Interactive Brokers (IBKR) drew market participants’ attention in the first quarter, primarily because of expectations of higher interest rates and strong volatility. Higher interest rates can improve brokerages’ (VFH) performance, boosting their interest income.
Also, the Trump administration announced tariffs, increasing trade tensions and market volatility. Higher volatility is often a golden opportunity for brokers, as traders’ increased trading volumes boost brokerages’ trading revenue.
Future outlook amid digitization
The adoption of digital trading has gained popularity among investors. TD Ameritrade (AMTD) reported that its customer base responded positively to its mobile trading platform, which could attract market participants’ attention and boost client participation.
However, in the second quarter, brokerage giants such as Charles Schwab (SCHW), E*TRADE Financial (ETFC), TD Ameritrade, and Interactive Brokers might see their trading revenue fall sequentially because of reduced volatility. Moving forward, brokerages might start leveraging their digital tools, as trading through smartphones offers easy access to markets.
Moreover, in an industry where client retention is key, brokerages need to adopt measures to support their clients. Notably, some brokerages have launched 24-hour trading so that their clients can easily access markets and execute trades.