Interactive Brokers Is Holding $930 Billion of Customer Money. Here's What That Earns at Today's Rates.
The brokerage earns substantial interest income from its active customers.
Overview
The financial world changed when the Federal Reserve began raising interest rates in 2022 to combat inflation. Some firms -- like the now-shuttered Silicon Valley Bank -- were ill-prepared for this interest rate rise. Others, like Interactive Brokers (NASDAQ: IBKR), had balance sheets ready to capitalize on rising rates.
Last quarter, IBKR's customer equity rose 40% to $930 billion, making it one of the fastest-growing brokerages in the world by asset value. Here's how it can capitalize on today's interest rates to generate earnings for shareholders.
Details
As a brokerage, IBKR earns interest income in a few ways. First, it can invest idle cash balances in short-term Treasury bonds, sharing some of the proceeds with customers before pocketing the rest. Second, it earns interest income by making margin loans to customers, backed by customers' equity, as well as short-sale loans.
Source
Originally published at www.fool.com.