definitely a risk now. 
I think alot of investors were banking on them eventually special dividend-ing out the excess cash from MM unit and TP pretty much squelched that idea on the call, instead suggesting they might build MM into something totally different, ie Virtu-like.
Title: Re: IBKR - Interactive Brokers
Post by: frommi on July 21, 2016, 09:22:51 AM
That was pretty out of left field and definitely a risk now. 
I think alot of investors were banking on them eventually special dividend-ing out the excess cash from MM unit and TP pretty much squelched that idea on the call, instead suggesting they might build MM into something totally different, ie Virtu-like.

Its even worse, he sounded like he wants to built the cash cushion even further. So earnings are reinvested at a zero rate. I don`t know if its a good idea to subtract excess cash from EV in this case.
Title: Re: IBKR - Interactive Brokers
Post by: fisch777 on July 21, 2016, 09:35:46 AM
Agreed, but he's always stated that excess cash is competitive advantage they would work to build/maintain.  I haven't ever backed it out of my model.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on July 21, 2016, 09:50:30 AM
Peterffy made sure to clarify it was an analyst that made the Virtu comparison, not him. I think his simple point was that they're looking at all options for the MM segment--he mentioned building it into something else, spinning it off, merging it with another company, and liquidating it. The market seems to be upset the MM didn't do well this quarter, but I've always valued it at its capital and that's it. Any profits are gravy as far as I'm concerned.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on July 21, 2016, 09:52:05 AM
While it doesn't look good optically with excess cash lying around I like it that way. It reduces  the risk of a blowup. Market maker equity is only around 12% of the marketcap, so in the grand scheme of things I don't think it really matters (I'm also not valuing it om an EV basis since I don't think the liquidity can really be considered excess). Not sure what to think about converting MM into something different, but I thought he sounded pragmatic about it which I like. I can't judge the probabilities of it working out, but hopefully I can somewhat judge the character and his incentives to maximize long term value. Couple with the whitelabel potential it might be another option? I mean, MM has existed since the seventies, doesn't it make sense that they can somehow utilize all the knowledge etc. they've accumulated? (And I admit again, I'm not even sure exactly what they're considering).
Title: Re: IBKR - Interactive Brokers
Post by: frommi on July 21, 2016, 10:20:54 AM
While it doesn't look good optically with excess cash lying around I like it that way. It reduces  the risk of a blowup.

As a client i agree and want to see more cash on the balance sheet.
As a shareholder i am still very unsure if this kind of capital allocation actually destroys a lot of shareholder value. When i look at other compounders capital allocation was always the most important part. Additionally i think that in the next big crisis when margin balances go down, earnings will take a big hit. (nearly 50% of normalized broker pretax earnings is interest income?)
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on July 21, 2016, 10:57:52 AM
Additionally i think that in the next big crisis when margin balances go down, earnings will take a big hit. (nearly 50% of normalized broker pretax earnings is interest income?)

Have you looked at historical correlations between margin balances and earnings?

Interest income is margin balances, securities lending, NIM on customer cash, interest on equity. In a crisis, margin might go down but shorting goes up, cash balances go up, trading volume goes up, MM volatilitiy goes up. To some extent, IBKR is self-hedged. It's also diversified geographically. Add in the growth trendline. It is not clear to me that earnings go down in a crisis.

IBKR will have volatile earnings and we just need to muddle along.

Title: Re: IBKR - Interactive Brokers
Post by: frommi on July 21, 2016, 11:41:08 AM
Additionally i think that in the next big crisis when margin balances go down, earnings will take a big hit. (nearly 50% of normalized broker pretax earnings is interest income?)

Have you looked at historical correlations between margin balances and earnings?

Interest income is margin balances, securities lending, NIM on customer cash, interest on equity. In a crisis, margin might go down but shorting goes up, cash balances go up, trading volume goes up, MM volatilitiy goes up. To some extent, IBKR is self-hedged. It's also diversified geographically. Add in the growth trendline. It is not clear to me that earnings go down in a crisis.

IBKR will have volatile earnings and we just need to muddle along.

When i look at 2008/2009 pretax brokerage numbers you may be right. But i wouldn`t bet on MM earnings going forward.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on July 21, 2016, 10:47:21 PM
While it doesn't look good optically with excess cash lying around I like it that way. It reduces  the risk of a blowup.

As a client i agree and want to see more cash on the balance sheet.
As a shareholder i am still very unsure if this kind of capital allocation actually destroys a lot of shareholder value. When i look at other compounders capital allocation was always the most important part. Additionally i think that in the next big crisis when margin balances go down, earnings will take a big hit. (nearly 50% of normalized broker pretax earnings is interest income?)
It's not exactly opportunistic M&A but keeping cash to support growth is capital allocation (they've also done a speciale divy). I also prefer 1y treasury bonds to usual capex.  ROE isn't too shabby though it fluctuates like the results. I do however share your concern re capital allocation options since it's not clear how they can take advantage of a good crisis (no M&A, limited float for buybacks)
Title: Re: IBKR - Interactive Brokers
Post by: cmlber on August 20, 2016, 02:56:09 PM
You cannot recalculate the 12.4% from our income statement because net income attributable to common shareholders for 2013 was 12.4% of IBG LLC’s net income. However, you’re looking at a consolidated income statement which includes IBG LLC in addition to IBG, Inc.

Thanks. I will try to clarify with IR. It is important to know whether these corporate level expenses are variable (e.g. taxes) or fixed (public company expenses).


Did anyone ever figure this out?  Looking through the 10Ks going back to the IPO, it seems like these "corporate" expenses are erratic. 

In 2008 when reported net income was $1.1b the gap between actual % of net income attributable to common and the % ownership stake in IBG LLC is much lower than any other year (8.3% vs 10%), which would imply that a good part of this is fixed costs associated with being public not just higher taxes.  But then you look at 2010 and out of $277m in net income, -$9.7m is attributable to common shareholders, which is bizarre and implies the combo of fixed public expenses and higher taxes doubled from 2008 to 2010 despite net income declining by 75%.  But then you look at 2014 and 2015, and the net income was roughly the same in both years ($65m vs $64m) but the gap between actual % of NI attributable to common and % ownership in IBG LLC narrowed by a good amount in 2015 (11.8% vs 15.7% in 2015 i.e. 25% discount to ownership in IBG LLC, 9.7% vs 14.5% in 2014 i.e. 33% discount to ownership in IBG LLC). 

Very confusing and seems to be material. 
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on August 21, 2016, 12:24:03 PM
Did anyone ever figure this out?  Looking through the 10Ks going back to the IPO, it seems like these "corporate" expenses are erratic. 

IR offered to clarify over the phone but I failed to follow-up.
Title: Re: IBKR - Interactive Brokers
Post by: cmlber on August 23, 2016, 10:58:42 AM
Did anyone ever figure this out?  Looking through the 10Ks going back to the IPO, it seems like these "corporate" expenses are erratic. 

IR offered to clarify over the phone but I failed to follow-up.

I clarified with IR and it seems to be all tax related.  The reason for the discrepancy is basically that the 84% owned by insiders is not subject to corporate tax but gets taxed on a flow-through basis on their personal returns.  So "Net Income of NCI" is basically untaxed even though it's in the "Net Income" line whereas "Net Income of Common Shareholders" is fully taxed.  So the proportion will be off.  Working from EBT it looks like the tax rate for public investors has been around 32%, 39%, 39% the past few years.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on August 23, 2016, 11:54:17 AM
Working from EBT it looks like the tax rate for public investors has been around 32%, 39%, 39% the past few years.

Thanks. Your implied rates seem close to the company's reconciliation in Footnote 12 (~38%).

Title: Re: IBKR - Interactive Brokers
Post by: kab60 on October 20, 2016, 05:17:17 AM
Just three minor updates post Q3; Pound flashcrash didn't hit them. It seems like they'll sell market maker (no idea on value/price). 0,25 % lift in rates should add 52m to earnings.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 20, 2016, 05:28:53 AM
Selling the market maker could be a nice catalyst, if only because it removes a lot of noise from the results and removes a distraction for management. Not sure what they'd do with the capital. Special dividend maybe? Or just hold on to it because Peterffy likes to be overcapitalized.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on October 20, 2016, 06:08:23 AM
I was actually hoping they could turn it into a HFT and spin it off to investors -  a sort of option. But I think it makes sense just to sell it and keep focusing on brokerage. Anyway, don't expect a special dividend. He wants to retain the equity. Seems like he's a bit annoyed that they have some what of a hard time luring big accounts from prime brokers that are part of big banks and thus TBTF.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 20, 2016, 06:48:23 AM
I was actually hoping they could turn it into a HFT and spin it off to investors -  a sort of option. But I think it makes sense just to sell it and keep focusing on brokerage. Anyway, don't expect a special dividend. He wants to retain the equity. Seems like he's a bit annoyed that they have some what of a hard time luring big accounts from prime brokers that are part of big banks and thus TBTF.

If they were able to be competitive that might've been a good idea, but declining results at the MM over time, as well as their comments on it, seem to show that they are being outgunned and that this isn't a business with a lot of runway for them.
Title: Re: IBKR - Interactive Brokers
Post by: merkhet on October 20, 2016, 07:07:33 AM
Selling the market maker could be a nice catalyst, if only because it removes a lot of noise from the results and removes a distraction for management. Not sure what they'd do with the capital. Special dividend maybe? Or just hold on to it because Peterffy likes to be overcapitalized.

IIRC, they said on the conference call that they were keeping the capital in the company.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 20, 2016, 07:22:33 AM
Selling the market maker could be a nice catalyst, if only because it removes a lot of noise from the results and removes a distraction for management. Not sure what they'd do with the capital. Special dividend maybe? Or just hold on to it because Peterffy likes to be overcapitalized.

IIRC, they said on the conference call that they were keeping the capital in the company.

Ok. I haven't been following as closely lately.

I know that they were taking out 10% of the MM equity every year and either having it pay for its growth or run-off over time.
Title: Re: IBKR - Interactive Brokers
Post by: austin37 on October 24, 2016, 03:43:27 PM
TD Ameritrade to Buy Scottrade in $4 Billion Deal

http://www.nytimes.com/2016/10/25/business/dealbook/td-ameritrade-scottrade-acquisition.html?smid=re-share&_r=0 (http://www.nytimes.com/2016/10/25/business/dealbook/td-ameritrade-scottrade-acquisition.html?smid=re-share&_r=0)


http://www.businesswire.com/news/home/20161024005562/en/TD-Ameritrade-Acquire-Scottrade (http://www.businesswire.com/news/home/20161024005562/en/TD-Ameritrade-Acquire-Scottrade)


Seems like a transaction from a point of weakness, on balance looks to be a positive for IBKR.
Title: Re: IBKR - Interactive Brokers
Post by: BG2008 on November 10, 2016, 11:46:48 AM
Has anyone used IB's trade desk services for block trading etc?  Would love feedback on execution, pricing,
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on November 30, 2016, 07:27:51 PM
IB just announced the elimination of IRA account maintenance fees (were $7.50 / quarter for US custodied IRAs no matter account size).

They are taking IRA management duties in house and eliminating the fee pass through.

For those doing RIA work with small accounts, or those who value a broker who continues to lower fees instead of seeking to take more and more of your money, it's a good sign. ;)
Title: Re: IBKR - Interactive Brokers
Post by: rb on November 30, 2016, 07:39:21 PM
Let's hope they do the same in Canada :)
Title: Re: IBKR - Interactive Brokers
Post by: abyli on November 30, 2016, 08:11:20 PM
IB just announced the elimination of IRA account maintenance fees (were $7.50 / quarter for US custodied IRAs no matter account size).

They are taking IRA management duties in house and eliminating the fee pass through.

For those doing RIA work with small accounts, or those who value a broker who continues to lower fees instead of seeking to take more and more of your money, it's a good sign. ;)

I can not find the news, do you have the link to the IRA fee news? Thanks.

Bing
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on November 30, 2016, 09:15:59 PM
I don't have a link, they flashed it as a bulletin in TWS.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on December 02, 2016, 05:46:06 AM
Continued strong growth: https://investors.interactivebrokers.com/ir/main.php#

I'm mostly interested in number of accounts opened, and it was the highest so far this year (50 pct. higher than same Q last year). Darts (which fluctuates a lot) was also strong. I bought because of the long term growth potential, but I like the near term boost from higher rates and what I expect to be higher volatility following Trump (not sure on the last point, but I expect him to say a lot of crazy shit that will leave the market confused).

Title: Re: IBKR - Interactive Brokers
Post by: muscleman on December 02, 2016, 08:14:02 AM
Continued strong growth: https://investors.interactivebrokers.com/ir/main.php#

I'm mostly interested in number of accounts opened, and it was the highest so far this year (50 pct. higher than same Q last year). Darts (which fluctuates a lot) was also strong. I bought because of the long term growth potential, but I like the near term boost from higher rates and what I expect to be higher volatility following Trump (not sure on the last point, but I expect him to say a lot of crazy shit that will leave the market confused).

Adjusted P/E ratio around 30-35. Growth 20%. Seems too expensive to me.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on December 02, 2016, 08:32:05 AM
Adjusted P/E ratio around 30-35. Growth 20%. Seems too expensive to me.

What assumptions are you using for adjusted P/E ratio?

One of the key questions is the value of the market maker business. I've assumed they can sell the market maker at a decent price, so the broker as a standalone business is probably closer to 25x. But it is pretty clear that Petterffy would keep the proceeds of any sale in the e-broker. So IBKR mightl be 30x if they sell market maker. But IBKR will also have excess cash, so would be cheaper if evaluated ex-cash or using enterprise value.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on December 02, 2016, 09:21:35 AM
The two main metrics I track on a monthly basis are account growth and average commission per cleared order. Account growth has been in line with what I expected, but average commissions has tracked better than what it was looking like early in the year.

Anyway, my math is closer to 22x for the broker on an EV basis, which I think is cheap. That includes several "normalizing" adjustments though. No two people are going to have the same valuation for IBKR with so many moving pieces. It really comes down to how high quality of a business you believe IBKR is and less about whether it's trading for 20x or 25x.
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on December 02, 2016, 09:30:48 PM
Adjusted P/E ratio around 30-35. Growth 20%. Seems too expensive to me.

What assumptions are you using for adjusted P/E ratio?

One of the key questions is the value of the market maker business. I've assumed they can sell the market maker at a decent price, so the broker as a standalone business is probably closer to 25x. But it is pretty clear that Petterffy would keep the proceeds of any sale in the e-broker. So IBKR mightl be 30x if they sell market maker. But IBKR will also have excess cash, so would be cheaper if evaluated ex-cash or using enterprise value.

The market maker will never be sold, it will be liquidated. i think it will never be sold, because the MM trading platform is probably very similar to the brokerage platform, hence selling this business would also give away their competitive advantage for the brokerage platform. I think they will just slowly liquidate the MM business by pulling capital out of it.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on December 02, 2016, 11:08:27 PM
The market maker will never be sold, it will be liquidated. i think it will never be sold, because the MM trading platform is probably very similar to the brokerage platform, hence selling this business would also give away their competitive advantage for the brokerage platform. I think they will just slowly liquidate the MM business by pulling capital out of it.

I agree. But Petterffy seems to disagree.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on December 07, 2016, 01:55:07 PM
The market maker will never be sold, it will be liquidated. i think it will never be sold, because the MM trading platform is probably very similar to the brokerage platform, hence selling this business would also give away their competitive advantage for the brokerage platform. I think they will just slowly liquidate the MM business by pulling capital out of it.

I agree. But Petterffy seems to disagree.

Slight update. According to @Moat6ixCap:

Quote
Peterffy: leery of selling market maker cuz spreads could widen out for clients. leaning towards JVing it

Source: https://twitter.com/Moat6ixCap/status/806538078269636608
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on December 07, 2016, 05:34:46 PM
Adjusted P/E ratio around 30-35. Growth 20%. Seems too expensive to me.

What assumptions are you using for adjusted P/E ratio?

One of the key questions is the value of the market maker business. I've assumed they can sell the market maker at a decent price, so the broker as a standalone business is probably closer to 25x. But it is pretty clear that Petterffy would keep the proceeds of any sale in the e-broker. So IBKR mightl be 30x if they sell market maker. But IBKR will also have excess cash, so would be cheaper if evaluated ex-cash or using enterprise value.

Consumer bad debt 146 loss and Other income (loss) 122, which is mostly foreign currency fluctuations. Assume some random 20 bad debt per year for the long term, to be fair for the broker business.
So if I add these two back to earnings before tax, I got 458+122+146-20=706. The tax rate seems 10% so earnings after tax should be around 630.

That makes EPS to be around 1.2.

The stock price is around $37 so that's a 30x.

This year's earnings is less than last year due to less trading volume, but I think that's temporary.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on December 08, 2016, 07:39:37 AM
Consumer bad debt 146 loss and Other income (loss) 122, which is mostly foreign currency fluctuations. Assume some random 20 bad debt per year for the long term, to be fair for the broker business.
So if I add these two back to earnings before tax, I got 458+122+146-20=706. The tax rate seems 10% so earnings after tax should be around 630.

I don't think your calculations are accurate. Specifically, the tax rate is artificially low because the LLC doesn't pay taxes (this is passed through to the Limited Partners). I think you need to use a 35% tax rate to accurately calculate the earnings that flow through to common share holders.

Oddly, we aren't far off on EPS though. I'd add back the treasury mark-to-market losses (gains). And I think $20M is too high for bad debt. This must net out your underestimate for taxes.
Title: Re: IBKR - Interactive Brokers
Post by: glorysk87 on January 10, 2017, 11:40:45 AM
sumzero put up a random poll today and the results indicate that IBKR is the clear favorite among investors (see attached screenshot)
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on January 10, 2017, 11:51:32 AM
Given that includes large funds that have access to the big banks, that's quite impressive. Anecdotally, the majority of small fund managers I know use Interactive Brokers. And the ones who don't still admit that IBKR offers the best pricing but they chose someone else based on service/cap intro/etc.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on January 10, 2017, 11:53:41 AM
Yeah, I always love when I run into funds who prime through JPM / GS but keep their personal money at IB. :)

Future business...
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on February 11, 2017, 11:26:23 PM
From Barrons: Thomas Peterffy, Interactive Brokers’ chairman and founder, says he has been working on the firm’s flagship platform, Trader Workstation, or TWS, for more than a quarter of a century. “We spend more and more on development every year, which gives the platform an increasing amount of functionality,” Peterffy says. “As we add features, it’s difficult for the average client to figure out what TWS can do, and how to get to the various features.” He recently realized that though the platform is his creation, even he isn’t certain how to navigate to some features.

http://www.barrons.com/articles/alexa-get-me-an-apple-quote-1486794340
Title: Re: IBKR - Interactive Brokers
Post by: sae85400 on February 12, 2017, 07:56:53 AM
But their ads are getting better!
Title: Re: IBKR - Interactive Brokers
Post by: rb on February 12, 2017, 12:47:03 PM
Checkmate!
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on February 28, 2017, 04:36:38 AM
First Schwab lowered rates, now Fidelity undercuts. What do you guys think of this dynamic from IBKR's perspective?
Title: Re: IBKR - Interactive Brokers
Post by: Sunrider on February 28, 2017, 04:41:57 AM
They have a cost advantage and more functionality - long term, I'd bet on the lowest cost provider to last the longest.

