Stock market volatility can be very unsettling for investors, especially when major U.S. market indexes like the Nasdaq Composite (^IXIC 1.59%) plunge by more than 20% (and into bear territory) in the span of just a few months.
But history proves that the stock market always climbs to new highs over the long term, so sharp dips have typically been fantastic buying opportunities.
The stock of Interactive Brokers (IBKR 1.98%) is down 33% from its recent all-time high, despite the fact that its business is firing on all cylinders right now. The company operates the world's largest online digital trading platform, where investors can buy stocks, futures, options, and cryptocurrencies (among other assets), so it benefits significantly from market volatility.
Interactive just reported its financial results for the first quarter of 2025 (ended March 31), and they showed spectacular growth in trading volume across the board. Here's why the stock could be a great buy during the Nasdaq bear market.
Image source: Getty Images.
New customers are flocking to Interactive Brokers
Interactive Brokers had a record 3.52 million client accounts at the end of the first quarter, which was up 32% over the year-ago period. It followed a strong result in 2024, when the company added more new accounts than in any other year in its history.
The major U.S. stock market indexes are coming off back-to-back years of above-average gains, which has captured the attention of new investors, much to the benefit of brokerage platforms like Interactive.
NASDAQ: IBKR
Key Data Points
Thanks to the flood of new customers, client equity also climbed by 23% year over year during the first quarter to reach $573.5 billion. This is an important number, because the company earns commissions based on the value of every stock, futures, options, or cryptocurrency transaction executed by its clients. Therefore, higher client equity equals more commission revenue.
Transactions also soared across the board in the first quarter. The company saw a 47% increase in stock trading volume, a 25% increase in futures volume, and a 16% increase in options volume.
Plus, in a clear sign of growing risk appetite among investors, the online brokerage had $63.7 billion in margin loans outstanding at the end of the quarter, which was up 24%. Investors borrow money to buy stocks and other financial securities only when they feel confident about further upside in the market.
Unfortunately, some of Interactive's key metrics might dip in the current quarter because it includes April, which is when President Donald Trump announced sweeping tariffs on America's trading partners, sparking a sharp sell-off in the financial markets.
This could weigh on the company's client equity and its outstanding margin loans as investors trim their exposure. On the plus side, the severe volatility is likely driving a big increase in trading volume, which could translate into higher commission revenue.
Commission revenue soared during Q1
Interactive generated $1.4 billion in total revenue during the first quarter, an 18.6% increase from a year ago. That figure has two main components:
- Commission revenue, which comes from processing client transactions; it came in at $514 million for the quarter.
- Net interest revenue, which the company earns on the cash it's holding on behalf of clients, plus its own cash reserves and the interest it earns on margin loans. This totaled $770 million for the quarter.
Commission revenue jumped by 35.6% year over year in the first quarter, reflecting the strong trading volume and higher client equity I highlighted earlier. Net interest revenue was up by just 3.1%, as declining interest rates offset any increase in client cash positions and margin loan balances.
Interactive also had $143 million in "other" income, which represented growth of 85.7%.
Interactive stock could be a great long-term buy at the current price
The online broker remained highly profitable during the first quarter, delivering $1.94 in earnings per share (EPS), an increase of 20.5%. The company's trailing-12-month EPS now stands at $7.39, placing its stock at a price-to-earnings ratio (P/E) of 21.3.
That is a slight discount to the S&P 500 (^GSPC 1.33%) index, which trades at a P/E of 22.1, so Interactive's stock appears cheap relative to the broader market.
Interest rates are expected to decline further throughout 2025, which could be a headwind for Interactive's largest source of revenue. But as long as rates fall in a steady fashion, the company can adjust its cost structure to ensure its earnings aren't heavily affected. If rates decline sharply due to an economic shock or a recession, it might have more trouble offsetting the effects to its financial results.
With that said, sharp declines in interest rates tend to contribute to elevated activity in the financial markets as investors hunt for returns. We last witnessed this phenomenon at the height of the pandemic in 2020 and 2021. Therefore, higher commission revenue could make up for some of the decline in the company's net interest income.
After all, Interactive Brokers has proved its ability to succeed in all market conditions. Its stock has soared by more than 400% since it went public in 2007, even after the recent 33% drop. As a result, it could be a great buy on the dip.
