What happened

Shares of Interactive Brokers Group (NASDAQ:IBKR) fell 11.5% in the month of October, according to data from S&P Global Market Intelligence. The discount online brokerage was affected by both macroeconomic concerns, a price war among online brokers, and falling interest rates. These factors all conspired to overwhelm an earnings report that actually beat analysts' expectations.

So what

October started out with just about every one of Interactive Brokers' competitors dropping their commission rates to zero. On Oct. 1, Charles Schwab (NYSE:SCHW) announced it would be doing so to better compete with new "free" trading apps such as Robinhood. Schwab was followed by public competitors TD Ameritrade (NASDAQ:AMTD) and E*Trade (NASDAQ:ETFC), along with private competitors Fidelity and TradeStation, matching the zero-fee commission pledge. In mid-October, Schwab upped the ante by offering trading in fractional shares of companies.

A young trader with glasses mulls over stock prices on his desktop monitors.

Image source: Getty Images.

Interactive Brokers had already rolled out a zero-commission option, IBKR Lite, back in September, so the company was clearly prepared for the scenario. Interactive Brokers still also has a competitive advantage due to its low-cost structure and focus on technology and automation. Still, the competitive onslaught is clearly weighing on the stock.

The good news is that Interactive Brokers doesn't make that much on commissions, with only about 20% of its revenue base coming from the small commissions it earns on trades. However, the other 80% largely comes from margin lending, and the bad news there is that the Federal Reserve has cut interest rates three consecutive times, which could put a crimp in lending margins in the near term.

Now what

The sell-off in Interactive Brokers is likely due to fears of the future, as the company actually delivered a pretty solid third-quarter earnings report in October, with net interest income up 19%, commissions revenue up 12%, and customer accounts up 16% from the prior-year period. The stock also isn't exactly cheap, since it's currently valued at 28 times earnings, even after this down month. However, that's also a testament to Interactive Brokers' quality and competitive advantages.

Time will tell how much the zero-fee competitive pressures will affect Interactive Brokers' results, if at all.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.