Just my 0.02.
C.

First Schwab lowered rates, now Fidelity undercuts. What do you guys think of this dynamic from IBKR's perspective?
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on February 28, 2017, 05:25:08 AM
IB doesn't compete a ton with those guys so I doubt it matters much. With that being said, if the retail brokers cut their own margins (and thus profitability) that can only help IB. They already have the lowest prices and highest margins. If a small RIA or something is seriously considering IB vs Schwab, a $1 or $2 per trade decrease at Schwab isn't going to change anything.
Title: Re: IBKR - Interactive Brokers
Post by: roark33 on February 28, 2017, 07:04:36 AM
I can't understand why everyone thinks price cuts is good for IB.  If your main advantage starts to disappear, that's is not good for your competitive position.  The "customer service" edge at the other brokerages is huuuge, but not enough to justify the large discrepancy in pricing, however, if that discrepancy narrows, fewer people will select IB.

Title: Re: IBKR - Interactive Brokers
Post by: KJP on February 28, 2017, 07:12:43 AM
IB doesn't compete a ton with those guys so I doubt it matters much. With that being said, if the retail brokers cut their own margins (and thus profitability) that can only help IB. They already have the lowest prices and highest margins. If a small RIA or something is seriously considering IB vs Schwab, a $1 or $2 per trade decrease at Schwab isn't going to change anything.

I also don't understand how other brokers cutting their margins is good for IB.  If the other brokers are going to maintain their customer service and simply accept structurally lower margins, how does that help IB?  Maybe it doesn't make a real difference to IB at the end of the day because they aren't really targeting (or making most of their profits on) retail investors.  But I don't see how it helps them.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on February 28, 2017, 07:36:41 AM
I guess I'm more thinking long-term that if their (non-direct) competitors are lowering their margins those  business models are now worse off. Thus, those retail brokers will have less money to invest in themselves and a long, drawn out price war could be the demise of some of the retail brokers.

Me saying retail brokers cutting their prices "can only help IB" was probably a stretch. You're absolutely right that equity pricing (don't forget their massive advantage in options) is a major advantage of theirs and closing that gap isn't a good thing, at least on the surface. But IB makes the vast majority of their money off active, professional traders who (should) care a lot more about pricing than customer service. Again, I think the type of person who would have gone to IB, but who will now go to a retail broker because of the $2/trade decrease is an absolute fringe case and one that we'll never even notice in IB's financials.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on February 28, 2017, 08:01:18 AM
But IB makes the vast majority of their money off active, professional traders who (should) care a lot more about pricing than customer service.

Not sure what you call active, professional traders. Day traders? People with 200-400% annual turnover?

In any case, as much as I can call myself "active" trader, I do care much more about customer service than I do about pricing.
The only reason I would consider IB at all is their access to markets Fido does not provide.

And yeah IB is probably the only viable smallish SMA platform. But the fact that most SMA advisors use it, doesn't mean I should fall in love with it. IB is crap.

But you are right: I was on Fido before and I will only be happier on Fido now.
If I decide to have someone manage my money, I'll weigh whether I want to endure the account on IB.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 28, 2017, 08:07:50 AM
I can't understand why everyone thinks price cuts is good for IB.  If your main advantage starts to disappear, that's is not good for your competitive position.

Commission prices aren't the main advantage for IBKR. Lowest cost is. Commissions are only a small part of the price paid. For example, Interactive Brokers pays interest on deposits. When interest rates rise, IBKRs interest rate spreads remain constant. Schwab's spreads widen. So when interest rates rise, IBKR is actually more competitive.

Schwab (and presumably Fidelity) do not make much revenue from trading. They are asset managers. Schwab only makes 11% of revenue from trading. Rising interest rates allow Schwab to use commissions as a loss leader.

--
But the theory is that the lower prices will force sub-scale brokers out of the business (and many will outsource to IBKR). Certainly, that is Peterffy's expectation.

So you could potentially see the market shakeout as follows:
- Retail investors and RIAs -> Schwab and Fido (free trading)
- Active Traders -> IBKR

--
If the other brokers are going to maintain their customer service and simply accept structurally lower margins, how does that help IB? 

As mentioned above, the other brokers aren't lowering margins. Higher interest rates are creating higher margins. Given the higher interest rates, they are competing more aggressively for assets.
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on February 28, 2017, 08:11:55 AM
Huh, I posted, but I guess it was lost to the 404 gods...

Count me as one who views this as moderately good long term for IB, but near term it will clearly lower growth / customer acquisition. I don't view it as a major change though, just a continuation of what has been happening for a long time.  Fido and SCHW have both been lowering commissions for years, just stealthily through negotiations with big customers.  Most I know were already at $5 commission if they had big accounts.

I think you will see the US brokerages have less $$ now to compete / invest both in the US, and critically, overseas.  Long term, I think IB's cost advantage will trend toward more consolidation, and more brokerages using them directly for infrastructure, and just focusing on support.

I still think long term, this is an oligopoly business globally with a few differentiated competitors, but mostly a commodity business.

I think IB's price advantage is getting lower today, I think their cost advantage remains intact and less profitable brokerage competitors will begin evaluating business plans soon given the trend of the industry.

My 2 cents.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 28, 2017, 08:15:47 AM
professional traders who (should) care a lot more about pricing than customer service.

And "customer service" for professional traders is very different. Professional traders should care much more about the quality of trade execution than the quality of a 1-800 number. Or the ability to trade internationally. Or the ability to easily get pricing for shorts.

We can all agree that IBKRs marketing, user interfaces, and customer service are terrible. The fact that they are growing accounts 15% despite these obvious weaknesses, proves how compelling the overall product offering is.
Title: Re: IBKR - Interactive Brokers
Post by: racemize on February 28, 2017, 08:17:44 AM
It seems like it is growing because there is virtually no choice other than IB for small funds.  Do they split out retail vs professional growth?

Note: I don't know too much about this investment other than I'm essentially a forced user of IB for the reason above.
Title: Re: IBKR - Interactive Brokers
Post by: CorpRaider on February 28, 2017, 08:28:56 AM
professional traders who (should) care a lot more about pricing than customer service.

We can all agree that IBKRs marketing, user interfaces, and customer service are terrible.

Oh I dunno, I like the one where the guy tries to make out with the other guys date at the end of the night.  I also like the one where the lady needs to "do some hedging trades" before ordering wine. 

You can see why I decided to cut off my cable subscription.  haha.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on February 28, 2017, 08:33:53 AM
It seems like it is growing because there is virtually no choice other than IB for small funds.  Do they split out retail vs professional growth?

Not that I've seen. On the Q4 2016 call Peterffy broke down accounts by type--56% are individual accounts that make up 37% of equity and 51% of commissions. The problem is the vast majority of that is professional traders so it's hard to know how much is retail. The other account types (other brokers, hedge funds, prop firms, and financial advisors) don't have any retail investors in them. Peterffy has said many times that he has no desire to market to or service retail clients so unless there's a major shift I don't expect that'll change (at least while he's alive).

Frankly, if you're a retail investor who makes a handful of trades per year I have no idea why you'd be on IB.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on February 28, 2017, 08:58:39 AM
Easy. Some retail investors care about prices, and in some countries the competition isn't like in the US where TD Ameritrade, Schwab and Fidelity are actually already pretty cheap. My parents who don't do more than a handful of trades have an IB account for that reason. At the same time, I do some of my trades at TD Ameritrade because IB is a lot more expensive for certain transactions...
Title: Re: IBKR - Interactive Brokers
Post by: Astrea on February 28, 2017, 09:02:02 AM
Charles Schwab Corp says it will reduce its standard online equity and ETF trade commissions from $6.95 to $4.95 effective March 3, 2017


Title: Re: IBKR - Interactive Brokers
Post by: rb on February 28, 2017, 09:13:10 AM
Easy. Some retail investors care about prices, and in some countries the competition isn't like in the US where TD Ameritrade, Schwab and Fidelity are actually already pretty cheap. My parents who don't do more than a handful of trades have an IB account for that reason. At the same time, I do some of my trades at TD Ameritrade because IB is a lot more expensive for certain transactions...
+1. Also the international side at IB and the FX. Savings on one FX trade at IB will pay the minimums for a whole year. Also low margin interest that smart retail investors can integrate into a larger strategy.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 01, 2017, 09:12:21 AM
Interesting scuttlebutt from Twitter:

Quote
Spoke to ~$1bn mutual fund that said banks charging them an arm & leg for trading. So they use $IBKR for most trades, same execution.
-- @LuisVSanchez777
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on March 01, 2017, 01:08:00 PM
But IB makes the vast majority of their money off active, professional traders who (should) care a lot more about pricing than customer service.

Not sure what you call active, professional traders. Day traders? People with 200-400% annual turnover?

In any case, as much as I can call myself "active" trader, I do care much more about customer service than I do about pricing.
The only reason I would consider IB at all is their access to markets Fido does not provide.

And yeah IB is probably the only viable smallish SMA platform. But the fact that most SMA advisors use it, doesn't mean I should fall in love with it. IB is crap.

But you are right: I was on Fido before and I will only be happier on Fido now.
If I decide to have someone manage my money, I'll weigh whether I want to endure the account on IB.

I have accounts with Fidelity, Interactive Brokers, and Wells Fargo Investments.

I think from a Customer service perspective, I like dealing with Fidelity the most. I don't like the fact that they don't allow to buy some dark company stock any more. This is an area that I have been investing quite a bit over the years and I really hate this restriction and let them now. Wells Fargo investments does have similar restrictions.

Wells Fargo investment is the cheapest, I get 100 free trades/year as a PMA (or whatever it is called now) customer, but the platform is bare bones. If they ever do away with the free, I will be gone in a NY minute.

Interactive Brokers gives you access to the largest Universe of stocks, including foreign stocks. I rarely use the Pc platform any more but trade from the iPad or Android app. The PC app has become very unwieldy, imo. Their tax reporting is crap, they don't have import into Turbotax and I have found the import via different format lacking. it should really be a high priority to fix this, sind es they are behind pretty much every other broker in that regard.

With Fidelity or Schwabs price cuts, IB is not really much cheaper any more for plain vanilla trading, if you trade a few hundred shares. IB is much cheaper when dealing with foreign stocks, currencies, bonds and margin.

So far, not one broker meets all my requirements and that is why I have a few accounts at different brokers. I could probably whittle then down to Fidelity and IB, but my laziness prevents me from doing so.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on March 01, 2017, 01:42:24 PM
February metrics out, very nice growth in accounts.
Title: Re: IBKR - Interactive Brokers
Post by: roark33 on March 07, 2017, 11:51:34 AM
IB's technology advantage shown here (two days running)...

Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 07, 2017, 01:25:52 PM
It's preventing you from trading for your own good. Just go on vacation, you don't need to buy or sell anything. Come back in 10 years and you gonna be $$$$$.
Title: Re: IBKR - Interactive Brokers
Post by: roark33 on March 07, 2017, 01:36:28 PM
It doesn't actually prevent me from doing anything.  What is does is make clients wonder what is going on with their account.  It's just so funny that people think IB is so advanced, but their back-end customer service technology is just so poor. 

Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 07, 2017, 01:40:15 PM
Sorry, my mistake. It's for clients' own good. Tell them to take a vacation and come back in 10 years for $$$$$.



;)

Edit: I haven't gotten to entering IB transactions into TurboTax yet. I'm gonna be way more snarky when I do.
Title: Re: IBKR - Interactive Brokers
Post by: undervalued on March 07, 2017, 01:47:06 PM
Lol as long as it doesn't say your money is NOT available anymore.
Title: Re: IBKR - Interactive Brokers
Post by: writser on March 07, 2017, 02:18:22 PM
That's the MF Global approach.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on March 08, 2017, 05:43:22 AM
Just last week my girlfriend's Schwab account randomly showed a $0 balance. Couple phone calls got it sorted out. All technology companies have occasional glitches. Be careful not to extrapolate meaningless sample sizes.

On another note, I got my copy of Preqin's 2017 hedge fund report and was happy to see the entire back cover is an Interactive Brokers ad. Thought the ad was pretty solid...
Title: Re: IBKR - Interactive Brokers
Post by: oddballstocks on March 08, 2017, 06:19:04 AM
Just last week my girlfriend's Schwab account randomly showed a $0 balance. Couple phone calls got it sorted out. All technology companies have occasional glitches. Be careful not to extrapolate meaningless sample sizes.

On another note, I got my copy of Preqin's 2017 hedge fund report and was happy to see the entire back cover is an Interactive Brokers ad. Thought the ad was pretty solid...

A few years ago Fidelity had a stock in my IRA's price showing as $60,000 per share instead of $6 per share.  Instantly I had something like $13m in that account.  I called them and asked to cash it out or get a margin loan against it.  The rep laughed and said it was an error, I said they needed to help me figure out how to get the cash out...

That's not as bad as another time when an international stock I held's CUSIP changed.  I had a position that was worth about $10k that was rejournaled from a Portuguese stock into some worthless Canadian miner with $100 in value.  It took a LONG time on the phone before that was fixed.  They ended up talking to some IT person who determined it to be an error.  That was a mess.
Title: Re: IBKR - Interactive Brokers
Post by: atbed on March 08, 2017, 09:01:36 AM
Just last week my girlfriend's Schwab account randomly showed a $0 balance. Couple phone calls got it sorted out. All technology companies have occasional glitches. Be careful not to extrapolate meaningless sample sizes.

On another note, I got my copy of Preqin's 2017 hedge fund report and was happy to see the entire back cover is an Interactive Brokers ad. Thought the ad was pretty solid...

Saw the same ad in Hedgeweek! page 6

http://www.hedgeweek.com/sites/default/files/Hedgeweek_Special_Report_Prime_Brokerage_2016_0.pdf

An article about them starts on page 7.
Title: Re: IBKR - Interactive Brokers
Post by: boilermaker75 on March 08, 2017, 10:52:29 AM

Edit: I haven't gotten to entering IB transactions into TurboTax yet. I'm gonna be way more snarky when I do.

I've done mine. It is easy. If you are on a Mac don't use Safari, it won't work. You have to use Firefox.
Title: Re: IBKR - Interactive Brokers
Post by: rb on March 08, 2017, 11:18:52 AM

Edit: I haven't gotten to entering IB transactions into TurboTax yet. I'm gonna be way more snarky when I do.

I've done mine. It is easy. If you are on a Mac don't use Safari, it won't work. You have to use Firefox.
You wouldn't have that problem if you lived in Canada :P 8)
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 08, 2017, 12:21:30 PM

Edit: I haven't gotten to entering IB transactions into TurboTax yet. I'm gonna be way more snarky when I do.

I've done mine. It is easy. If you are on a Mac don't use Safari, it won't work. You have to use Firefox.

Not sure what you mean. I haven't found any way to import IB taxe forms into TurboTax online. Are you saying there is a way? We can take it to private messages or other thread, since it's a bit OT here.

Edit: This https://ibkb.interactivebrokers.com/article/2030 I believe only works for importing into TurboTax standalone. Not into online. Also this says only standalone: http://ibkb.interactivebrokers.com/article/2042
Title: Re: IBKR - Interactive Brokers
Post by: boilermaker75 on March 08, 2017, 12:40:54 PM

Edit: I haven't gotten to entering IB transactions into TurboTax yet. I'm gonna be way more snarky when I do.

I've done mine. It is easy. If you are on a Mac don't use Safari, it won't work. You have to use Firefox.

Not sure what you mean. I haven't found any way to import IB taxe forms into TurboTax online. Are you saying there is a way? We can take it to private messages or other thread, since it's a bit OT here.

Edit: This https://ibkb.interactivebrokers.com/article/2030 I believe only works for importing into TurboTax standalone. Not into online. Also this says only standalone: http://ibkb.interactivebrokers.com/article/2042

Sorry, I'm not using online. I have Turbo Tax on my Mac so I download a txf file from IB and import to TurboTax.

What I found is the txf file is screwed up when downloaded with Safari but is OK when downloaded with Firefox. This has been the case for at least three years.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 08, 2017, 12:45:14 PM

Edit: I haven't gotten to entering IB transactions into TurboTax yet. I'm gonna be way more snarky when I do.

I've done mine. It is easy. If you are on a Mac don't use Safari, it won't work. You have to use Firefox.

Not sure what you mean. I haven't found any way to import IB taxe forms into TurboTax online. Are you saying there is a way? We can take it to private messages or other thread, since it's a bit OT here.

Edit: This https://ibkb.interactivebrokers.com/article/2030 I believe only works for importing into TurboTax standalone. Not into online. Also this says only standalone: http://ibkb.interactivebrokers.com/article/2042

Sorry, I'm not using online. I have Turbo Tax on my Mac so I download a txf file from IB and import to TurboTax.

What I found is the txf file is screwed up when downloaded with Safari but is OK when downloaded with Firefox. This has been the case for at least three years.

OK, thanks. I am using online. I'm aware that the standalone can import the txf. Switching to standalone would solve the IB issue, but I probably would lose info that I have in online that makes other things faster/easier. So tough choice. Probably gonna manually input IB into online...  :-\
Title: Re: IBKR - Interactive Brokers
Post by: boilermaker75 on March 08, 2017, 03:36:24 PM

[/quote]

OK, thanks. I am using online. I'm aware that the standalone can import the txf. Switching to standalone would solve the IB issue, but I probably would lose info that I have in online that makes other things faster/easier. So tough choice. Probably gonna manually input IB into online...  :-\
[/quote]

It's coming back to me. We had this conversation last year!
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on March 08, 2017, 04:04:21 PM
The advantages of Alzheimer's... I meet new friends and discuss new topics every year.  ;D
Title: Re: IBKR - Interactive Brokers
Post by: writser on March 09, 2017, 05:20:53 AM
https://www.streetinsider.com/dr/news.php?id=12647473

Quote
Interactive Brokers Group, Inc. (NASDAQ: IBKR) today announced that it will discontinue options market making activities globally, which are conducted through its Timber Hill companies. The Company expects to phase out these operations substantially over the coming months. The Company intends to continue conducting certain trading activities in stocks and related instruments.

Thomas Peterffy, Chairman and CEO, said, “Having initiated the first automated option market making operation in the mid ’80s, which grew into the largest such business on a global scale over the next 25 years, it’s been painful for me to see it deteriorating in the last few years. But we do not have a choice in this matter. Today retail order-flow is purchased by large order internalizers and joining them would represent a conflict we do not wish to have. On the other hand, providing liquidity to sophisticated, professional synthesizers of short-term fundamental, technical and big data is not a profitable activity.

Interesting
Title: Re: IBKR - Interactive Brokers
Post by: AccentricInv on March 09, 2017, 08:03:08 AM
Just last week my girlfriend's Schwab account randomly showed a $0 balance. Couple phone calls got it sorted out. All technology companies have occasional glitches. Be careful not to extrapolate meaningless sample sizes.

