Fintech companies bring together finance and technology, and two companies crushing it are Tradeweb Markets (TW 0.21%) and Interactive Brokers Group (IBKR 1.39%). Both companies have been at it for decades, modernizing the trading process and bringing it into the technological age.
These fintech stocks are at the top of their game and have grown at an impressive clip by delighting customers with their respective trading platforms. Here's why they are solid buys this April.
Tradeweb Markets modernized trading for Wall Street's most prominent investors
Tradeweb Markets is a one-stop shop that helps the most prominent Wall Street players trade numerous products. Introduced in 1996 to modernize U.S. Treasuries trading, Tradeweb is one of the earliest fintechs.
Tradeweb brought a technological solution to a trading market that previously relied heavily on telephone orders to make trades. It has since expanded into many products, including European bonds, corporate debt, municipal bonds, equities, money markets, and derivatives.
Image source: Getty Images.
Its secret to success is providing top-notch customer service and considering clients' needs when designing its platform. For example, a couple of years ago, it acquired Nasdaq's fixed-income trading platform for $190 million to improve customers' access to Treasuries while reducing the cost of trading.
Another way it looks out for customers is by protecting their trading information to prevent sophisticated investors from front-running their orders and increasing the transaction cost.
The proof is in the pudding, and Tradeweb has been adding market share for several years across its various products. For example, since 2016, Tradeweb's share of the U.S. Treasury market has grown from 7.5% to 19.7%. It has also seen a growing market share in credit products, equities, and money market funds.
Image source: Tradeweb Markets. UST = U.S. Treasuries.
Last year was stellar for Tradeweb, which achieved its 23rd consecutive year of revenue growth. Record activity in high-yield debt, emerging markets, and other U.S. credit products boosted its earnings growth during the year.
Tradeweb is solidly positioned to keep expanding its business and grabbing market share. One way to expand on that market share is by partnering with BlackRock's Aladdin platform, where it will bring its credit trading solutions to Aladdin's execution management system.
Interactive Brokers' technology-first mindset has resulted in stellar margins
Like Tradeweb, Interactive Brokers brings electronic brokerage services to investors. It focuses on tech-savvy retail investors and offers its platform to hedge funds and proprietary trading firms. Over the last five years, Interactive Brokers has grown its customer count by 34% annually; last year, it grew by 25%.
Interactive Brokers' secret to success is its commitment to automating as much of its business as possible. It walks the walk, and most of its senior managers are software engineers committed to automating as much as possible. This commitment to automation makes Interactive Brokers a low-cost provider of choice. It also means the company can operate efficiently, and lower costs help it produce high margins for investors. In 2021 its pre-tax margin of 67% outpaced its peers; last year, that margin improved to 71%.
Image source: Interactive Brokers.
Another thing it's working on is building an auction model for options and equities trading. This contrasts with the payment for order flow model, where brokers like Robinhood sell client orders to a single market-maker who would execute the trade. An auction model would align with what regulators would like to see from all brokers and should help customers get better prices on their orders -- which Interactive Brokers hopes can attract even more customers.
The company also boasts a rock-solid balance sheet with $100 billion in liquid assets and no debt. And while other tech companies are laying off employees, Interactive Brokers is adding them as it continues automating the business and growing market share.
