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Jason Zweig once said:
“I put two children through Harvard by trading options. Unfortunately, they were my broker’s children.” Today, we’ll look at the broker I use: Interactive Brokers.
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Interactive Brokers - General information
👔 Company name: Interactive Brokers
✍️ ISIN: US45841N1072
🔎 Ticker: IBKR
📚 Type: Owner-Operator
📈 Stock Price: $180
💵 Market cap: $76 billion
📊 Average daily volume: $143 million
Onepager
Here’s a onepager with the essentials of Interactive Brokers:
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15-Step Approach
Now, let’s use our 15-step approach to analyze Interactive Brokers.
At the end of this article, we’ll give Interactive Brokers a score on each of these 15 metrics.
This results in a Total Quality Score.
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How we use Interactive Brokers
Before we discuss the investment case, it’s important to understand that I execute all my transactions through Interactive Brokers.
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As you can see, our CAGR is significantly better than the S&P 500:
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The screenshot above is the official track record from my account. If you want to explore more, you can find everything you need to know about Interactive Brokers here.
1. Do I understand the business model?
Interactive Brokers is an American online broker with over 3.6 million client accounts.
The company lets investors buy and sell almost any asset through its electronic platforms. It offers products from over 150 exchanges.
The company makes money in two ways:
Interest income (60.5%): The interest income is earned on the cash reserves of around $100 billion that clients hold in their accounts
Interactive Brokers invests these reserves into debt securities and margin loans. They pay a slightly smaller rate to their customers, generating a spread on these cash reserves
Sounds like a bank? Yes! But there are some important differences to banking, on which we will come back later
Non-interest income (39.5%): All commissions and fees clients pay for using the brokerage platform
For example, if you submit a buy order to Interactive Brokers, you pay a small commission to the company for executing this order
The company is active in almost 200 countries, but most of its revenue (69%) is generated in the US.
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Interactive Brokers s