On another note, I got my copy of Preqin's 2017 hedge fund report and was happy to see the entire back cover is an Interactive Brokers ad. Thought the ad was pretty solid...

Any idea if they finally hired a REAL professional marketing firm, instead of trying to do everything in-house?  Between this, their witty Barron's ad, and the increased number of ads I've seen at industry events, it recently seems Petterfy's finally loosening the marketing purse-strings?
Title: Re: IBKR - Interactive Brokers
Post by: TwoCitiesCapital on March 09, 2017, 08:08:12 AM
https://www.streetinsider.com/dr/news.php?id=12647473

Quote
Interactive Brokers Group, Inc. (NASDAQ: IBKR) today announced that it will discontinue options market making activities globally, which are conducted through its Timber Hill companies. The Company expects to phase out these operations substantially over the coming months. The Company intends to continue conducting certain trading activities in stocks and related instruments.

Thomas Peterffy, Chairman and CEO, said, “Having initiated the first automated option market making operation in the mid ’80s, which grew into the largest such business on a global scale over the next 25 years, it’s been painful for me to see it deteriorating in the last few years. But we do not have a choice in this matter. Today retail order-flow is purchased by large order internalizers and joining them would represent a conflict we do not wish to have. On the other hand, providing liquidity to sophisticated, professional synthesizers of short-term fundamental, technical and big data is not a profitable activity.

Interesting

This is unfortunate....

One of the things I loved most about IB has been how cheap their options trading was. I typically pay $1-$3 per trade on IB the other brokers I've tried would charge $10-15 for the same trade
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on March 09, 2017, 08:26:29 AM
Any idea if they finally hired a REAL professional marketing firm, instead of trying to do everything in-house?  Between this, their witty Barron's ad, and the increased number of ads I've seen at industry events, it recently seems Petterfy's finally loosening the marketing purse-strings?

I haven't heard anything, but I think it's likely. Their marketing has seen a noticeable uptick in quality.
Title: Re: IBKR - Interactive Brokers
Post by: rb on March 09, 2017, 08:31:40 AM
https://www.streetinsider.com/dr/news.php?id=12647473

Quote
Interactive Brokers Group, Inc. (NASDAQ: IBKR) today announced that it will discontinue options market making activities globally, which are conducted through its Timber Hill companies. The Company expects to phase out these operations substantially over the coming months. The Company intends to continue conducting certain trading activities in stocks and related instruments.

Thomas Peterffy, Chairman and CEO, said, “Having initiated the first automated option market making operation in the mid ’80s, which grew into the largest such business on a global scale over the next 25 years, it’s been painful for me to see it deteriorating in the last few years. But we do not have a choice in this matter. Today retail order-flow is purchased by large order internalizers and joining them would represent a conflict we do not wish to have. On the other hand, providing liquidity to sophisticated, professional synthesizers of short-term fundamental, technical and big data is not a profitable activity.

Interesting

This is unfortunate....

One of the things I loved most about IB has been how cheap their options trading was. I typically pay $1-$3 per trade on IB the other brokers I've tried would charge $10-15 for the same trade
This could be good for IB stock. One of the most common reasons I've heard of clients not wanting to sign up with IB was their Timber Hill operation. It remains to be seen if they'll change prices for options.
Title: Re: IBKR - Interactive Brokers
Post by: writser on March 09, 2017, 08:33:41 AM
I think you misinterpret the press release (or I do). AFAIK nothing changes for you at the brokerage businesses. Their market maker business just stops market making in options because 1) valuable retail flow is internalized and they don't want to do that and 2) they cannot make money providing liquidity to the remaining sharks out there. So after 30 years they shut down options market making and probably pull a large chunk of capital from the (underperforming) market making segment to deploy in the brokerage business. Or to return it to shareholders. I don't see why that would mean higher fees. They were not internalizing anyway as far as I know.

I am allergic to paying 20x earnings or whatever for a business (and I don't like the convoluted shareholder structure of IBKR) but the past few years I've been happy with IB as a customer and impressed with the things Peterffy has said and done. If I would ever pay up for a great company this would be high on my list.
Title: Re: IBKR - Interactive Brokers
Post by: TwoCitiesCapital on March 09, 2017, 10:53:24 AM
I think you misinterpret the press release (or I do). AFAIK nothing changes for you at the brokerage businesses. Their market maker business just stops market making in options because 1) valuable retail flow is internalized and they don't want to do that and 2) they cannot make money providing liquidity to the remaining sharks out there. So after 30 years they shut down options market making and probably pull a large chunk of capital from the (underperforming) market making segment to deploy in the brokerage business. Or to return it to shareholders. I don't see why that would mean higher fees. They were not internalizing anyway as far as I know.

I am allergic to paying 20x earnings or whatever for a business (and I don't like the convoluted shareholder structure of IBKR) but the past few years I've been happy with IB as a customer and impressed with the things Peterffy has said and done. If I would ever pay up for a great company this would be high on my list.

My bad. I did misinterpret.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on March 30, 2017, 06:13:40 AM
I bought some more and made it my biggest position (and the most "expensive" at current earnings). Brokerage did 756m pretax income FY16 which included just two weeks of the December rate increase. Per the Q4 CC Peterffy said he expects brokerage to grow at a high double digit rate "although we will certainly try for more".

So let's say he's right and they grow brokerage 17 pct. this year and the same next year and we're at 1035m pretax income. If one backs out excess capital market cap is around 10b, so that's a valuation of 10xpretax 2018 brokerage income.

There's many ways to skin a cat, and one can definitely discuss whether the excess capital is truly excess or whether they'll achieve the stated growth (they're gaining more accounts but perhaps also less active/profitable)  but I don't think it matters too much in the big scheme of things. It's okay for me that they retain most of the cash since it probably make hedgefunds etc. more comfortable doing business.

It's unclear to me whether Peterffys growth expectations include the next rate increase, but I don't really care. The December increase plus the next should add some 90m to pretax brokerage income.

The one thing I don't like about this Company is the convoluted shareholder structure. I can't really figure out if there's a potential tax risk.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 30, 2017, 06:59:59 AM
The one thing I don't like about this Company is the convoluted shareholder structure. I can't really figure out if there's a potential tax risk.

I don't think there is a tax risk to common shareholders. The reason why taxes are so low is because taxes are pass-through for the partnership. If you calculate the percentage of pre-tax income actually attributable to common shareholders as net income, you will see that common shareholders are paying a much higher tax rate.

Also note that the portion of after tax-income available for common shareholders is much less than the ownership structure implies (this was discussed previously).
Title: Re: IBKR - Interactive Brokers
Post by: cmlber on March 30, 2017, 07:10:31 AM
If one backs out excess capital market cap is around 10b, so that's a valuation of 10xpretax 2018 brokerage income.

There's many ways to skin a cat, and one can definitely discuss whether the excess capital is truly excess or whether they'll achieve the stated growth (they're gaining more accounts but perhaps also less active/profitable)  but I don't think it matters too much in the big scheme of things. It's okay for me that they retain most of the cash since it probably make hedgefunds etc. more comfortable doing business.

I don't think the excess capital is "excess" in any way, it can't be taken out of the business.  They need that capital to grow, no hedge fund is going to use IB with the regulatory minimum. 
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 30, 2017, 07:32:27 AM
I don't think the excess capital is "excess" in any way, it can't be taken out of the business.  They need that capital to grow, no hedge fund is going to use IB with the regulatory minimum.
They could take some capital out of the business without any damage to the balance sheet. Peterffy WON'T take the capital out of the business, though. So, it is wrong to value this ex-cash. Even worse, Peterffy plans to take the capital from the market maker and put it in the brokerage. So you can't even add back any value for the MM either.

Given the above, I think IBKR is richly valued compared to some other mid-teens growers (e.g. PCLN or GOOGL). I want to cut this down to a 5% position. But reluctant to sell into current weakness.

The one thing that prevents me from selling is that current trading activity seems unusually low. With a bit more volatility, earnings could really pop.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on March 30, 2017, 08:16:45 AM
Quote
Even worse, Peterffy plans to take the capital from the market maker and put it in the brokerage. So you can't even add back any value for the MM either.

I haven't followed IBKR closely lately. Did he actually come out and say this about putting the MM capital in the brokerage, or is this more a theory that seems likely based on his actions so far? Thanks.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 30, 2017, 08:29:01 AM
Quote
Even worse, Peterffy plans to take the capital from the market maker and put it in the brokerage. So you can't even add back any value for the MM either.

I haven't followed IBKR closely lately. Did he actually come out and say this about putting the MM capital in the brokerage, or is this more a theory that seems likely based on his actions so far? Thanks.

Well, I think it is implied from two separate facts:
1. Peterffy has stated that any excess capital would be transferred to broker (Q3 2016 Call):
Quote
Rich Repetto

Got it. And just one last quick thing, would – it’s still the same position, that capital would be transitioned to the broker rather than have any return to the shareholders?

Thomas Peterffy

That is correct. We still – we do not only want to be the best and least expensive broker, we also want to be the safest.

2. Since that call, IBKR has announced plans to wind-down many MM activities. So there will be excess capital.

Based on the above, I have reduced my valuation of IBKR.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on March 30, 2017, 08:55:13 AM
Thanks. It indeeds sounds like that's what they intend to do. I wonder if they'll also stop the dividend, which has been designed to return MM capital if ROE is under 10%...
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on March 30, 2017, 10:15:05 AM
KC, your assumption is they put the $$$ in the market maker but then don't use it to improve growth / returns etc?  Or just that they try but invest poorly in those outcomes?

Thx.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on March 30, 2017, 10:22:09 AM
KC, your assumption is they put the $$$ in the market maker but then don't use it to improve growth / returns etc?  Or just that they try but invest poorly in those outcomes?

Thx.
The equity from market maker goes to brokerage. And I think the point is that it'll decrease ROE. I also think it means that one might be inclined to double count, ie say you get a 3,5 pct. free cash yield at current prices plus 17 pct. growth, but that 3,5 pct. cash isn't really free since most is needed to fund the growth (although small they do pay a small dividend and returned some 7,2 pct. of the marketcap in 2012, so it's not like Peterffy won't return cash. I figure he just think there's a real use for it).

Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 30, 2017, 10:34:00 AM
KC, your assumption is they put the $$$ in the market maker but then don't use it to improve growth / returns etc?

Yes (they take money out of MM and put it into broker). In my model, ROE in the broker has slowly and steadily declined even as revenue has grown strongly and profit margins are steady. This suggests to me that these retained earnings are truly "excess" capital.

Or, to put it another way, Peterffy is emphasizing growth over ROE. There might be a few hedge funds who are slightly more willing to custody a portion of their funds with IBKR due to the balance sheet. But to move the needle, IBKR needs billions of excess capital. The incremental ROE on this excess capital is very low. This is probably the right strategy. And I fully endorse it. But given this strategy, it is wrong to label any of this capital as "excess" capital. If Peterffy ever retires or sells out, then the strategy might change and substantial capital could be released.

Or just that they try but invest poorly in those outcomes?

They won't invest the capital in the traditional sense. It will be added to the balance sheet to make IBKR a "safer" custodian. But will it really matter if they have $5B in excess capital instead of $4B? Maybe on the margins. Frankly, it would be much cheaper for them to invest in better marketing and user experience, but this seems to be a blindspot for TP.

Edit to add: For an investor, there is also a counter force. The stronger the balance sheet, the safer IBKR is as an investment. So the cost of capital should fall (higher multiple). But I don't think $1 in retained earnings adds $1 in market value with the current balance sheet.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 30, 2017, 11:26:03 AM
Another way to look at this:

The current balance sheet is rock solid. Not only is there a lot of excess capital. But the capital is conservatively invested in 2 year treasuries. Margin requirements and auto-margin calls also make it very difficult for IBKR to sustain large losses. There would need to be a sudden, unprecedented event to imagine any sizeable hit to the balance sheet.

Let's say that IBKR is currently 99% safe. There is a 1% chance that a black swan event (say a nuclear attack on a major U.S. city) could wipe out the balance sheet. This is not great. Many hedge funds might find this too risky (of course it is questionable whether GS or MS are any safer).

So to make IBKR even safer, Peterffy doubles the amount of excess capital. It still takes a cataclysmic event to kill IBKR. But the odds of survival increase slightly. Let's say that IBKR is now 99.1% safe.

How many hedge funds would really switch for such a modest improvement in safety?

--
Now imagine an alternative universe where IBKR invested $1B of retained earnings to design a great SMA/RIA reporting interface? How many more RIAs would choose IBKR if it wasn't such an embarrassment to clients?
Title: Re: IBKR - Interactive Brokers
Post by: GregS on March 30, 2017, 02:26:39 PM
I found this quote from the Q3 call to be revealing:

Quote
Our third group of customers are the hedge funds, which represent under 1% of our accounts and 9% of equity and commissions, which are also 9%, and they are our fastest growing commission generating groups. The big banks appear to be consolidating their prime brokerage operations and are happy to see their smaller and less profitable hedge fund clients leave. But this begs the question, if these clients find that they are happier on our more automated and less expensive platform, as they in fact do, will they be followed by their larger peers? We certainly hope so. As I have said many times before, our challenge is overcoming the perception of the end customer level that the larger banks are safer custodians.

Seems like the excess capital is being used to bolster that perception of safety, which they hope will bring more of the highly profitable hedge fund business.  In a way, you can consider the additional capital on the balance sheet to be growth investment.  I think that's how they perceive it.

Perhaps as KCLarkin suggested they should reinvest more on their client-facing end to bolster the RIA business.  Of course I don't see these efforts as mutually exclusive.
Title: Re: IBKR - Interactive Brokers
Post by: flesh on March 30, 2017, 05:37:59 PM
Perhaps some of our hedge fund operators could elucidate/quantify why they do/don't use IB, generally. Additionally, why and how much excess capital would it take to make this a no brainer. Is someone informed enough to quantify these issues from a front line business perspective? I'm not sure I understand the math behind this low probability disastrous outcome? Where's the tipping point/threshold regarding these issues?

Any worthwhile info is appreciated.

Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 30, 2017, 06:18:48 PM
Is someone informed enough to quantify these issues from a front line business perspective? I'm not sure I understand the math behind this low probability disastrous outcome? Where's the tipping point/threshold regarding these issues?

This isn't a quantitative thing. It is reputational. Hedge funds trust GS or MS as their prime broker. Peterffy believes, and he is probably correct, that IBKR is already safer than the big primes. But until IBKR earns that reputation some funds will not feel comfortable with IBKR as their custodian. More importantly, many clients wouldn't allow it. It's one thing for IBKR to convince a hedge fund manager that they are a safe custodian. It is quite another to convince a college endowment that has never even heard of IBKR.

It is a real issue. Just not one that can be solved quickly or cheaply.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on March 31, 2017, 10:02:06 AM
To reiterate KC's point, I think it's much more the institutional investors than it is the hedge fund managers. If an institutional investor says I'll give you $100 million but only if you switch from IB to a big prime, it's a pretty easy decision. And I've heard numerous examples that are very similar to what I just said. It's a reputation thing that will take years to change and it will be a very gradual process. I doubt many people who really know IB thinks they're less safe than the big banks.
Title: Re: IBKR - Interactive Brokers
Post by: glorysk87 on April 04, 2017, 06:40:11 AM
My question, from a buysider's point of view.

Why would I use Interactive Brokers when I can trade just as cheaply on Instinet and with many more tools, a huge algo suite, and a much better user interface at my disposal?
Title: Re: IBKR - Interactive Brokers
Post by: fisch777 on April 04, 2017, 07:25:45 AM
Who is your custodian for Instinet?
Title: Re: IBKR - Interactive Brokers
Post by: glorysk87 on April 04, 2017, 07:36:56 AM
does that matter? it's the broker that determines the commission, no?
Title: Re: IBKR - Interactive Brokers
Post by: fisch777 on April 04, 2017, 07:52:07 AM
Yes, your broker determines commission to you, but that is influenced by how much the broker pays to custodian, assuming they are not integrated.  See IB's comments on introducing broker pricing and bundling.

My point is that the custodian matters greatly to institutional investors, esp post-Lehman. As discussed at length above, while IB is not the household name of JP or GS, IB is most likely a safer custodian for your client capital.   

That all said, and to KCLarkin's point, I would venture that the perception of IB's sub-par reporting functionality and customer service are a bigger hurdle for most HF/RIA clients than the balance sheet needing to be safer.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on April 04, 2017, 08:33:43 AM
March numbers out. Activity still somewhat low as expected but account growth seems to be accelerating. No idea why; more marketing? Introducing broker clients? 7,9k new accounts (record I think) and client equity up 4 pct. q/q
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on April 04, 2017, 08:40:41 AM
account growth seems to be accelerating.

Possibly the Zion's Bank migration? But probably not big enough to account for all of the acceleration.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on April 04, 2017, 10:21:32 AM
Zion was 6,000 accounts so that is only some of the growth the past three months.
Title: Re: IBKR - Interactive Brokers
Post by: Mungerish on April 05, 2017, 08:26:26 AM
This is a great thread in terms of flushing out whether this company is a technologically enabled disrupter and a great long term business.... or something else.(??)
Like most of you here, I'm a value guy and only want to pay up if I am getting much more than I am paying for.
Here, its all about the calculation of competitive advantage and what the next 5+ years will bring. Its easy to see the earnings double if the growth of the recent past keeps up, but where is the margin of safety if it does not? Its not cheap at 27X

I too am a user as an RIA and fund manager....but only after Schwab told me they would open a pooled account for us and then changed their mind. It was a steep curve in terms of getting my mind around the market maker activities, the safety and brand for clients, and the learning curve overall with the account set up, etc.
I echo all the sentiments I have read above about customer service, GUI, and overall user experience being inferior to Schwab, Fidelity and others in respects.

On the plus side:
We are not frequent traders, but I have grown to like TWS. I like the portfolio analyzer statements and they are generally spot on in terms of accuracy when I compare the reports to those generated by our fund admin. I think their security is better than Schwab/Fidelity. They are definitely more friendly to the entrepreneurial RIA or emerging fund manager.
The low cost advantage doesn't mean much to us because we are LT investors.....BUT,  I am surprised they do not have a tiered pricing model based on trading activity. This would really juice the operating income and if they doubled my trading costs I would not leave.

They have compounded new accounts at 16% plus since 2008
The CAGR for operating income ex-market making since 2011 is 50% +
ROE has averaged 9% over the last 5 years. The CEO would like to overcome concerns about the balance sheet and larger institutional clients preferring the JPM's of the world so he will continue to build excess capital.
He is a driven, "fanatic" in the tradition of other "outsider" CEO's and the type Munger/Buffett would look for.

So the major question I have is:
Is there a sustainable moat being built in the form of a long term low cost producer advantage?
Does it really matter to the wider universe of RIA's, frequent traders and international customers? How many of these guys and introducing brokers are really out there looking for a better place to trade?
Some would say they have a particularly long runway outside the U.S.

