Interactive Brokers Grows on Q3 Revenue as Tiger Brokers Stabilises

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Interactive Brokers, one of the largest US electronic brokering platforms, have reported increased revenue for the third quarter. This is mainly due to crucial areas gaining more traction than they did before.

The trading firm’s third-quarter revenues rose up to six percent, compared to last year. While that may not sound like much, for a company as big as Interactive Brokers, it tallies up to $466 million compared to the previous year’s $439 million. That measly 6% tallies up to $27 million gained. The income before tax stayed relatively the same, with $281 million now instead of last year’s $276 million. However, quarter-for-quarter income rose 23% from the second quarter’s $225 million.

The most significant factors in the third-quarter results were substantial growth in Interactive Brokers’ net interest income. According to the company, it grew 19% compared to last year, or $47 million. Commissions revenue also pushed higher up, with a 12% increase compared to the previous year. Again, just 12% amounts to $20 million in the company’s pocket.

This increased growth was counterbalanced by other income going lower. It decreases a whopping $40 million. That revenue loss is coupled with a $47 million reversal on the currency diversification strategy the company had. This lost them $24 million compared to last year’s quarter and $6 million compared to the previous quarter.

Other than its electronic brokerage core, Interactive Brokers’ earnings included their mark-to-market loss of $13 million due to the company’s 7.7% stake in Tiger Brokers. However, the loss is a good sign, for once. It reflects improvements on the company’s float loss. This is tied to the Chinese Brokerage that raised $104 million via its IPO and Nasdaq Exchange. In the end, it stood at $74 million in the second quarter.

No-Fee Race to the Bottom

Interactive Brokers saw a 13% decrease, compared to last year, in daily average revenue trades, or DARTs. This amounted to roughly 859 000 transactions per day. With each transaction, Interactive Brokers generate commissions of fees.

This information followed on the heels of their new trading platform: IBKR Lite. This trading platform forgoes the best execution via smart orders and instead routes it through market makers. By doing so, the company is planning on making money via order flows instead of commissions. It’s a common tactic among discount brokers, making money via directing orders to specific vendors rather than commission fees. It’s sort of like an advertisement scheme, weirdly.

Charles Schwab, TD Ameritrade, and E*TRADE have all eliminated commissions for some stocks and funds. This is a result of companies competing against each other to make the most money in a healthy free-market environment.

The investors aren’t enjoying this as much as the consumers, though. Shares for all the retail brokerage firms in the US had traded down in tandem with when they announced the no-commission craze. The investors think this will hamper their profit margin.

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