Behind the Business: 3 Questions for Interactive Brokers Group

Shareholders don't just own stocks. We invest in businesses. Every share we buy purchases a stake in a company -- a sliver of a living, breathing enterprise run by a management team that ultimately determines the fate of the money we invest.

That's why The Motley Fool regularly contacts public companies and executives on our community's behalf, asking them the questions shareholders would find relevant. Because while quantitative measures are important, it's also crucial for investors to assess the less tangible aspects of the businesses they own (or are thinking of owning).

We recently surveyed select companies to gain insights into their business. Today we highlight Interactive Brokers Group (NYSE:IBKR):

Following are Interactive Brokers Group's answers to our email query about the business.

What steps have you taken to navigate your business through the economic turmoil of the past 12 months?
There has been no change during 2009 to our strategic focus of providing leading-edge trading technology that directly connects our customers to the world's markets at the lowest possible cost. Our business model relies on trading activity across exchange traded asset classes, not to mention forex. In that sense, you could say that Interactive Brokers has a well-diversified product mix. Even in a bear market, volume can be hectic and losing trades as well as winning trades create commissions. The company is also a large player in the options market, and to a large extent it would be reasonable to say that our business performs well under stressful trading conditions.

We have rolled out new order entry methods for sophisticated traders, which is a large part of our audience. For example, our algorithmic order type, known as the ScaleTrader, allows investors to buy into a falling asset price, while simultaneously taking profits as its price gyrates within a range. The technology behind such initiatives is brilliant and for traders able to figure out how to apply technology with their market knowledge, the rewards can be substantial. By continuously enhancing our SmartRouting technology in this way, we are able to stay a step ahead of competition.

In 2009, Interactive Brokers began to offer customers electronic market access via TWS to AQS, the first automated, centrally cleared electronic marketplace for Stock Borrow and Loan transactions. This enhancement to the short-selling process is a substantial development to the way that investors can add liquidity to the marketplace. For investors, this can mean substantially lower borrowing costs in a transparent and liquid securities pool.

IB has also lowered its trading commission structure for investors across several European exchanges as a way to add more value to customers around the world wanting to access European stocks, options, bonds, and futures. We have also partnered with other companies in the region to offer the lowest cost access to some European destinations.

Interactive Brokers continues to increase its global presence and, in 2009, added an office in Shanghai and opened up its Mumbai office in India to handle Indian and non-resident Indian accounts. More recently, IB began to offer share trading on Italian exchanges for its customers. We continue to source electronically connected exchanges around the world who offer fair access and an even playing field for investors.

IB completely revamped its website in 2009 and streamlined many areas after hearing customers' views on navigation difficulties, and we have continued to add more educational products including industry-sponsored webinars and tours.

What are the top two or three metrics to which your business pays the closest attention?
We believe that we have an extremely strong all-around trading solution that is geared toward active and professional investors. Our concern is the constant growth of accounts, but our focus is to attract quality accounts. Interactive Brokers strives to increase the volume of customer equity per account over time.

Now that the first decade of the new century is drawing to a close, we'd like to take a moment to reflect on what lies ahead. What excites you most about your business?
We're excited about the prospect of building on our vision of the future. The world has become a smaller place, and technology is playing a larger role in human efforts to communicate, trade, and invest. The sophisticated technology and order routing capabilities that Interactive Brokers provides makes it a perfect conduit for enabling its customers to allocate investment capital around the world in an instant.

Despite the financial devastation caused by the subprime mortgage crisis, the spreading equity culture continues to grow. Investors still want to find opportunities and new methods to make money. Options are all the time becoming better understood by retail and professional traders alike as they better understand how to use derivative instruments to control risk. As investors look to actively traded markets, we recently responded by announcing the possibility of adding over-the-counter currency options, which are increasingly popular with investors. That will be an exciting project for 2010.

We continue to respond to the speed of technological innovation and we embrace the fast-paced challenges of the world of investing by providing some of the most sophisticated technology available for traders. We will continue to optimize the order execution process, which achieves best available prices at the fastest speed. And we will also cater to the demands of savvy investors wanting on-the-go-technology such as mobile trading devices and our iPhone application, which is the only app that allows real-time futures and options quotes from around the world.

IB continues to look forward to growing its number of customers. The more educated investors become, the more they start to realize that low costs and speed of execution impact bottom-line profits. As the broker with the lowest margin and financing costs (according to Barron's), we look forward tremendously to watching the number of account openings grow as they slowly realize that low execution costs matter.

Interactive Brokers Group is rated five stars (out of a possible five) by our Motley Fool CAPS community. Do agree with our community's bullish assessment? Click here to rate the stock and cast your opinion.