I'd be really interested in flushing this out more because if they continue to grow and/or even accelerate the growth, this is going to be a great ride provided they can manage the risks. Getting caught in a black swan environment or too many small RIA's committing fraud or blowing up causing reputational damage for them as the prime broker is a concern.
Title: Re: IBKR - Interactive Brokers
Post by: writser on April 05, 2017, 08:36:26 AM
BUT,  I am surprised they do not have a tiered pricing model based on trading activity.

https://www.interactivebrokers.com/en/index.php?f=1590&p=stocks2
Title: Re: IBKR - Interactive Brokers
Post by: Mungerish on April 05, 2017, 09:37:24 AM
Thanks for that link. I had not paid any attention because the costs are so minimal to us usually buying 500-1000 shares per individual trade.

My point is that, even as a low vol trader, I would have to be doing trades of over 1400 shares at a time to be better off with Fidelity or Schwab. They could be charging me .0045 per share and I would not blink.
Title: Re: IBKR - Interactive Brokers
Post by: iambagman on April 05, 2017, 06:59:47 PM
Yes, your broker determines commission to you, but that is influenced by how much the broker pays to custodian, assuming they are not integrated.  See IB's comments on introducing broker pricing and bundling.

My point is that the custodian matters greatly to institutional investors, esp post-Lehman. As discussed at length above, while IB is not the household name of JP or GS, IB is most likely a safer custodian for your client capital.   

That all said, and to KCLarkin's point, I would venture that the perception of IB's sub-par reporting functionality and customer service are a bigger hurdle for most HF/RIA clients than the balance sheet needing to be safer.

This notion of bad customer service for IB is often repeated.  If you have a large enough account (and it does not have to be that large) there is a "prime" desk at IB that picks up on the first ring every time.  The service is excellent. So perception maybe a problem as you say - but actual service to even a small hedge fund is excellent if they are on the "prime" desk and not calling the 800 number.  The reporting is powerful as well. Again there is a disconnect between perception and reality.

The fact is that GS and JP are kicking out small and mid sized funds because they are capital constrained and have better alternatives.  I know of a $25M fund that GS started charging $10K a month just to be there.  Staying was not an option.  IB is a very viable and attractive alternative for sub $50M funds and given their level of automation - they can be very very profitable customers. It is a win/win situation
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on April 06, 2017, 04:11:01 AM
1400 shares isn't really that much, if you manage OP's money, is it?
I can live with IB's reporting, but the lack of support for something as widely used as TurboTax is unexcusable. Every other broker that I know of, supports Turbotax, IB does not.
Title: Re: IBKR - Interactive Brokers
Post by: writser on April 06, 2017, 04:33:30 AM
Thanks for that link. I had not paid any attention because the costs are so minimal to us usually buying 500-1000 shares per individual trade.

My point is that, even as a low vol trader, I would have to be doing trades of over 1400 shares at a time to be better off with Fidelity or Schwab. They could be charging me .0045 per share and I would not blink.

Sure, IB could jack up commissions 200% and most clients wouldn't leave. But (I think) Peterffy believes IB is still in the growth stage. He is keeping commissions low to grab market share. He's not aiming for short-term profitability.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on April 06, 2017, 05:24:57 AM
I think it's quiet formidable how they grow when you take into account the different stuff people think needs improvement. That provides optionality. People complain about TWS, but check out a Bloomberg terminal. When you learn the stuff you sorta feel special and get to like it and might now wanna switch. Peterffy could jack up prices and it would be cheaper valuation wise in a flash but might hurt long term growth as well as loyalty/stickiness. Also, being so much cheaper than alternatives they probably discourage new competitors/keeps potential entrants on the sideline and forcing other brokers to compete on other things than price.
Title: Re: IBKR - Interactive Brokers
Post by: AccentricInv on April 06, 2017, 06:21:02 AM
Anyone else annoyed they raised the price of real-time data to $122/mo for professional users?  Used to be free / waived as of last month.  Are people paying for this, or are you finding a way around it?  (I'm very cheap...)

That said, I still wouldn't think of leaving IB and guess that attests to their customer stickiness.  I also agree that their prime desk is very good, and I've never had an issue with it.  Longest I've been on hold is for a few minutes.  Also their reporting and compliance tools are much much better that even some of the paid options out there, which you get for free. 

Their automation is fantastic, and not given enough credit.  Was just talking to someone who primes at one of the larger IB's the other day (he multi-primes at IB too), and he said has to pick up the phone for routine tasks that IB provides automatically.  Described it like going from Google to back to Netscape...
Title: Re: IBKR - Interactive Brokers
Post by: Mungerish on April 06, 2017, 11:21:19 AM
1400 shares isn't really that much, if you manage OP's money, is it?
I can live with IB's reporting, but the lack of support for something as widely used as TurboTax is unexcusable. Every other broker that I know of, supports Turbotax, IB does not.

The 1400 shares question is all about what your buying, the bid and ask size, etc. I wasn't talking about the total position , just the one specific order.
Title: Re: IBKR - Interactive Brokers
Post by: Mungerish on April 06, 2017, 11:27:28 AM
Anyone else annoyed they raised the price of real-time data to $122/mo for professional users?  Used to be free / waived as of last month.  Are people paying for this, or are you finding a way around it?  (I'm very cheap...)

That said, I still wouldn't think of leaving IB and guess that attests to their customer stickiness.  I also agree that their prime desk is very good, and I've never had an issue with it.  Longest I've been on hold is for a few minutes.  Also their reporting and compliance tools are much much better that even some of the paid options out there, which you get for free. 

Their automation is fantastic, and not given enough credit.  Was just talking to someone who primes at one of the larger IB's the other day (he multi-primes at IB too), and he said has to pick up the phone for routine tasks that IB provides automatically.  Described it like going from Google to back to Netscape...

You can avoid the data fees by opening a retail account at FIDO or Schwab with enough capital to get Street Smart Edge or Active Trader for free. You need two screens obviously.
That may not be a solution if you are a very active trader who needs to constantly be pulling the trigger on things....in which case $122 per month should be a low cost approach to doing that kind of business I would think.

Although I'm a fan of IB, I would never have the majority of my assets in one place, especially in margin accounts.
Title: Re: IBKR - Interactive Brokers
Post by: glorysk87 on April 17, 2017, 12:01:39 PM
Does anyone mind helping out an unenlightened peon with IBKR?

The company has maintained a position on my watchlist for quite some time, but I have thus far shied away from diving in deep. I reconsidered today and began researching in earnest.

However, I have a high level question:

Why has the massive growth in # of accounts and total client equity not translated into improved financial performance? Accounts have doubled since 2013 and client equity has almost tripled, yet revenue has only increased by ~30%.  Revenue per average account has been declining YoY for well over a year now.

Curious what the driver here is.
Title: Re: IBKR - Interactive Brokers
Post by: valueyoda on April 17, 2017, 12:13:57 PM
Could be that the use of ETFs and passive management has lead to lower activity per account. Still believe that IBKR has a huge moat relative to the other brokers though.
Title: Re: IBKR - Interactive Brokers
Post by: glorysk87 on April 17, 2017, 12:24:29 PM
Could be that the use of ETFs and passive management has lead to lower activity per account. Still believe that IBKR has a huge moat relative to the other brokers though.

Could be, sure. I just haven't heard a satisfactory answer to this question yet.

Just a little puzzling to me that the IBKR story seems very very very well understood at this point, yet every individual investor still believes it's mispriced in the market. In my experience, something that seems too good to be true (ie a "mispricing" that persissts for years) probably has something lurking in the shadows.
Title: Re: IBKR - Interactive Brokers
Post by: handycap5 on April 17, 2017, 12:30:06 PM
If you spend time on IBKR, let me know what you conclude on the appropriate tax rate. I could never figure it out to a degree that I could get comfortable - though I know others have...
Title: Re: IBKR - Interactive Brokers
Post by: TwoCitiesCapital on April 17, 2017, 12:48:27 PM
Does anyone mind helping out an unenlightened peon with IBKR?

The company has maintained a position on my watchlist for quite some time, but I have thus far shied away from diving in deep. I reconsidered today and began researching in earnest.

However, I have a high level question:

Why has the massive growth in # of accounts and total client equity not translated into improved financial performance? Accounts have doubled since 2013 and client equity has almost tripled, yet revenue has only increased by ~30%.  Revenue per average account has been declining YoY for well over a year now.

Curious what the driver here is.

I would expect lower volatility leads to less trading
Title: Re: IBKR - Interactive Brokers
Post by: KJP on April 17, 2017, 01:00:27 PM
If you spend time on IBKR, let me know what you conclude on the appropriate tax rate. I could never figure it out to a degree that I could get comfortable - though I know others have...

Do you mean the difference between the public company's percentage ownership of the operating company and the amount of taxes allocated to the public company?
Title: Re: IBKR - Interactive Brokers
Post by: cmlber on April 17, 2017, 01:06:28 PM
If you spend time on IBKR, let me know what you conclude on the appropriate tax rate. I could never figure it out to a degree that I could get comfortable - though I know others have...

For public shareholders, it's basically a full US corporate tax payer.  Low 30s rate. 
Title: Re: IBKR - Interactive Brokers
Post by: KJP on April 17, 2017, 01:15:17 PM
If you spend time on IBKR, let me know what you conclude on the appropriate tax rate. I could never figure it out to a degree that I could get comfortable - though I know others have...

For public shareholders, it's basically a full US corporate tax payer.  Low 30s rate.

That's it.  The rest of the operating company is owned by a pass through entity, so the income taxes attributable to its ownership are not recorded anywhere in the financial statements.  You can see the reconciliation in footnote 11 of the 2016 annual report, which shows why the tax rate you get from dividing operating income by the recorded tax expense does not reflect the actual corporate tax rate attributable to the public company.

The public company also has some public company costs that it bears, which also pushes its net income lower than its proportional share of underlying operating income.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on April 17, 2017, 02:24:09 PM
For public shareholders, it's basically a full US corporate tax payer.  Low 30s rate. 

Low 30s is the answer I've come to as well.

glory,

I responded to your email, but TwoCitiesCapital brought up another important aspect that I forgot to mention. Low volatility in the markets has also pushed down trades per day per client.
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on April 17, 2017, 04:41:40 PM
For public shareholders, it's basically a full US corporate tax payer.  Low 30s rate. 

Low 30s is the answer I've come to as well.

glory,

I responded to your email, but TwoCitiesCapital brought up another important aspect that I forgot to mention. Low volatility in the markets has also pushed down trades per day per client.

Bear markets will lead to higher volatility and probably more trading and higher profits for IBKR, but likely the stock will be cheaper.

IBKR's profits basically went nowhere for 10 years or so, because the main profit generator at that time - the marketmaker faltered and the profits were replaced by brokerage segment, leading to more or less flat overall profits.
Title: Re: IBKR - Interactive Brokers
Post by: roark33 on April 17, 2017, 05:29:06 PM
Another reasons for lower trading per account is the early accounts signing up for IB had a heavy algo/trading bent and each additional account has far lower turnover. 
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on April 17, 2017, 05:44:12 PM
Why has the massive growth in # of accounts and total client equity not translated into improved financial performance? Accounts have doubled since 2013 and client equity has almost tripled, yet revenue has only increased by ~30%.  Revenue per average account has been declining YoY for well over a year now.

I'd have to do some work to reconcile your numbers (e.g. are you excluding Market Maker). But in addition to lower DART per account (due to low volatility and mix shift). There is also some pressure on revenue per DART (due to mix shift, for example introducing brokers).

Anyway, the real question: is this pressure on revenue per account cyclical or secular? If it is cyclical, then the stock might be mis-priced. I assume a mix of secular and cyclical.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on April 18, 2017, 07:26:26 AM
I expect introducing brokers will continue to be a growing and meaningful part of their business, which means trades per day and commissions per order will decline in step (to a certain point obviously, I suspect the worst hit is already behind us). The big question is if they can move upmarket among professional investors. More hedge fund and professional trader clients will counteract the decline from introducing brokers.
Title: Re: IBKR - Interactive Brokers
Post by: glorysk87 on April 18, 2017, 07:36:32 AM
Anyway, the real question: is this pressure on revenue per account cyclical or secular? If it is cyclical, then the stock might be mis-priced. I assume a mix of secular and cyclical.

I think this is the main question that needs to be answered, and most people unfortunately tend to gloss over it, focusing exclusively on the long-term potential.

I do think Travis makes a good point about the mix shift to introducing brokers being a driver behind the DART/account declines.
Title: Re: IBKR - Interactive Brokers
Post by: roark33 on April 18, 2017, 11:46:55 AM
Ok, thought I would share an experience re: IBKR.  For some unknown reason, IB calculated March as only having 30 days, so the fluctuations in your account on March 31 did not get entered into the calculations for performance fees for the first Q.  So, if March 31 was a down day, you were overpaid and vice versa.  I have talked to an IB representative about this and their explanation makes no sense.  How can their tech change each year, such that they have to change the calendar dates for March?  It isn't like March just got its 31st day this year. 

My experience with IB is that their tech claims seem completely hogwash when it is about something I can see, fee calculations, customer linking, enrollment process, and there are so many things that I can't see, trading execution, that those same tech claims are seriously in question. 
Title: Re: IBKR - Interactive Brokers
Post by: maybe4less on April 18, 2017, 01:17:57 PM
Ok, thought I would share an experience re: IBKR.  For some unknown reason, IB calculated March as only having 30 days, so the fluctuations in your account on March 31 did not get entered into the calculations for performance fees for the first Q.  So, if March 31 was a down day, you were overpaid and vice versa.  I have talked to an IB representative about this and their explanation makes no sense.  How can their tech change each year, such that they have to change the calendar dates for March?  It isn't like March just got its 31st day this year. 

My experience with IB is that their tech claims seem completely hogwash when it is about something I can see, fee calculations, customer linking, enrollment process, and there are so many things that I can't see, trading execution, that those same tech claims are seriously in question.

100% agree with you. It's amazing how many "features" don't work right half the time, how they can't explain simple things like fee calculations, or simple requests (i.e., linking of accounts of married couples) can't be accommodated. I've been seriously wondering recently if I made a mistake going with them for my RIA business.
Title: Re: IBKR - Interactive Brokers
Post by: roark33 on April 18, 2017, 01:22:52 PM
I am not sure your size, but IB basically has a monopoly on RIA businesses under about 10-15m, so out of the gate a lot of people are selecting IB, but I don't know how long these people stick around. 
Title: Re: IBKR - Interactive Brokers
Post by: atbed on April 18, 2017, 02:00:15 PM
I am not sure your size, but IB basically has a monopoly on RIA businesses under about 10-15m, so out of the gate a lot of people are selecting IB, but I don't know how long these people stick around.

+1
Title: Re: IBKR - Interactive Brokers
Post by: abyli on April 18, 2017, 02:56:19 PM
I am not sure your size, but IB basically has a monopoly on RIA businesses under about 10-15m, so out of the gate a lot of people are selecting IB, but I don't know how long these people stick around.

+1
+2
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on April 18, 2017, 04:25:57 PM
I am not sure your size, but IB basically has a monopoly on RIA businesses under about 10-15m, so out of the gate a lot of people are selecting IB, but I don't know how long these people stick around.

+1

Until their account RIA business reaches $15000001 in size probably  :P
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on April 19, 2017, 07:53:14 AM
If you spend time on IBKR, let me know what you conclude on the appropriate tax rate. I could never figure it out to a degree that I could get comfortable - though I know others have...

For public shareholders, it's basically a full US corporate tax payer.  Low 30s rate.

They actually broke this down on yesterday's call:

Quote
Starting with income before income taxes of $213 million, we deducted $8 million for income taxes paid by our operating companies which are predominantly foreign taxes. That leaves us with $205 million of which 83.4% or about $171 million reported on our income statement is attributable to the non-controlling interest. 16.6% or $34 million is available to the public company stockholders.

GAAP accounting presents us in putting the $34 million on our income statement. As you can see, after we expense the remaining taxes of $10 million owed on the $34 million as the public Company's net income is $24 million and is reported on our income statement. Total income tax expense $18 million consist of this $10 million, plus the $8 million paid by the operating companies.

Based on my math, public shareholders paid 33% in foreign and U.S. income tax this quarter.
Title: Re: IBKR - Interactive Brokers
Post by: atbed on April 19, 2017, 12:25:14 PM
Does anyone mind helping out an unenlightened peon with IBKR?

The company has maintained a position on my watchlist for quite some time, but I have thus far shied away from diving in deep. I reconsidered today and began researching in earnest.

However, I have a high level question:

Why has the massive growth in # of accounts and total client equity not translated into improved financial performance? Accounts have doubled since 2013 and client equity has almost tripled, yet revenue has only increased by ~30%.  Revenue per average account has been declining YoY for well over a year now.

Curious what the driver here is.

I would expect lower volatility leads to less trading

Petterfy mentioned this video on the call. Thought it was interesting

http://video.cnbc.com/gallery/?video=3000608157&play=1
Title: Re: IBKR - Interactive Brokers
Post by: Philip Morris IV on April 19, 2017, 12:53:00 PM
I am not sure your size, but IB basically has a monopoly on RIA businesses under about 10-15m, so out of the gate a lot of people are selecting IB, but I don't know how long these people stick around.

+1

Until their account RIA business reaches $15000001 in size probably  :P

We joke but this is very difficult to model.  For RIAs, changing custodians is a huge PITA because every client account has to be closed, re-opened and transferred, and at the risk of attrition.  You could say there is a high switching cost involved and most RIAs generally do not switch custodians unless they feel especially compelled.  (While RIAs can certainly use multiple custodians, for small advisers you can assume they will only use one to meet minimum AUM requirements.)

I like this name overall but strongly feel IB needs to up their game in this space for me to be comfortable buying.  The minimum AUM requirements for most other custodians (Schwab, Fidelity, TD etc.) are around the $10-15 million mark as noted - not especially high for this business - and advisers breaking away from wirehouses will overwhelmingly meet those requirements and go with the more well-known custodians.  As well, most RIAs passthrough the ticket charges onto clients and therefore are not very cost-conscious, so the key to competing in this space is advisory software, service and brand name - all of which they appear to be trailing peers on.  It is an attractive market since RIAs are effectively a cost-free salesforce for accounts and assets, so this should be a serious area of focus for them, but it doesn't appear to be.
Title: Re: IBKR - Interactive Brokers
Post by: Travis Wiedower on April 19, 2017, 02:53:11 PM
Petterfy mentioned this video on the call. Thought it was interesting
http://video.cnbc.com/gallery/?video=3000608157&play=1

Thanks for posting, I couldn't find the interview. He does a better job of explaining it there than on the call. Interesting stuff.

We joke but this is very difficult to model.  For RIAs, changing custodians is a huge PITA because every client account has to be closed, re-opened and transferred, and at the risk of attrition.  You could say there is a high switching cost involved and most RIAs generally do not switch custodians unless they feel especially compelled.  (While RIAs can certainly use multiple custodians, for small advisers you can assume they will only use one to meet minimum AUM requirements.)

