http://finance.yahoo.com/news/Interactive-Brokers-Group-bw-881766783.html?x=0&.v=1 IBKR announced results on Thursday. The market making business is down quite a bit, ibkr explained it so: "Market Making segment income before income taxes was $5.5 million in the quarter ended March 31, 2010, an increase from the prior quarter but a decrease of 95% from the same period last year. Pre-tax profit margin was 7% in this quarter, down from 65% in the same period last year. Low actual volatility, relatively high implied volatility and narrow bid/offer spreads contributed to the decrease in market making profits this quarter." How do they make money on the market making? Are they trading against their own clients, like NITE? I'd really like to know. This is interesting: Last march 31, the avg ibkr account had $82k. This year, it has $120. Not a bad increase, but less than the market. For comparison, last year the avg amtd acct had $46, and this year is has $60. The amtd'ers aren't keeping up, or else amtd is going more downmarket and getting smaller accounts. I think the former explanation is more likely.
Why would the stock price move up 5% with sharp increase in money flow yesterday on a substantial earning drop? Could they be manipulating the stock price?
or... IB'ers are more active, and therefore more likely to withdraw money from their account on a regular basis. that's the case for me. as an actual point of reference, my AMTD account is up more since january 1 than my IB account, if you looked at money in account on jan 1 vs now. however, i've had a MUCH higher % return on IB (1 of my 2 main brokers) vs. AMTD.
Why would you take money out of an account because you trade it more often? Are you saying the IB traders use their accounts for rent money?
no, not at all. my IB account is my most active account and (for me) generates the most money. i take out money similar to a kind of salary. my AMTD account, i don't trade much. it goes up slower, and by the same token, i don't take much out of there.
How does any market maker make money? On the spread and in IBKR's case on volatility. The subject of IBKR trading against their customers has been beated to death over and over again. No they don't, but they may be the counterparty to your trade by the nature of being a market maker. Why would you expect client assets to increase with the stock market? Since when are brokerage firm clients fully invested only in stocks? Most investors usually have a portfolio containing a mix of stocks, bonds and cash. IBKR customers are more traders than investors and tend to have high cash balances and short term positions.
I never quite understood the fetish so many of you have with someone trading 'against you' As if trading against you was a sure winner. In many cases I'm sure it is, but that's another story. wtf does that even mean? someone has to be on the other side of your trade, so exactly why do you care who it is. You mean that 100 shares of AAPL is tainted because you bought it from IB or GSCO and not Grandma? Morons here. Almost unbearable.
Thanks for all the constructive posts people. Geez, I think nearly every response got in a shot at me. I just wanted to know how the IBKR market making works, and why it's not just a brokerage.
billyjoerob, Don't worry about the personally insulting (and, I'd say, often ignorant) posts above. Here is an excerpt from an IB page that might help answer your question. http://www.interactivebrokers.com/download/4Q_2009_IB_ORDER_ROUTING_REPORT.pdf Code: Affiliate Relationships: IB's affiliate Timber Hill LLC makes markets in stocks and acts as a specialist or market maker on all U.S. option exchanges. Other IB affiliates worldwide, including Timber Hill Europe, also act as market makers on global exchanges. IB's market-making affiliates, including Timber Hill LLC and Timber Hill Europe, may provide automatic execution for certain eligible IB customer orders routed through IBâs Smart Routing system, for certain Nasdaq stocks, NYSE stocks, global stocks and other securities. When an order is sent using Smart Routing, if an IB affiliate is willing to provide an execution at the best available posted price or better for that stock, IB may send the order to that affiliate for an immediate automatic execution. Orders sent to IB affiliates for automatic execution may be eligible for price improvement (i.e., they may be executed at a price better than the best posted bid or offer).