Interactive Brokers

Latitude’s Freddie Lait and Jacopo Di Nardo make account growth the central IBKR thesis. Headline per-account economics are relatively stable — ~200 trades/year at $3 average commission ($600) plus ~$800 of net interest margin — so with accounts up from ~1M to 3.5M in five years and growth inflecting from 25% toward 30–35%, “the real driver for this business over time has been and will be account growth,” with management targets of 10, 20 and eventually 80 million accounts.

The moat is a “Costco model”: direct market access with no payment for order flow, much of the economics given back to customers. PFOF wholesalers’ profits “implicitly… come out of the customer’s execution price”; IBKR instead proves best execution, pays base rate less 50bps on cash balances over $10k, and charges margin rates roughly half of Fidelity or Schwab — funded by full automation that keeps headcount and opex “so much thinner than the others.”

Founder Thomas Peterffy’s engineer-plus-risk-manager DNA is the culture: IBKR “doesn’t want to be in businesses that eventually cannot be automatized.” Its largest stated loss was ~1% of capital on the Swiss franc move; it refused duration risk at zero rates in 2021, stopped quoting long-dated options in 2007 before that market seized, and was expected to have ~$18B of excess capital by end-2025 — ~95% of total capital.

Rate sensitivity is “probably one of the greatest misunderstandings in the business” — and helped create Latitude’s investment opportunity 18 months ago, when IBKR was trading at 12–13x delivered earnings. A 100bps global rate fall cuts NIM per account only ~10%, more than offset by 30%+ account growth, and margin loans move countercyclically to rates; contrast Schwab, which “almost needed effectively a wholesale rights issue” when its zero-paying deposits ran.

More than half the business comes from B2B/non-retail cohorts. IBKR is the fifth-largest prime broker in the world from a standing start ~10 years ago, had just brought on HSBC globally as an introducing broker, and serves RIAs and prop traders — competitors are “folding and using this business instead of trying to compete with it,” renting the tech the way institutions outsource custody to JPMorgan or Northern Trust.

M&A math structurally fails, so growth is primarily organic — and there’s an unpulled lever. Any acquired book’s revenue and profits “would collapse” once repriced to IBKR’s spreads; meanwhile Peterffy says “we can grow at 30% with no advertising. We can probably grow at 40, 50% if we do more targeted advertising” — a deliberate reserve.

The inversion frames the upside; ownership and regulation frame the risks. At ~$1,500 revenue per account and roughly 75% margins, 10–20M accounts implies $15–30B of revenue — “the question one really needs to ask is who’s going to stop that happening?” Offsets: insiders own ~80% (Peterffy ~75%), making large capital returns not necessarily doable until the float grows; the current capital return is a usually targeted 0.5–1% dividend yield. Jacopo also flags gambling-adjacent retail activity: the CFTC initially blocked ForecastEx as too akin to sports betting, creating potential regulatory risk.

🔗 Original source & video: Interactive Brokers: Margin Masters - [Business Breakdowns, EP.216]