RIAs should be extremely sticky customers. I only have 11 accounts and it pains me just to think about what that process would entail. Hedge fund clients are also sticky, but obviously switching is easier for them (a little over 50% of hedge funds only use one prime broker by the way). I met with a manager several months ago (mid-ten figure AUM hedge fund) who switched from IB to a mini-prime and he said it was a pretty meaningful disruption to his business for a couple weeks. He also admitted he's getting worse pricing now (which should probably be a concern for his clients but whatever).
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on April 19, 2017, 04:01:37 PM
Petterfy mentioned this video on the call. Thought it was interesting
http://video.cnbc.com/gallery/?video=3000608157&play=1

Thanks for posting, I couldn't find the interview. He does a better job of explaining it there than on the call. Interesting stuff.

We joke but this is very difficult to model.  For RIAs, changing custodians is a huge PITA because every client account has to be closed, re-opened and transferred, and at the risk of attrition.  You could say there is a high switching cost involved and most RIAs generally do not switch custodians unless they feel especially compelled.  (While RIAs can certainly use multiple custodians, for small advisers you can assume they will only use one to meet minimum AUM requirements.)

RIAs should be extremely sticky customers. I only have 11 accounts and it pains me just to think about what that process would entail. Hedge fund clients are also sticky, but obviously switching is easier for them (a little over 50% of hedge funds only use one prime broker by the way). I met with a manager several months ago (mid-ten figure AUM hedge fund) who switched from IB to a mini-prime and he said it was a pretty meaningful disruption to his business for a couple weeks. He also admitted he's getting worse pricing now (which should probably be a concern for his clients but whatever).

It would be interesting to know why he switched?

As a client that has just a few 100k with them, I feel IB has advantages, but also serious drawbacks. There is not one broker, that meets all my demands, but Fidelity and IB probably come closest.

If Fidelity makes their international trading  and more competitive and allow trading for dark stocks again or IB fixes their reporting and their punitive commissions for lower priced shares, I could envision myself to move completely to either one.
Title: Re: IBKR - Interactive Brokers
Post by: sae85400 on April 20, 2017, 08:02:10 AM
Being in the RIA space and using IB, formerly used TD:

1. Custodian have begun to compete with RIAs for clients(Schwab, TDA and Fidelity mostly)
2. Investment mixture matters: A lot breakaway advisors use Funds or ETFs that are free to trade on the other platforms
3. Peformance reporting, soft dollars, client referral: 3 big issues for RIAs. I have a friend who hates TD, but they refer him close to $10mm AUM per year, so he won't risk leaving.
Title: Re: IBKR - Interactive Brokers
Post by: roark33 on April 20, 2017, 09:27:20 AM
I don't understand, they are referral sources, but they also compete with the RIA?  I know the competing part, but don't understand the referral source part.
Title: Re: IBKR - Interactive Brokers
Post by: Philip Morris IV on April 20, 2017, 11:56:37 AM
Yeah I can't recall ever hearing of a discount broker-custodian referring clients to an RIA.  With thousands of RIAs on their platform, how would they choose?  Maybe if a client asks TD customer service and is in the same local area, but I can't imagine that happening often, and $10M AUM/year is not insubstantial to receive via referral.
Title: Re: IBKR - Interactive Brokers
Post by: sae85400 on April 20, 2017, 05:41:25 PM
It's real..

They even have a webpage advertising it

https://www.tdameritrade.com/investment-guidance/advisor-referral.page

Here is a more elaborate explanation

http://riabiz.com/a/2017/4/12/td-ameritrade-shocks-rias-most-accustomed-to-its-largesse-with-a-letter-a-contract-and-a-tight-deadline-to-sign
Title: Re: IBKR - Interactive Brokers
Post by: cmlber on April 20, 2017, 07:13:22 PM
Yeah I can't recall ever hearing of a discount broker-custodian referring clients to an RIA.  With thousands of RIAs on their platform, how would they choose?  Maybe if a client asks TD customer service and is in the same local area, but I can't imagine that happening often, and $10M AUM/year is not insubstantial to receive via referral.

Schwab February 2015 Investor Day:

<A - Bernard J. Clark>: So, we've had, I would say, loosely three generations of a referral program that you were describing. This is where someone in the retail network, someone in the branch has a need that seemingly we're not meeting at that point in time or they want some additional sophistication. They want maybe an advisor. They get referred to two advisors or three advisors. The advisors then determine with the client whether there is a good match there for them to become a client of the advisors. We call it our Schwab Advisor Network. And in fact, last year, we put $5 billion into – we put more into it, $5 billion closed into that network, and we have over $50 billion in total now within the Schwab Advisor Network. So, it's incredibly important.
Title: Re: IBKR - Interactive Brokers
Post by: abyli on April 21, 2017, 06:43:44 AM
IB changed the market data bundle. Anyone knows which one should we subscribe now? Thanks.
Title: Re: IBKR - Interactive Brokers
Post by: flesh on April 21, 2017, 11:25:55 AM
After reading a wsj article this morning about what happens when cap gains taxes are reduced it made me think this would benefit IB's trading volume.

Essentially, when cap gains taxes are lowered, naturally you'd have increased selling of long term holdings increasing trading volume plus bringing in more tax rev to the gov.

Longer term, one would think that there would be more churn in general. IG, if cap gains rates are zero, holding periods should shorten. Therefore, if rates go from say 20% to 15% or a 25% reduction in any related cases, there should be some degree of shortening of holding periods resulting in more trade volume sustain-ably, or as long as rates are held at the newly lowered rate.

Long term, I suppose there would be less total tax revenue generated, however, if you're Trump, likely thinking in 4 year time horizons, it's a no braina. You'd get more tax revenue and fulfill the lower tax promise championed by his side. Perhaps, you're buddies would be happy as well. Considering the other side left Trump with few levers to pull, they've been pulled already, it seems unlikely he would miss this opportunity to assuredly bring in more tax revenue while optically lowering tax rates. From what I can surmise, this will likely happen quite quickly.

Edit: New info.

http://money.cnn.com/2017/05/04/news/economy/tax-cuts-obamacare-repeal/index.html

"Get rid of the Medicare tax on investments: In addition to the surtax on wages, high-income earners making more than $200,000 ($250,000 if married filing jointly) are subject to a 3.8% Medicare tax on a portion of their investment income, which is determined by formula. Investment income includes money from capital gains, dividends, interest, rental income and annuities.
The revised House bill would eliminate this so-called net investment income tax in 2017."

This is apparently happening. Should cause some incremental volume. Certainly seems possible there could be more to come in the form of lowered cap gains rates.



Title: Re: IBKR - Interactive Brokers
Post by: Liberty on September 20, 2017, 07:31:26 AM
http://www.businesswire.com/news/home/20170920005805/en/

Interactive Brokers Announces Strategic Investment in Tiger Brokers
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on September 20, 2017, 10:51:57 AM
I hate "strategic investments" which usually means one pays too much, but this does sound interesting even though it's impossible to gauge how material it is. I suppose it isn't really material since they don't disclose anything. Anybody knows anything about Tiger?
Title: Re: IBKR - Interactive Brokers
Post by: Libs on October 23, 2017, 03:29:48 PM
That was a good quarter. Revenue up ~25% Y/Y. They now break out the public shareholders' income, at $31MM after tax.
Barrons had a write-up, pointing out that IBKR will benefit greatly by increased volatility, which seems inevitable.

Here's the CC transcript:


https://finance.yahoo.com/news/edited-transcript-ibkr-earnings-conference-041102607.html
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on November 29, 2017, 05:55:17 PM
In the long history of IB, they seem to keep chipping away at the "cons" list of reasons to use them.

This year:

1) Fixed two factor login (IB Key) -- usability is amazingly simple, even with many accounts.  Had a new client compliment the simplicity / sophistication of setup and login immediately after signing up.  Haven't ever had IB interface be considered a "pro" from a client before.

2) Fixed basic interface / web interface.  This just was upgraded yesterday across my accounts.  Upon 15 minutes of playing seems a dramatic UI improvement to solidly middle of the pack for US retail brokers.

3) Added central European stock exchange trading.

4) I've noticed support getting better too...

chip chip chip... IB can be like other brokers through a clearly defined path (if they want to).  Other brokers will never gain the advantages IB has (IMO).

Stock still expensive... I've been paring down again, still top 3 though.

Title: Re: IBKR - Interactive Brokers
Post by: rb on November 29, 2017, 05:58:06 PM
which central European exchange? Is this recently?
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on November 29, 2017, 06:22:10 PM
Poland (stocks), Czech Republic (stocks), Hungary (CFDs).

Somewhat recently.... I think ~6-9 months ago.
Title: Re: IBKR - Interactive Brokers
Post by: rb on November 29, 2017, 07:02:20 PM
Poland (stocks), Czech Republic (stocks), Hungary (CFDs).

Somewhat recently.... I think ~6-9 months ago.
Hmm.... I got Poland and Hungary stocks and Czech CFDs but those have been available for years
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on November 29, 2017, 08:07:19 PM
Quote
Hmm.... I got Poland and Hungary stocks and Czech CFDs but those have been available for years

Hmmm... really?  Only showed up for me this year... but maybe I didn't notice the change before than...
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on November 30, 2017, 01:09:45 AM
Quote
Hmm.... I got Poland and Hungary stocks and Czech CFDs but those have been available for years

Hmmm... really?  Only showed up for me this year... but maybe I didn't notice the change before than...
I'm pretty sure it's new (like added this year). I had to add the trading permissions to use those stock exchanges, and I used to have simply every country selected.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on December 02, 2017, 09:48:29 AM
In the long history of IB, they seem to keep chipping away at the "cons" list of reasons to use them.

This year:

1) Fixed two factor login (IB Key) -- usability is amazingly simple, even with many accounts.  Had a new client compliment the simplicity / sophistication of setup and login immediately after signing up.  Haven't ever had IB interface be considered a "pro" from a client before.

2) Fixed basic interface / web interface.  This just was upgraded yesterday across my accounts.  Upon 15 minutes of playing seems a dramatic UI improvement to solidly middle of the pack for US retail brokers.

3) Added central European stock exchange trading.

4) I've noticed support getting better too...

chip chip chip... IB can be like other brokers through a clearly defined path (if they want to).  Other brokers will never gain the advantages IB has (IMO).

Stock still expensive... I've been paring down again, still top 3 though.
Agreed. A lot of the flaws can be viewed as options. November numbers just out and looking really good. Impressive how growth is speeding up but not sure why it has run up so much. By far my largest position now at around 25 pct. of portfolio but paying 27-42 pct. taxes I'll just let it ride. Will be interesting to see what margins look like in 5-10 years.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on December 15, 2017, 10:44:30 AM
Quote
Interactive Brokers said that it handled just over half of the bitcoin futures trading volume the day of their launch. Updated figures were not yet available as of Friday morning.

https://www.cnbc.com/2017/12/15/the-day-bitcoin-futures-dropped-was-when-many-traders-could-begin-betting-against-it.html
Title: Re: IBKR - Interactive Brokers
Post by: whiterose on January 14, 2018, 02:19:39 AM
Does anyone have an opinion on (or defense of) the current valuation?
Many thanks in advance!
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on January 14, 2018, 03:10:12 AM
They are rolling out mastercards without forex fee, 0.50 cent atm withdrawal fees globally to Canada and Europe this year and available already for the US. Given their low cost structure, borrowing costs, you can see this as a kind of bank. I don't see why in the future brokers and banks can't be one and the same. Now in the past the government tried to separate banking and investing because of the very same reason bitcoin isn't used as a currency - volatility and risk. But what if the management of the company is so disciplined - as Peterffy's team is - that they voluntarily do a better job? I see big things for IB, especially if they start adding services beyond just taking commissions for investments.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on January 14, 2018, 06:49:55 AM
Does that mean of I use it to withdraw euros in Europe it will debit my IB account in euros? If so, when combined with their very cheap currency exchange, this would make an IB account worthwhile for travel purposes alone for many people.

I definitely seethed when I converted CAD to MXN for a trip to Mexico at a bogus retail exchange rate when I had pesos in my IB account already.
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on January 14, 2018, 10:54:08 AM
I am not sure about this feature but that would be awesome. I suspect it depends on whether the Mastercard region supports multi-currency cards like UK or some Euro issued VISAs/MCs...On their website for the US card they say, "Mastercard converts the currency to US dollars and this is how it appears on your statement."

So possibly cad will bill in CAD$ and euro card in EUR$ or GBP$...I suppose it could create a short position..
But either way, no more moving money around or foreign exchange fees, although you may have to do forex trade internally every once in a while.
Title: Re: IBKR - Interactive Brokers
Post by: compoundinglife on January 14, 2018, 11:05:55 AM
They are rolling out mastercards without forex fee, 0.50 cent atm withdrawal fees globally to Canada and Europe this year and available already for the US. Given their low cost structure, borrowing costs, you can see this as a kind of bank. I don't see why in the future brokers and banks can't be one and the same. Now in the past the government tried to separate banking and investing because of the very same reason bitcoin isn't used as a currency - volatility and risk. But what if the management of the company is so disciplined - as Peterffy's team is - that they voluntarily do a better job? I see big things for IB, especially if they start adding services beyond just taking commissions for investments.

I have debit cards and can write checks on all my taxable brokerage accounts. Schwab reimburses all ATM fees, charges no forex fees either on my brokerage ATM card. So this is really nothing new. I have been using a brokerage account like a bank account for the past 10 years. One nice thing about IB though is their margin rates.

I agree that this could be big for them however if it is nothing new and not a differentiator vs other brokerage houses.
 
Title: Re: IBKR - Interactive Brokers
Post by: rb on January 14, 2018, 02:07:30 PM
Does that mean of I use it to withdraw euros in Europe it will debit my IB account in euros? If so, when combined with their very cheap currency exchange, this would make an IB account worthwhile for travel purposes alone for many people.

I definitely seethed when I converted CAD to MXN for a trip to Mexico at a bogus retail exchange rate when I had pesos in my IB account already.
I haven't looked too much at how they structure the cards. But there may be some issues with security. I just like many people have had cards duplicated. With a regular Visa worst case scenario is I get dinged to the limit of the card. If someone steals/duplicates the IB card and gets access to all my IB funds, then I'll gladly pay the usurious FX commissions charge by the banks.
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on January 14, 2018, 02:11:45 PM
some banks in eu have limits for various types of purchases you can set min/max for waveless, pos, over the phone , atm withdrawals. You can set a low limit or change it temporarily but it's not perfect. Also while there is Schwab in the US, I'm not aware of such a product existing in Canada and in Europe I do not know but imagine it would be more competitive than USA.
Title: Re: IBKR - Interactive Brokers
Post by: whiterose on January 17, 2018, 12:19:56 PM
The numbers are out: https://investors.interactivebrokers.com/ir/main.php?file=latestEarningsPR (https://investors.interactivebrokers.com/ir/main.php?file=latestEarningsPR)

Am I looking at this wrong or did they make 1.07 in diluted eps in 2017 (vs. 1.25 in 2016) ?
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on January 17, 2018, 01:07:29 PM
Am I looking at this wrong or did they make 1.07 in diluted eps in 2017 (vs. 1.25 in 2016) ?

Most people would make a few adjustments to GAAP earnings to get a better view of the real earnings power. On a GAAP basis, diluted EPS is lower YoY. But on an adjusted basis, it is higher YoY. At first glance, the changes in the U.S. tax code seem to be the main culprit.
Title: Re: IBKR - Interactive Brokers
Post by: atbed on January 18, 2018, 09:04:15 AM
Am I looking at this wrong or did they make 1.07 in diluted eps in 2017 (vs. 1.25 in 2016) ?

Most people would make a few adjustments to GAAP earnings to get a better view of the real earnings power. On a GAAP basis, diluted EPS is lower YoY. But on an adjusted basis, it is higher YoY. At first glance, the changes in the U.S. tax code seem to be the main culprit.

Agree. Financials are very messy, so I prefer to look at:

(1) Trading gains + commission & execution fees + net interest income + recurring other income minus (2) total non-interest expense

Then adjust for taxes

Title: Re: IBKR - Interactive Brokers
Post by: whiterose on January 18, 2018, 10:51:59 AM
Quote
Most people would make a few adjustments to GAAP earnings to get a better view of the real earnings power.

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?
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on January 18, 2018, 01:37:05 PM
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?

I don't think your number is right but I'm going to wait for the 10k. Still, it is hard to justify the current valuation.
Title: Re: IBKR - Interactive Brokers
Post by: flesh on January 18, 2018, 01:47:12 PM
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?

I don't think your number is right but I'm going to wait for the 10k. Still, it is hard to justify the current valuation.

Whatever method you're using you should at least be annualizing q4 adjusted numbers and adding whatever growth you expect plus margin expansion plus coming off one of the least volatile years in history. For me, it's a hold.

Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on January 19, 2018, 08:47:52 AM
For me, it's a hold.

I'm holding too. I don't think the price is crazy. Yet.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on January 19, 2018, 11:22:05 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 01, 2018, 10:56:16 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on February 01, 2018, 11:00:19 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: atbed on February 01, 2018, 11:07:39 AM
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!
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on February 01, 2018, 02:06:56 PM
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).
Title: Re: IBKR - Interactive Brokers
Post by: nkp007 on February 01, 2018, 02:26:50 PM
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?
Title: Re: IBKR - Interactive Brokers
Post by: atbed on February 01, 2018, 03:20:27 PM
https://ibkr.info/article/3049

FYI, bitcoin margin requirements

Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on March 24, 2018, 10:58:12 AM
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
Title: Re: IBKR - Interactive Brokers
Post by: Jerry Capital on June 06, 2018, 10:51:07 AM
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."
Title: Re: IBKR - Interactive Brokers
Post by: chrispy on September 10, 2018, 07:01:55 PM
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
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on September 11, 2018, 04:14:44 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on September 11, 2018, 07:37:40 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: chrispy on September 11, 2018, 08:24:10 AM
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...
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on September 11, 2018, 08:36:49 AM
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
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on September 12, 2018, 05:27:28 AM
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.

Title: Re: IBKR - Interactive Brokers
Post by: sleepydragon on September 12, 2018, 05:45:51 AM
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
Title: Re: IBKR - Interactive Brokers
Post by: benhacker on September 12, 2018, 10:46:20 AM
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.

Title: Re: IBKR - Interactive Brokers
Post by: muscleman on September 13, 2018, 05:11:57 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on September 13, 2018, 05:15:48 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: sleepydragon on September 13, 2018, 05:28:53 AM
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
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on September 13, 2018, 05:52:40 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on September 13, 2018, 06:17:15 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on September 13, 2018, 07:28:27 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: undervalued on September 13, 2018, 09:41:59 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on September 17, 2018, 07:26:09 AM
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.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on October 08, 2018, 09:14:55 AM
Update:
I start to think if my poorer execution in IBKR may be related to the size of the order. I have a small IRA in Fido and even smaller HSA account in TD. My individual account is in IBKR. When the order size is bigger, it may cause more market gyrations. I moved my individual account to TD and experienced a worse execution than my IRA and HSA account today.

I'll keep you guys posted.
Title: Re: IBKR - Interactive Brokers
Post by: Gregmal on October 11, 2018, 01:03:58 PM
Down big today, started a tiny position a minute before the close.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on October 12, 2018, 08:50:59 AM
Down big today, started a tiny position a minute before the close.

I think TD, IBKR etc. are all facing stiff competition from Robinhood and other 0 commission brokers.
Title: Re: IBKR - Interactive Brokers
Post by: rb on October 12, 2018, 09:43:46 AM
Down big today, started a tiny position a minute before the close.

I think TD, IBKR etc. are all facing stiff competition from Robinhood and other 0 commission brokers.
If you're not paying for the product then you are the product.
Title: Re: IBKR - Interactive Brokers
Post by: Gregmal on October 12, 2018, 10:34:01 AM
IBKR is already so much cheaper than the "real" competitors that the grind to the bottom doesn't impact them nearly as much as everyone else. I don't know of any pros who use Robinhood.

From there, we can then get into which services are superior, which is another advantage of IBKR
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on October 12, 2018, 11:05:06 AM
I think TD, IBKR etc. are all facing stiff competition from Robinhood and other 0 commission brokers.

IBKR is growing accounts at 26% YoY. Their growth has accelerated over the past year. There is no evidence that competition is having any impact on IBKR.
Title: Re: IBKR - Interactive Brokers
Post by: wachtwoord on October 12, 2018, 11:50:28 AM
Down big today, started a tiny position a minute before the close.

I think TD, IBKR etc. are all facing stiff competition from Robinhood and other 0 commission brokers.

Isn"t Robinhood just derivate trading? You don't own actual securities.
Title: Re: IBKR - Interactive Brokers
Post by: The Investor on October 15, 2018, 06:10:54 AM
I noticed some discussion of fills through IB compared to elsewhere.
Anyone here use IB's Adaptive algo?
https://www.interactivebrokers.co.uk/en/index.php?f=19091#
What do you think of it?
Title: Re: IBKR - Interactive Brokers
Post by: LongTermView on October 15, 2018, 10:29:01 PM
https://www.bloomberg.com/news/articles/2018-10-15/robinhood-gets-almost-half-its-revenue-in-controversial-bargain-with-high-speed-traders
Title: Re: IBKR - Interactive Brokers
Post by: LightWhale on October 17, 2018, 04:14:10 AM
I think TD, IBKR etc. are all facing stiff competition from Robinhood and other 0 commission brokers.
If you're not paying for the product then you are the product.

Spot on
https://www.bloomberg.com/news/articles/2018-10-15/robinhood-gets-almost-half-its-revenue-in-controversial-bargain-with-high-speed-traders?cmpid=BBD101618_BIZ&utm_medium=email&utm_source=newsletter&utm_term=181016&utm_campaign=bloombergdaily
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on October 17, 2018, 05:01:10 AM
Except, for retail investors it's a great deal if their order flow is sold to HFT's! They might be the product, but at least now they are capturing part of the value of their poor trading by getting free trades and small price improvements on their orders.

The parties that are losing out are HFT firms as a group. For them it would be way better if no-one would pay for order flow and all orders are routed to the exchange. Then they would still be able to capture the value of zero/negative alpha trading by retail investors, but they wouldn't have to pay for it, and they wouldn't have to provide price improvement. But because of the competition between HFT firms the pie gets smaller, and is divided between fewer players.

Additionally, professional traders are losing out because the orders that are routed to exchanges are on average more toxic for market makers so spreads might be wider, and liquidity might be lower for them. But again, for retail traders it's great! There is zero downside for them!
Title: Re: IBKR - Interactive Brokers
Post by: writser on October 17, 2018, 05:23:02 AM
That is more or less what Matt Levine wrote yesterday (https://www.bloomberg.com/view/articles/2018-10-16/carl-icahn-wants-to-fight-dell-again):
Quote
People hate payment for order flow, but really this is a failure of imagination. “We make big high-frequency trading firms bid to do your stock trades, and pass the benefit on to you” ought to be a good talking point. If you believe in the market structure that you’re using, why not brag about it?

"We sell your horrible order flow to predators and give you a kickback!" I'm not sure retail customers would like that - even though rationally they should :) .
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on November 04, 2018, 10:15:32 AM
I have decided to come back to IBKR after using Fido, TD.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on November 04, 2018, 12:20:04 PM
I noticed some discussion of fills through IB compared to elsewhere.
Anyone here use IB's Adaptive algo?
https://www.interactivebrokers.co.uk/en/index.php?f=19091#
What do you think of it?

I tried it but didn't find it especially useful. IB usually submits orders directly to the exchange, so the bid/ask you see is usually the fill you get, if you are serious in getting filled right now. For limit orders, usually I have to wait for a long time, and I get filled mostly because market moved.

Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on November 04, 2018, 02:17:15 PM
I just wish they'd hurry up and go global with their investment account linked Mastercard debit card besides US residents. That's a killer product.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 04, 2018, 06:47:05 PM
I just wish they'd hurry up and go global with their investment account linked Mastercard debit card besides US residents. That's a killer product.

My dream is the ability to get a few different mastercard debits for different currencies. I happen to have Mexican pesos in my IBKR account, and when I went to mexico I converted CAD to MXN at a bogus retail rate, because I couldn't get it out. If I could take MXN, EUR, USD, CAD, JPY  etc out of my IBKR account in cash I would LOVE that.
Title: Re: IBKR - Interactive Brokers
Post by: tradevestor on November 04, 2018, 08:39:30 PM
What's so great about Mastercard debit card which offers  no rewards or purchase protection?
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on November 05, 2018, 04:09:07 AM
What's so great about Mastercard debit card which offers  no rewards or purchase protection?

I don’t know either. I’d rather use a CC with low/no foreign transaction fees (from Capital One or a credit union) and some rewards than a debit card. However, in countries other than the US, those may not be readily available.
Title: Re: IBKR - Interactive Brokers
Post by: Sunrider on November 05, 2018, 05:43:20 AM
Ugh maybe I’m slow, but why don’t you just convert your pesos back to cad or whatever at interbank rates on IB’s platform?

I just wish they'd hurry up and go global with their investment account linked Mastercard debit card besides US residents. That's a killer product.

My dream is the ability to get a few different mastercard debits for different currencies. I happen to have Mexican pesos in my IBKR account, and when I went to mexico I converted CAD to MXN at a bogus retail rate, because I couldn't get it out. If I could take MXN, EUR, USD, CAD, JPY  etc out of my IBKR account in cash I would LOVE that.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 05, 2018, 06:18:37 AM
I can convert the pesos back to CAD, that's no problem. What I really want is access to spendable money at interbank rates.

Resorts in Mexico don't take CAD at the pool bar (and USD at a terrible rate) so it makes sense to take MXN. I can get MXN via IB at interbank rates, but I can't get it out and spend it, as far as I know.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on November 05, 2018, 08:46:17 AM
I can convert the pesos back to CAD, that's no problem. What I really want is access to spendable money at interbank rates.

Resorts in Mexico don't take CAD at the pool bar (and USD at a terrible rate) so it makes sense to take MXN. I can get MXN via IB at interbank rates, but I can't get it out and spend it, as far as I know.

Do they not accept credit card? There are a number of good credit cards like the Chase Sapphire preferred/reserve that charges no foreign transaction fee. If you are in Canada, I am sure there will be something similar.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 05, 2018, 09:32:00 AM
I can convert the pesos back to CAD, that's no problem. What I really want is access to spendable money at interbank rates.

Resorts in Mexico don't take CAD at the pool bar (and USD at a terrible rate) so it makes sense to take MXN. I can get MXN via IB at interbank rates, but I can't get it out and spend it, as far as I know.

Do they not accept credit card? There are a number of good credit cards like the Chase Sapphire preferred/reserve that charges no foreign transaction fee. If you are in Canada, I am sure there will be something similar.

Canada has a very limited supply of cards with no foreign transaction fee, and nothing at all like Chase Sapphire. Oligopoly banks for the win!

However, I've observed that even with no fee that rate I get on foreign currency purchases from Visa/Mastercard is not nearly as good as the rate I can obtain by exchanging currency via IB.
Title: Re: IBKR - Interactive Brokers
Post by: rb on November 05, 2018, 09:43:26 AM
Chase Saphire is a Visa Infinite card. From what I remember when I looked at cards a few months back, the Visa Infinite cards from Scotia and TD were very similar to Chase Saphire.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 05, 2018, 12:08:34 PM
Scotia passport visa infinite is probably the closest to the Sapphire Reserve card in Canada. It doesn't have some of the bigger perks ($300 in hotel credit, lounge passes are limited, etc) but it's a good card. Reward not as good as chase either, I don't think.

It is also one of the very few in Canada with no foreign fees, as per this comparison.
http://www.rewardscanada.ca/cccompare-all.html

I do think if IBKR can make its account a one stop shop for people that will increase their customer stickiness.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on November 05, 2018, 12:13:09 PM
Chase Saphire is a Visa Infinite card. From what I remember when I looked at cards a few months back, the Visa Infinite cards from Scotia and TD were very similar to Chase Saphire.

The advantage of IBKR over a credit card is:
- You pay margin interest rates (<3%) instead of credit card rates (~20%)
- You earn fairly high interest on cash balances over $10,000 (peso rate is 3.7%)
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on November 05, 2018, 12:32:06 PM
TD bank in usa opens easily accounts for Canadians with cad address and it has no forex fee in USD...

IB card will probably be in base currency and then you can either hold the other currencies long before or convert without fee when paying your bill. Not ideal but better. Also I imagine there would be no foreign bank reporting requirements since it would be a domestic card.

Agree that EU is miles ahead in banking technology, apps, cheap wires, etc..They even have multi-currency Visa/MCs where the funds just come out of the relevant currency account linked to it and then cascade to the base currency if you run out of funds. Smart.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 05, 2018, 01:31:48 PM
I have a US domiciled cc already (from RBC, but it's basically the same product). So I'm covered in the US as I can spend in USD on my cc. Then I withdraw USD from IBKR to my USD denominated account (in Canada) and pay my US credit card with that. 

I'd love a similar setup for GBP, EUR and MXN. I think it's more likely that IB will offer me a product like that than a Canadian bank will...
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on November 05, 2018, 01:38:37 PM
IB seems to have taken the little footnote about opening MC debit cards for CAD & EU accounts by 2018. Either it's imminent or there may be a regulatory hurdle (perhaps something to do with margin access)

Title: Re: IBKR - Interactive Brokers
Post by: muscleman on November 05, 2018, 03:04:24 PM
Scotia passport visa infinite is probably the closest to the Sapphire Reserve card in Canada. It doesn't have some of the bigger perks ($300 in hotel credit, lounge passes are limited, etc) but it's a good card. Reward not as good as chase either, I don't think.

It is also one of the very few in Canada with no foreign fees, as per this comparison.
http://www.rewardscanada.ca/cccompare-all.html

I do think if IBKR can make its account a one stop shop for people that will increase their customer stickiness.

I would NEVER ever open a debit card that directly links to my stock account for security reasons. This account has the most of my net worth. If the debit card is stolen or hacked, I would be really worried. I would rather pay a tiny bit more in the foreign ex rate for no foreign fee credit cards.
Title: Re: IBKR - Interactive Brokers
Post by: writser on November 06, 2018, 04:43:49 AM
I would NEVER ever open a debit card that directly links to my stock account for security reasons. This account has the most of my net worth. If the debit card is stolen or hacked, I would be really worried. I would rather pay a tiny bit more in the foreign ex rate for no foreign fee credit cards.

Agreed. Apart from safety reasons I think it's also a horrible proposition from a behavioral perspective to have a credit / debit card linked to your retirement account. Recipe for disaster. Still, I like the idea as it would be basically be the only way for individuals not to get stiffed on exchange rates. I'd probably open another IB account for that (if that would make sense taking into account other IB costs).
Title: Re: IBKR - Interactive Brokers
Post by: udravi on November 06, 2018, 09:30:39 AM
For exchange rates there is this app called Revolut that offers a multicurrency debit card with decent fx rates for individuals.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 07, 2018, 10:33:46 AM
Part question part public service announcement for Canadians.

IBKR has moved its listing to the IEX. Now, generally speaking I don't care where a listing is. If that's cheaper and is a potential incentive for lower public market costs in general I'm all for it. However, there is a big catch for Canadians.

IEX is NOT a designated stock exchange by the Canadian department of finance. See the list here: https://www.fin.gc.ca/act/fim-imf/dse-bvd-eng.asp

That means (I think) that IBKR shares are no longer eligible to be held in a RRSP or TFSA account. That's bad news for me, as I have quite a few of them in my RRSP, and most of my existing non-registered investments are already things that can't go in an RRSP (mostly OTC stocks and directly held real estate).

Given this was previously traded on a registered exchange, is there a loophole that I can keep it? I don't want to sell IBKR, withdraw the shares from the RRSP (taxable!) or sell other assets to buy them back in non-registered form. I've emailed IEX to ask them to apply for registered status (and would encourage anyone else affected to do so as well)
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on November 07, 2018, 10:57:51 AM
Given this was previously traded on a registered exchange, is there a loophole that I can keep it? I don't want to sell IBKR, withdraw the shares from the RRSP (taxable!) or sell other assets to buy them back in non-registered form. I've emailed IEX to ask them to apply for registered status (and would encourage anyone else affected to do so as well)

Ugh. Fortunately, I moved my IBKR from my RRSP last year.

Unless IEX becomes a designated exchange before the end of the year, it seems like you need to sell. I don't see a loophole. There seems to be a Public Corporation loophole, if the company was a Canadian company.

--
50% tax

1.72 If a registered plan acquires a non-qualified investment or an existing investment becomes non-qualified, the controlling individual of the plan is subject to a tax under section 207.04 equal to 50% of the fair market value of the property at the time it is acquired or becomes non-qualified. In the case of an RESP or RDSP with multiple subscribers or holders, each such person is jointly and severally, or solidarily, liable with each other to pay the tax. Individuals liable for the tax for any calendar year must file Form RC339, Individual Return for Certain Taxes for RRSPs or RRIFs, RESPs or RDSPs or Form RC243, Tax-Free Savings Account (TFSA) Return as applicable. The form, together with any balance due, must be submitted by no later than June 30 of the following year.

1.73 The 50% tax on non-qualified investments is refundable in certain circumstances. To qualify for the refund, the investment must be disposed of before the end of the calendar year after the year in which the tax arose (or such later time as is permitted by the Minister of National Revenue). However, no refund is available if it is reasonable to consider that the controlling individual knew or ought to have known that the investment was or would become non-qualified. The forms referred to in ¶1.72 explain how to claim the refund.

1.74 If a non-qualified investment becomes qualified while being held by a registered plan, subsection 207.01(6) deems the investment to have been disposed of and reacquired by the plan. This might happen when a delisted security is relisted. This ensures that a refund is available in this situation, provided the conditions described in ¶1.73 are met.

1.75 Subsection 207.06(2) gives the Minister authority to cancel or waive all or part of the 50% tax on non-qualified investments in appropriate circumstances, taking into account such factors as reasonable error. The forms referred to in ¶1.72 explain how to apply for this relief.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on November 07, 2018, 11:09:10 AM
Given this was previously traded on a registered exchange, is there a loophole that I can keep it?

Actually, is it possible it is listed on Frankfurt Stock Exchange? When I enter IBKR symbol, IB gives me two options: IEX or Frankfurt. If so, Frankfurt appears to be a designated stock exchange.

https://ca.finance.yahoo.com/quote/KY6.F?ql=1&p=KY6.F

Title: Re: IBKR - Interactive Brokers
Post by: writser on November 07, 2018, 11:22:40 AM
Yeah, IB is listed on the "Boerse Frankfurt": http://en.boerse-frankfurt.de/stock/Interactive_Brokers_Group-share, which is a specialist venue (i.e. no open order books but market maker quotes only) of the Frankfurt Stock Exchange. I'd say that that is technically part of the Frankfurt Stock Exchange.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 07, 2018, 11:43:43 AM
IEX got back to me and said they are working on it already, but didn't provide a time line on when it would be done. (And it probably goes at government speed, so months/years vs milliseconds...)

Thanks for the suggestion on Frankfurt, that's very helpful.

I'm not hugely comfortable with any uncertainty here, as 50% of my IBKR position is a couple percent of my portfolio... However, the page writser linked to notes the ISIN as the same as the one I own, so I think this should be OK.
Title: Re: IBKR - Interactive Brokers
Post by: writser on November 07, 2018, 11:47:56 AM
It's definitely the same stock. Question is if the Canadian government is ok with you buying / holding the stock in the US on IEX when the designated listing is on a floor-trading segment of the Frankfurter Boerse.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 07, 2018, 11:55:54 AM
Thanks! I'm pretty sure any Frankfurt listing qualifies, as exchanges where only certain tiers are allowed (TSX Venture, Jamaica) have the allowed tiers in brackets in the list I linked above.

Title: Re: IBKR - Interactive Brokers
Post by: matts on November 07, 2018, 12:09:42 PM
You should be fine. Just have the Frankfurt info ready if the CRA ever calls. I've held an OTC stock in my RRSP (which is not allowed) for years and no one has ever raised an issue. Like you, I can point to the same ISIN being dual-listed on a qualifying exchange in Amsterdam. I had to buy the OTC version because my broker won't let me buy any stock outside NA.

Title: Re: IBKR - Interactive Brokers
Post by: Hielko on November 07, 2018, 12:22:57 PM
Thanks! I'm pretty sure any Frankfurt listing qualifies, as exchanges where only certain tiers are allowed (TSX Venture, Jamaica) have the allowed tiers in brackets in the list I linked above.
You think so? I'm not a Canadian, don't know anything about Canadian taxes, but would seem very logical to me that what counts is an official listing. Because you don't even have to go outside the US if you want to trade IBKR on something else than IEX itself. You can route your order to the NYSE, AMEX, BATS and a dozen other US exchanges/trading venues. Secondly, that would probably imply that you can just ignore the whole designated exchange rule, since especially in Frankfurt you can trade basically everything that is listed somewhere else in the world.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 07, 2018, 12:41:21 PM
Thanks! I'm pretty sure any Frankfurt listing qualifies, as exchanges where only certain tiers are allowed (TSX Venture, Jamaica) have the allowed tiers in brackets in the list I linked above.
You think so? I'm not a Canadian, don't know anything about Canadian taxes, but would seem very logical to me that what counts is an official listing. Because you don't even have to go outside the US if you want to trade IBKR on something else than IEX itself. You can route your order to the NYSE, AMEX, BATS and a dozen other US exchanges/trading venues. Secondly, that would probably imply that you can just ignore the whole designated exchange rule, since especially in Frankfurt you can trade basically everything that is listed somewhere else in the world.

It has a symbol in Frankfurt, which seems to imply that there is some sort of listing? Even with no volume or reporting requirements it seems to meet the letter of the law.

I know a bit about Canadian taxes and nothing about the Frankfurt exchange. Happily, that is also the knowledge breakdown  of anyone who would audit this, so as long as they have that listing page I think it's fine.
Title: Re: IBKR - Interactive Brokers
Post by: writser on November 07, 2018, 12:44:06 PM
Maybe it's against the spirit of the law - but by the same spirit it should be possible to own a large cap US company like IBKR regardless of whether its primary listing is NYSE or IEX. And according to the letter of the law it is listed in Frankfurt .. I'd be inclined to hold the position but I'm no expert on Canada either.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 07, 2018, 12:47:46 PM
Maybe it's against the spirit of the law - but by the same spirit it should be possible to own a large cap US company like IBKR regardless of whether its primary listing is NYSE or IEX. And according to the letter of the law it is listed in Frankfurt .. I'd be inclined to hold the position but I'm no expert on Canada either.

Yeah, the rule is intended to prevent people from putting stock options in pre-IPO stuff in tax free vehicles, and to prevent fraudsters from getting people's retirement money.

Neither of these are an issue here, as you say IBKR is a big US public company, shouldn't be an issue.

If I can dance into a position that let's me keep it I will. In some ways I wish this happened before the big recent drop in IBKR shares, as I might have sold... at the current price I'm more likely to add than sell.

Title: Re: IBKR - Interactive Brokers
Post by: rb on November 07, 2018, 01:19:25 PM
Guys it's ok. You can actually hold a lot of stuff in your RRSP and TFSA. It's not that if it's not listed on a designated exchange you can't hold it. It's that if it's listed on a designated exchange you can.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 07, 2018, 02:44:22 PM
I don't think IBKR meets any of the other qualifications for RRSP/TFSA inclusion. Many of the private investments you may be thinking of are actually done using a specific share class of a small publicly traded company.

Anyway, I found the specific wording from the CRA about this:

Quote
1.19 Many stock exchanges in the European Union (EU) operate two market segments, an official EU-regulated market and an unofficial market that is regulated by the exchange itself. The latter markets include the Alternative Investment Market (AIM) of the London Stock Exchange, Alternext operated by the various stock exchanges that comprise Euronext and the Open Market of the Frankfurt Stock Exchange. Only the official, EU-regulated markets qualify as a designated stock exchange provided the stock exchange is included on the Department of Finance list. The unofficial, exchange-regulated markets do not qualify as they are not recognized as an official market under European Union law, nor are they subject to stringent transparency requirements and investor protection regulations. It follows then that a listing on an unofficial, exchange-regulated market is not a basis for a registered plan trustee to confirm qualified investment status of a particular security.

Does anyone know how I'd figure out whether Interactive Brokers is on the open market or not?

https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-10-registered-plans-individuals/income-tax-folio-s3-f10-c1-qualified-investments-rrsps-resps-rrifs-rdsps-tfsas.html
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on November 07, 2018, 02:54:46 PM
Hmm.. looks like it is on the open market, which is specifically excluded. I think I may need to sell these if IEX doesn't get registered by the end of the year. Maybe I can generate similar exposure with options in my non-registered account, as I flat out can't buy the same amount of shares. This is not great...
Title: Re: IBKR - Interactive Brokers
Post by: rb on November 07, 2018, 03:29:47 PM
If you want to go the options route, why not just buy calls in your RRSP? The calls should be trading on a designated exchange.
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on November 08, 2018, 02:54:30 AM
It seems both Revolut and IB are going to offer cards Mastercard in 2019.
These two will be the most competitive products for foreign transactions, withdrawals, etc...
And I believe it won't be reportable as foreign asset card because they will be Canadian cards yet you will get the same benefits for foreign use or living abroad.
Title: Re: IBKR - Interactive Brokers
Post by: flesh on November 28, 2018, 11:06:57 AM
Punch card trader! Nicely done! Sick write up!

It's always exciting seeing that what can be known is much greater than what is known.
Totally missed the I-broker NIM bit myself. Also, the analysis surrounding switching costs vs new clients in asia etc was quite nice.

https://valueinvestorsclub.com/idea/INTERACTIVE_BROKERS_GROUP/4701018140
Title: Re: IBKR - Interactive Brokers
Post by: Libs on December 06, 2018, 09:16:42 AM
Punch card trader! Nicely done! Sick write up!

It's always exciting seeing that what can be known is much greater than what is known.
Totally missed the I-broker NIM bit myself. Also, the analysis surrounding switching costs vs new clients in asia etc was quite nice.

https://valueinvestorsclub.com/idea/INTERACTIVE_BROKERS_GROUP/4701018140

Cliff notes? This VIC write-up is not available to non-members yet. Thanks!
Title: Re: IBKR - Interactive Brokers
Post by: BMC34 on December 06, 2018, 10:11:25 AM
It is available.  Write up published on 10/13/18.
Title: Re: IBKR - Interactive Brokers
Post by: fisch777 on January 15, 2019, 05:26:51 AM
Wow just saw the Peterffy 10b5-1 plan.  Looks like will be selling ~8% of ADV (30 day) for longer than any of us will be alive.   I'm gonna go out on a limb and guess this creates a ceiling on the shares...
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on January 15, 2019, 06:42:48 AM
Wow just saw the Peterffy 10b5-1 plan.  Looks like will be selling ~8% of ADV (30 day) for longer than any of us will be alive.   I'm gonna go out on a limb and guess this creates a ceiling on the shares...

Yeah, I read this in Barron's:

Quote
"There is a lot of talk about this. People do not want to believe that I am not contemplating selling shares," he wrote in an email. "It occurs to me that if I create a plan to sell 20,000 shares every business day for the next 60 years or so, the issue will go away. So that is what I will do."

His logic made very little sense to me.  ::)

Edit: BTW, this is the guy who said something like this in the proxy or annual: "If you're not customer of IB, you should sell your shares to people who appreciate this company ...". Pot kettle?  ::)
Title: Re: IBKR - Interactive Brokers
Post by: Jerry Capital on January 15, 2019, 07:03:50 AM
Naw you're missing the point.

This increases the float which has long been a overhang on the company. He owns something like 75% of shares outstanding. The guy is gonna die he is not calling pots certain colors like you infer, this is just part of his succession planning.

Seems likely this gets taken over in the next decade, and even if it doesn't its a wonderful business at a fair price.
Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on January 15, 2019, 09:33:53 AM
It will create extra supply, but also creates more certainty around his intentions. That should reduce overhang on the stock a bit, or at least provide certainty around how much he is selling.

One thought - will the extra free float/liquidity eventually qualify them for any indices they aren't in right now? That could add meaningful share demand at some point if it's the case (on phone on vacation, can't really research...)
Title: Re: IBKR - Interactive Brokers
Post by: Peregrino on January 15, 2019, 10:07:58 AM
Missed the bigger news from last week that he will be stepping down at the end of Q3 2019 as CEO, retaining his Chairman role.
Title: Re: IBKR - Interactive Brokers
Post by: fisch777 on January 16, 2019, 05:51:40 AM
I suppose it clarifies his intentions (vs. what exactly?), but it also is a slight "overhang" in a forced seller in the market every day for the next SIXTY years.   I don't blame him, but it is definitely a wild card in owning the shares going forward.
Title: Re: IBKR - Interactive Brokers
Post by: Libs on January 31, 2019, 03:19:53 PM
Sorry if I missed this in the thread, but why is he selling his shares at all?
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on January 31, 2019, 03:21:54 PM
Sorry if I missed this in the thread, but why is he selling his shares at all?

Cause he can’t take them where he will be going eventually.
Title: Re: IBKR - Interactive Brokers
Post by: MrB on February 01, 2019, 07:30:18 AM
Sorry if I missed this in the thread, but why is he selling his shares at all?

Cause he can’t take them where he will be going eventually.
;D
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on March 12, 2019, 04:11:48 PM
I looked at some brokers 10-k (IBKR, SCHW) and it’s clear that the recent revenue and earnings gains are mostly due to increased interest income, due to the short term interest rates going higher than zero essentially. I am wondering however, if this tailwind has worked it way already. I am somewhat concerned that we have seen close to the high in interest rates and may eventually going back to zero with the next recession. That would cut IBKR‘s ‘s earnings by half and SCHW would be reduced even more so.
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on March 18, 2019, 08:36:38 AM
I think that's a real possibility. And I think it's a real possibility that rates in the USA will turn negative like in Europa if/when there's a new recession which would obviously be bad for these guys. Now, that might or might not happen (or it might take long to play out), and in the meantime IBKR should continue to grow accounts meaningfully. IBKR was my second largest position but I sold out last week (to bridge a funding gap as I'm buying a car as well as a vacation home - negative rates hell yeah!). Anyway, when my financing is in place (I'm actually getting paid 0,2% to borrow - crazy world) I'm not sure whether or not I'll actually plow my funds into IBKR. 10 years into a bull market I think I might like some of my other bets more.
Title: Re: IBKR - Interactive Brokers
Post by: stahleyp on March 18, 2019, 09:19:45 AM
kab, how did you pull off getting paid to borrow?
Title: Re: IBKR - Interactive Brokers
Post by: kab60 on March 18, 2019, 09:46:57 AM
kab, how did you pull off getting paid to borrow?
Welcome to Europe (Denmark) and ZIRP. There's basically (like very basic) two types of real estate loans here (both recourse).

At the moment you can either get a loan with a fixed interest at 1,5 pct. for 30 years, or you can take out a loan with variable interest rates (there's different types that reset every year, every third year or every fifth).

Since our family is not very sensitive to interest rates (low LTV), and since I expect rates to stay lower for longer, we opted for a loan with variable interest rates (that resets twice a year).

It's actually negative atm (like -0,2 pct. I believe) so we get paid a bit to borrow (in reality we pay a tiny amount to the bank that services the loan, so after tax we probably pay around 0,2 pct. or something like that). Basically peanuts. (if there's further questions just drop me a message so we don't clutter this thread).
Title: Re: IBKR - Interactive Brokers
Post by: fisch777 on March 25, 2019, 06:34:49 AM
Wow. I (somewhat) understand negative yields on sovereigns, but negative rate individual mortgage is mind-blowing.  I honestly had to sit here for a second and process that.

IB is in interesting spot.  The risk of declining US rates is very real (and scary for IBKR) at some point in the future, but accounts are growing like a weed, TAM is massive and the company seems to be smartly iterating its offering based on feedback from clients/investors.

How are others thinking about handicapping the rate risk?
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on March 28, 2019, 07:44:17 AM
https://traviswiedower.com/2019/03/27/interactive-brokers-maintains-its-strong-moat-but-kpis-worsen/
Title: Re: IBKR - Interactive Brokers
Post by: MrB on April 17, 2019, 09:56:38 AM
Who knows which security the margin loss of $42m relates to?
https://investors.interactivebrokers.com/ir/main.php?file=latestEarningsPR

As previously disclosed, over an extended period in 2018, a small number of our brokerage customers had
taken relatively large positions in a security listed on a major U.S. exchange. We extended margin loans
against the security at a conservatively high collateral requirement. In December 2018, within a very short
timeframe, this security lost a substantial amount of its value. The customer accounts were well margined
and at December 31, 2018 they had incurred losses but had not fallen into any deficits. During the current
quarter, subsequent price declines in the stock caused these accounts to fall into deficits, despite our efforts
to liquidate the customers’ positions. For the quarter ended March 31, 2019, we have recognized an
aggregate loss of approximately $42 million. The ultimate effect of this incident on our results will depend
upon market conditions and the outcome of the our debt collection efforts.
Title: Re: IBKR - Interactive Brokers
Post by: sleepydragon on April 17, 2019, 10:26:57 AM
Who knows which security the margin loss of $42m relates to?
https://investors.interactivebrokers.com/ir/main.php?file=latestEarningsPR

As previously disclosed, over an extended period in 2018, a small number of our brokerage customers had
taken relatively large positions in a security listed on a major U.S. exchange. We extended margin loans
against the security at a conservatively high collateral requirement. In December 2018, within a very short
timeframe, this security lost a substantial amount of its value. The customer accounts were well margined
and at December 31, 2018 they had incurred losses but had not fallen into any deficits. During the current
quarter, subsequent price declines in the stock caused these accounts to fall into deficits, despite our efforts
to liquidate the customers’ positions. For the quarter ended March 31, 2019, we have recognized an
aggregate loss of approximately $42 million. The ultimate effect of this incident on our results will depend
upon market conditions and the outcome of the our debt collection efforts.

DVA? ;)
Title: Re: IBKR - Interactive Brokers
Post by: sleepydragon on April 17, 2019, 10:46:39 AM
I guess another client of IBKR is ruined.

I think about 15 years ago, I lost my entire savings trading stocks at IBKR. I have never opened account there again. The whole platform/GUI/cheap margins is designed so clients will trade as frequently as possible. It’s very tempting and addictive.  It’s almost evil.
Not buying it’s stock too (but it was a mistake)
Title: Re: IBKR - Interactive Brokers
Post by: roark33 on April 17, 2019, 12:54:32 PM
I bet it was Apple, given the large decline in Apple in December, but I am just guessing. 


Who knows which security the margin loss of $42m relates to?
https://investors.interactivebrokers.com/ir/main.php?file=latestEarningsPR

As previously disclosed, over an extended period in 2018, a small number of our brokerage customers had
taken relatively large positions in a security listed on a major U.S. exchange. We extended margin loans
against the security at a conservatively high collateral requirement. In December 2018, within a very short
timeframe, this security lost a substantial amount of its value. The customer accounts were well margined
and at December 31, 2018 they had incurred losses but had not fallen into any deficits. During the current
quarter, subsequent price declines in the stock caused these accounts to fall into deficits, despite our efforts
to liquidate the customers’ positions. For the quarter ended March 31, 2019, we have recognized an
aggregate loss of approximately $42 million. The ultimate effect of this incident on our results will depend
upon market conditions and the outcome of the our debt collection efforts.
Title: Re: IBKR - Interactive Brokers
Post by: sleepydragon on April 17, 2019, 01:04:17 PM
I bet it was Apple, given the large decline in Apple in December, but I am just guessing. 


Who knows which security the margin loss of $42m relates to?
https://investors.interactivebrokers.com/ir/main.php?file=latestEarningsPR

As previously disclosed, over an extended period in 2018, a small number of our brokerage customers had
taken relatively large positions in a security listed on a major U.S. exchange. We extended margin loans
against the security at a conservatively high collateral requirement. In December 2018, within a very short
timeframe, this security lost a substantial amount of its value. The customer accounts were well margined
and at December 31, 2018 they had incurred losses but had not fallen into any deficits. During the current
quarter, subsequent price declines in the stock caused these accounts to fall into deficits, despite our efforts
to liquidate the customers’ positions. For the quarter ended March 31, 2019, we have recognized an
aggregate loss of approximately $42 million. The ultimate effect of this incident on our results will depend
upon market conditions and the outcome of the our debt collection efforts.

It should be some stocks that gaped down/up, so broker couldn’t liquidate immediately.
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on April 17, 2019, 02:06:21 PM
yes, exactly.  it's not Apple, lol. 

and it had to be a pretty large company for them to have lost $40+M because:

1) that's only the amount lost by IB customers that cost IB to lose $40M after their accounts went to 0!
2) assume IB customers didn't own more than a few percent of the company

the whole thing is very odd.  it reads like IB is still long (or short?) the stock!  why didn't they finish liquidating the position yet???  it all makes no sense.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on April 17, 2019, 02:15:29 PM
yes, exactly.  it's not Apple, lol. 

and it had to be a pretty large company for them to have lost $40+M because:

1) that's only the amount lost by IB customers that cost IB to lose $40M after their accounts went to 0!
2) assume IB customers didn't own more than a few percent of the company

the whole thing is very odd.  it reads like IB is still long (or short?) the stock!  why didn't they finish liquidating the position yet???  it all makes no sense.

Would indicate low or no liquidity. Not clear how this was marginable, but I'm not an expert on marginability at IBKR.
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on April 17, 2019, 02:28:49 PM
yes, exactly.  it's not Apple, lol. 

and it had to be a pretty large company for them to have lost $40+M because:

1) that's only the amount lost by IB customers that cost IB to lose $40M after their accounts went to 0!
2) assume IB customers didn't own more than a few percent of the company

the whole thing is very odd.  it reads like IB is still long (or short?) the stock!  why didn't they finish liquidating the position yet???  it all makes no sense.

Would indicate low or no liquidity. Not clear how this was marginable, but I'm not an expert on marginability at IBKR.

They are really tough on margin.  First, anything sub 250m market cap not marginable.  Many under 500m.   All biotech under 5b not marginable. 

So yah, they got fooled somehow by a mid cap that was illiquid and imploded.  That's why I'm so interested in knowing what it is.  And how many clients caused the 40m in losses. 

EDIT:
Rereading this is INSANE

" In December 2018, within a very short
timeframe, this security lost a substantial amount of its value. The customer accounts were well margined
and at December 31, 2018 they had incurred losses but had not fallen into any deficits. During the current
quarter, subsequent price declines in the stock caused these accounts to fall into deficits, despite our efforts
to liquidate the customers’ positions."

At 12/31, the customers still had positive equity!   The losses to IB all happened in Q1 and they STILL are long the damn stock!!!!   It has to be super illiquid, very good catch.

2nd EDIT:

That's why they won't tell us the security!  They still long it!  If we knew, people could pressure the stock knowing IB is long it and doesn't want to be and will sell at any liquidity event!
Title: Re: IBKR - Interactive Brokers
Post by: writser on April 17, 2019, 02:44:05 PM
I don't have a BB terminal, somebody should make a simple screener: biggest losers since December on low volume with a starting mcap > 300m or something. Fascinating indeed. It's 1000% not Apple .. They can liquidate any position in a day there. Probably something like a China / cannabis / resources related mid-cap.
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on April 17, 2019, 03:22:04 PM
The real losses came in Q1 - all the customers had positive equity on Dec 31!

The main part of the screen needs to be liquidity (lack of).  But we are talking huge company for IB to lose $40M on top of whatever the customers lost, again assuming IB customers only owned small % of company.  How did they buy in first place if so illiquid?  We will find name eventually..guessing after IB is out of position.

EDIT:  From Conf Call, more color:

Second, we disclosed in early March, what was then a $47 million margin loan loss, which is now $42 million and on which we still are likely to collect more. This occurred in the U.S. listed stock in which several customers invested by borrowing on margin. The stock's price fell rapidly over a very brief period of time, while simultaneously the trading volume suddenly dried up. Due to the very low trading volume, we were unable to liquidate as much of the stock as we wanted. We have made and expect to make further recoveries here. We are continually looking to make our systems' algorithms better. As a result, we have tightened margin borrowing in very low trading volume stocks, and we'll be using average daily volume as a greater weight when we assess margin loan risk in future.

Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on April 17, 2019, 05:53:36 PM
Might be fraud too.  A small group of customers trade and otherwise illiquid stock amongst each other and bidding it up, as well as providing the illusion of liquidity, then pull the rug and let IBKR hold the bag. The money got transferred so to speak to other accounts which are of course are with another broker. Automated systems probably can get fooled by this. I believe there was such a case in Asia with IBKR a while ago.
Title: Re: IBKR - Interactive Brokers
Post by: meiroy on April 17, 2019, 06:07:38 PM
Wasn't there a similar IBKR issue in Singapore, awhile ago?

UPDATE: 

Note this is a non-current event, and posted just for context:

"Now I will explain these items in further detail. The unusual item is a $73 million loss we have reported on our books for the Singapore incident that we discussed - we disclosed in October. As a reminder, certain of our brokerage customers took large positions in a few related stocks listed on the Singapore Stock Exchange last year. In the beginning of the fourth quarter, these stocks lost over 90% of their value in a very short period of time and we are able to liquidate only a small portion for the exchange of the trading.

We are pursuing legal actions to recuperate our loss base and have secured freeze orders in Malaysia and Singapore, but this process will take a long time. We said in October, that the maximum loss would be $84 million. However, because we were able to take the stocks onto our books at a value of about $20 million to offset the margin call, we have a $64 million that has been recorded in bad debt in the Brokerage segment. These stocks have lost about half their value, so we've also recorded a loss of $10 million in the Corporate segment bringing the total impact to $74 million."



Title: Re: IBKR - Interactive Brokers
Post by: stahleyp on April 17, 2019, 06:09:25 PM
I rarely use margin but can't IB liquidate other securities to cover the margin call (though perhaps the customer only had that one stock)? Also, can't the broker go after the customer directly(lawsuits and the like)?
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on April 17, 2019, 06:53:14 PM
Yes, they can and I'm sure did liquidate the entire portfolios ex the illiquid stock but clearly it was so big in each account it didn't matter.

It's possible it was a scam but if that was true the stock would probably be a 0 now and they wouldn't have the language about "depending on market conditions" etc.   Seems more likely a sketchy company w/ market cap 500m to 2b with a small float.
Title: Re: IBKR - Interactive Brokers
Post by: muscleman on April 17, 2019, 09:43:52 PM
Interesting stuff!
Can anyone run a screener to figure it out?
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on April 18, 2019, 02:41:17 AM
Yes, they can and I'm sure did liquidate the entire portfolios ex the illiquid stock but clearly it was so big in each account it didn't matter.

It's possible it was a scam but if that was true the stock would probably be a 0 now and they wouldn't have the language about "depending on market conditions" etc.   Seems more likely a sketchy company w/ market cap 500m to 2b with a small float.
I'm pretty sure it must have been some kind of scam. Normal customers don't go long their whole account in one shady Chinese stock (I'm assuming it is YRIV). Not exactly sure how the scam worked, but think you see it sort of frequently with sketchy low float companies in Hong Kong were they just weird things keep happening with the stock price. Stock price of YRIV was also suspiciously stable in early 2018. My money is that that was connected to those accounts being massively long the stock at IB.
Title: Re: IBKR - Interactive Brokers
Post by: writser on April 18, 2019, 03:13:34 AM
What makes you think it was YRIV? Though it seems a likely candidate given what happened in the stock. Few interesting points:

- YRIV has ~170m shares outstanding. Volume in the first two week of April was ~250m shares. There could be some wash trades / HFT trades in there but I'd say IB should've been able to close out a big position by now.

- A big position should've shown up as a form 4 somewhere? Though if this was a scam maybe they didn't file on purpose? The CEO owns 90m shares, could it be his position?

- Agree it almost certainly must be a scam. But how / what? Something like: buy a lot of shares: push up the price, withdraw excess margin from IB account? Alarm bells should've been going off all over the place ..

Title: Re: IBKR - Interactive Brokers
Post by: Hielko on April 18, 2019, 03:47:19 AM
April wasn't part of the first quarter, so could be that they have now closed their position. But I'm not totally sure it's YRIV. IB says that after the drop liquidity dried up in the stock, but this one had sort of the same trading volumes pre and post drop (and indeed crazy volume last month, probably some kind of pump and dump in progress...)
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on April 18, 2019, 07:05:39 AM
It's not YRIV.  The key here is:

Big drop Q4 and then bigger drop in Q1 & very low liquidity after there was decent liquidity.  I'm guessing sub $250,000 a day but def sub $1M a day.
Title: Re: IBKR - Interactive Brokers
Post by: fuzzhead1506 on April 18, 2019, 11:19:50 AM
It could be so many things... long or short, so running a scan to help decide would not likely yield much fruit.

I'd imagine short VIX trade has that level of loss. Despite all of their efforts 2 years ago to mitigate the risk with higher margin requirements.  VIX more than doubled in December.
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on April 18, 2019, 11:54:35 AM
In the transcript snippet they explicitly say it was a stock that lost value. So it must have been a long.
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on April 18, 2019, 12:52:15 PM
Hielko’s YRIV is a good guess.
https://finance.yahoo.com/chart/YRIV#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%3D%3D (https://finance.yahoo.com/chart/YRIV#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%3D%3D)
Title: Re: IBKR - Interactive Brokers
Post by: fuzzhead1506 on April 18, 2019, 02:21:49 PM
In the transcript snippet they explicitly say it was a stock that lost value. So it must have been a long.

maybe I need to just go back to listening/skulking on the forum as this the second time you have appropriately corrected me in my 10-ish posts on the forum.   :-X
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on April 18, 2019, 02:59:45 PM
It's not YRIV!  That went from extremely illiquid TO extremely liquid as it collapsed!  It's the opposite of what they are describing.  Go look at volumes in Q4 vs Q1.  SUPER LIQUID!
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on April 29, 2019, 06:22:59 AM
It's not YRIV!  That went from extremely illiquid TO extremely liquid as it collapsed!  It's the opposite of what they are describing.  Go look at volumes in Q4 vs Q1.  SUPER LIQUID!
According to this article it is: https://finance.yahoo.com/news/chinese-firm-apos-plunge-cost-080000161.html
Quote
The answer, it turns out, is shares of an obscure Chinese company with years of losses, no revenue and a U.S. headquarters located in a New York City apartment. Its name is Yangtze River Port and Logistics Ltd., according to a person with knowledge of the matter who requested anonymity because Greenwich, Connecticut-based Interactive Brokers hasn’t revealed the firm’s identity.
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on April 29, 2019, 06:50:43 AM
I just came here to post that...crazy.  I stand corrected!   I guess I see it didn't become liquid till it went below $1.  That chart is so ugly.
Title: Re: IBKR - Interactive Brokers
Post by: Peregrino on April 29, 2019, 09:32:19 AM
Long article from the WSJ on how Schwab's low fee model is taking market share, shaking up brokerage.

Not a single mention of Interactive Brokers... I don't know whether that's a good thing (IBKR remains under-followed), or a bad thing (no one thinks they are a serious contender)

https://www.wsj.com/articles/how-schwab-ate-wall-street-11556474103?mod=hp_lead_pos9
Title: Re: IBKR - Interactive Brokers
Post by: fisch777 on April 29, 2019, 10:47:31 AM
Long article from the WSJ on how Schwab's low fee model is taking market share, shaking up brokerage.

Not a single mention of Interactive Brokers... I don't know whether that's a good thing (IBKR remains under-followed), or a bad thing (no one thinks they are a serious contender)

https://www.wsj.com/articles/how-schwab-ate-wall-street-11556474103?mod=hp_lead_pos9

Schwab is such a beast.  Have spent quite a bit of time on both it and IBKR the past few months, and still can't get there, mostly due to NIM exposure.  I get that rates <should> normalize at higher levels at some point/over cycle/etc, but I don't want to pay for it.

As far as why IBKR isn't mentioned, it's just not a contender in the mainstream financial "supermarket" space.  Schwab brokerage is arguably cheaper for most US investors who don't trade often, plus roll in banking accounts, commission-free ETFs/MFs, retirement accounts, etc all under one login.  Anecdotally, it is the only bank/broker I use ex high yield online savings guys.

I suppose IBKR valuation has come down significantly, but has discounted a massive adjustment in forward rate upside expectations, a significant slowdown in new account growth, and the founder/CEO selling 25K shares every day.
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on August 06, 2019, 07:36:01 AM
Looking for Europeans who have IB account for couple questions ( @writser? ):

- Assuming a person opens IB account with smallish sum of money, buys couple stocks and does not trade from there on what monthly fee IB charges in Europe (Eurozone)? (In US I believe they charge monthly $10 for any account smaller than $100K. I need Euro-side info though).
- How difficult it is to fund IB account from random EU country assuming you have EU bank account? Does IB give bank info to which you transfer money and you're funded?

Someone from Lithuania wants to open a brokerage account with rather small amount of money. IB was advertised on CoBF as the best solution in Europe.  ;D I am trying to gather info if they are economical for small accounts (not that other brokers are economical for small accounts either...  :-\ )

Any other info/gotchas?

Any info appreciated. We can move to general or PM if needed though I think this thread was used for IB-related info in the past.  8)
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on August 06, 2019, 08:19:03 AM
IB doesn't have different fees in Europe. So you still have the $10 inactivity fee. And funding is easy, you can just do an transfer to an IBAN number (most likely to Germany). For small accounts (with few transactions) I doubt that IB is the best option. You could go for something like degiro.eu (not a broker I like a lot, but they are cheap and you can get for a decent amount of ETF's one free trade a month).
Title: Re: IBKR - Interactive Brokers
Post by: Jurgis on August 06, 2019, 08:33:23 AM
Thanks Hielko.

Edit: degiro.eu is not available for Lithuanian residents (there are long discussions how to go around the limitation, but the workaround holes are pretty much plugged by now).
Title: Re: IBKR - Interactive Brokers
Post by: WneverLOSE on August 12, 2019, 02:17:17 AM
I am trying to understand why the Net income available for common stockholders is lower than you would expect from their 18.1% interest in IBG LLC (the operating business).

Net income for 2018 : 1,125
18.1% from Net income : 203
Reported Net income available for common stockholders : 169

My guess is that the listing costs and maybe auditing costs are incurred by the holding company (i.e. only the public shareholders)
I was wondering if someone can explain the difference between the numbers and if the costs are written somewhere at the 10-K ?
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on August 12, 2019, 04:09:14 PM
This is discussed upthread. It is related to taxation. They clearly talk through the pre-tax to post-tax EPS in most recent calls. Simplest way to explain it is that common shareholders get 18% of pre-tax income. But this isn’t quite true since the Partnership needs to pay its share of foreign taxes.
Title: Re: IBKR - Interactive Brokers
Post by: WayWardCloud on August 24, 2019, 01:38:36 PM
I'm looking at IBKR again due to the price falling down recently.

One thing that worries me, and yet I haven't read anyone talk about, is the possibility of the US and China technologically decoupling their strategic infrastructures. If we are only at the beginning of the rise of a new kind of technological Iron Curtain, as Google's Eric Schmidt predicts, wouldn't Interactive Brokers be at the top of the list of upcoming China bans? They handle extremely sensitive flux of information and the majority of their recent growth comes from Asia, mostly as an introductory broker if I remember correctly. If I were China, I wouldn't want a US company, especially one led by a very patriotic CEO who escaped the Eastern Block and hates communism, to control the underlying technological backbone for the trading platforms my people use.

I'd very much appreciate your opinions!
Title: Re: IBKR - Interactive Brokers
Post by: chompsterama on August 26, 2019, 12:41:01 PM
https://www.bamsec.com/transcripts/12474984?hl_id=41w5n7pnw

"We've said -- so right before the trade war happened, 16%, 1-6 percent, of our accounts were from Mainland China. That would be about 80-odd thousand, but we've also disclosed that all those accounts are maybe 1% of our revenues"

In other words, if your theory played out it could be a concern in regards to future revenue opportunities and is almost no risk to the current business.
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on August 26, 2019, 01:53:54 PM
Based on latest 10-q it appears for 6 months they paid a tax rate of 5.3%. This seems extremely low. I understand they have some sort of partnership structure but looking at the profitability of the business from a shareholder perspective should one normalize the tax rate to say 20 or 30% to get an apple to apple comparison of the net profitability to shareholder?
Title: Re: IBKR - Interactive Brokers
Post by: chompsterama on August 26, 2019, 02:34:38 PM
Based on latest 10-q it appears for 6 months they paid a tax rate of 5.3%. This seems extremely low. I understand they have some sort of partnership structure but looking at the profitability of the business from a shareholder perspective should one normalize the tax rate to say 20 or 30% to get an apple to apple comparison of the net profitability to shareholder?

yep
Title: Re: IBKR - Interactive Brokers
Post by: KCLarkin on August 26, 2019, 03:01:47 PM
Based on latest 10-q it appears for 6 months they paid a tax rate of 5.3%. This seems extremely low. I understand they have some sort of partnership structure but looking at the profitability of the business from a shareholder perspective should one normalize the tax rate to say 20 or 30% to get an apple to apple comparison of the net profitability to shareholder?

No. This is an artifact of the partnership structure. What you need to do is split the operating company income between the public shareholders and private shareholders first and then deal with the corporate taxes. The taxes last quarter are close to 20%, after accounting for the public/partnership split.

From the transcript:

Quote
To help investors better understand our earnings, the split between public shareholders and the noncontrolling interest is as follows:
Starting with reported income before income taxes of $225 million, we removed $1 million net expense attributable only to the public company to get pretax income for the operating company. We then deduct $9 million for income taxes paid by our operating companies, which are mostly foreign taxes.
This leads $217 million, of which 82%, or that $178 million reported on our income statement, is attributable to noncontrolling interest. The remaining 18%, or $39 million, is available for the public company shareholders. But as this is a non-GAAP measure, it is not reported on our income statement.
9
After we add back the $1 million net expense attributable only to the public company and deduct taxes of $6 million owed on the remaining $38 million, net income available for common stockholders is the $32 million you see reported on our income statement. The income tax expense you see on our income statement of $15 million consists of the $6 million paid by the public company plus the $9 million paid by the operating company.
Title: Re: IBKR - Interactive Brokers
Post by: chompsterama on August 26, 2019, 03:46:57 PM
from a shareholder perspective should one normalize the tax rate to say 20 or 30% to get an apple to apple comparison of the net profitability to shareholder?

yep
So...yep.
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on August 27, 2019, 12:19:17 AM
From what KcLarkin wrote, I get the impression the net income number after deducting the (large) minority interest includes something like 90% of the higher tax rate at the public company level and a small amount like 85% * 9 million paid by the operating company which will be a smaller amount?

Title: Re: IBKR - Interactive Brokers
Post by: chompsterama on September 26, 2019, 12:55:09 PM
IBKR to robinhood (verb) robinhood (the business)

https://www.interactivebrokers.com/en/index.php?f=45196

It's nice to see Peterffy change his mind on this.  It's always nice to see people act with how the world works vs. how it should work.  If Robinhood is any guide, this should be a good customer acq. tool.  Just hope the customer service to support it isn't ominous. 
Title: Re: IBKR - Interactive Brokers
Post by: given2invest on September 26, 2019, 01:34:49 PM
IBKR to robinhood (verb) robinhood (the business)

https://www.interactivebrokers.com/en/index.php?f=45196

It's nice to see Peterffy change his mind on this.  It's always nice to see people act with how the world works vs. how it should work.  If Robinhood is any guide, this should be a good customer acq. tool.  Just hope the customer service to support it isn't ominous.

IB customer service w/ their paying service is atrocious so I'd expect it to be...
Title: Re: IBKR - Interactive Brokers
Post by: DooDiligence on October 01, 2019, 06:08:21 AM
Couldn't find a Schwab thread so I'm putting this here,

https://www.cnbc.com/2019/10/01/charles-schwab-is-eliminating-online-commissions-for-trading-in-us-stocks-and-etfs.html

Apologies if this turns out to be an Onion article that CNBC picked up.
Title: Re: IBKR - Interactive Brokers
Post by: Liberty on October 01, 2019, 06:29:39 AM
https://www.cnbc.com/2019/10/01/charles-schwab-is-eliminating-online-commissions-for-trading-in-us-stocks-and-etfs.html

"Charles Schwab said on Tuesday that it is ending commissions for online trading.... Shares of Schwab fell 5% in premarket... TD Ameritrade plummeted more than 16%, ...  ETrade shares cratered more than 14% in premarket trading." [IBKR -4.7%]
Title: Re: IBKR - Interactive Brokers
Post by: Gamecock-YT on October 01, 2019, 07:40:28 AM
The race to the bottom continues...
Title: Re: IBKR - Interactive Brokers
Post by: fareastwarriors on October 01, 2019, 05:07:14 PM


TD Ameritrade Introduces $0 Commissions for Online Stock, ETF and Option Trades


https://www.amtd.com/news-and-stories/press-releases/press-release-details/2019/The-Best-Just-Got-Better-TD-Ameritrade-Introduces-0-Commissions-for-Online-Stock-ETF-and-Option-Trades/default.aspx (https://www.amtd.com/news-and-stories/press-releases/press-release-details/2019/The-Best-Just-Got-Better-TD-Ameritrade-Introduces-0-Commissions-for-Online-Stock-ETF-and-Option-Trades/default.aspx)





Expect much further consolidation of the discount brokerage industry.

Scale or sale!
Title: Re: IBKR - Interactive Brokers
Post by: mcliu on October 01, 2019, 05:12:55 PM
When will they pay us to trade?  ::)
Title: Re: IBKR - Interactive Brokers
Post by: Spekulatius on October 01, 2019, 05:47:41 PM
When will they pay us to trade?  ::)

I would like a money back guarantee, if the trades goes wrong.

FWIW, I have an account with Wells Fargo (grandfathered 100 free trades/year) and will move it to Schwab most likely at the end of the year. I also have accounts with Fidelity (great, but not OTC stock friendly and Interactive Brokers). I think Fidelity will respond with zero commissions this week.
Title: Re: IBKR - Interactive Brokers
Post by: Hielko on October 02, 2019, 12:06:10 AM
When will they pay us to trade?  ::)
If you provide liquidity on the right trading venue they do pay you already :)
Title: Re: IBKR - Interactive Brokers
Post by: fareastwarriors on October 07, 2019, 06:28:03 PM
Chuck is finally here for the party!


https://www.cnbc.com/2019/10/07/charles-schwab-says-brokers-move-to-zero-commissions-was-an-ultimate-goal-for-the-firm.html (https://www.cnbc.com/2019/10/07/charles-schwab-says-brokers-move-to-zero-commissions-was-an-ultimate-goal-for-the-firm.html)
Title: Re: IBKR - Interactive Brokers
Post by: scorpioncapital on October 08, 2019, 11:41:55 AM
Just wondering when ib will offer debit cards outside USA. Wondering if it's a legal or money laundering issue with MasterCard...

Title: Re: IBKR - Interactive Brokers
Post by: bizaro86 on October 20, 2019, 04:34:38 PM
Hmm.. looks like it is on the open market, which is specifically excluded. I think I may need to sell these if IEX doesn't get registered by the end of the year. Maybe I can generate similar exposure with options in my non-registered account, as I flat out can't buy the same amount of shares. This is not great...

Update on this - I spent a bunch of time on it and concluded that neither the IEX listing or the Frankfurt listing met the requirements, but that their options were listed on a registered exchange. (Thanks rb!) So I sold the shares and  bought the same number of deep in the money calls in my rrsp. I should have saved the premiums (which weren't huge) because they have decided to move to Nasdaq, so I'd have been fine to hold the shares. I'll exercise the options prior to their expiry and keep my exposure.

I'm considering adding here, as I think IBKR has the lowest costs. That should mean lower commissions hurt them the least of all their competitors. In some ways, zero commissions might be a catalyst for people to look around, and those who do and are candidates for IB should be attracted to their other features (margin rates, for example)