Interactive Brokers
Interactive Brokers, Inc. is an American multinational brokerage firm headquartered in Greenwich, Connecticut. It operates the largest electronic trading platform in the United States by number of daily average revenue trades. In 2024, the platform processed an average of 2.6 million trades per trading day. Interactive Brokers is the largest foreign exchange market broker and is one of the largest prime brokers servicing commodity brokers. The company brokers stocks, options, futures contracts, exchange of futures for physicals, options on futures, bonds, mutual funds, currency, cryptocurrency, contracts for difference, derivatives, and trading in prediction markets. Interactive Brokers offers direct market access, omnibus and non-disclosed broker accounts, and provides clearing services. The firm has operations in 36 countries and 28 currencies. As of December 31, 2024, it had 3.337 million institutional and individual brokerage customers, with total customer equity of US$568.2 billion. In addition to its headquarters in Greenwich, on the Gold Coast of Connecticut, the company has offices in major financial centers worldwide. More than half of the company's customers reside outside the United States, in approximately 200 countries.
The broker was founded and is chaired by Thomas Peterffy, an early innovator in computer-assisted trading. Approximately 25.8% of the company is publicly held, while the remainder is owned by IBG Holdings LLC, which is 91.4% owned by Thomas Peterffy and affiliates. Interactive Brokers is ranked 473rd on the Fortune 500.
The company traces its roots to T.P. & Co., a market maker founded in 1977 and renamed Timber Hill Inc. in 1982. In 1979, it became the first to use fair value pricing sheets on a stock exchange trading floor. In 1983, it became the first to use handheld computers for trading. In 1987, Peterffy also created the first fully automated algorithmic trading system, to automatically create and submit orders to a market. Between 1993 and 1994, the corporate group Interactive Brokers Group was created, and the subsidiary Interactive Brokers LLC was created to control its electronic brokerage, and to keep it separate from Timber Hill, which conducts market making. In 2014, Interactive Brokers became the first online broker to offer direct access to IEX, a private forum for trading securities. In 2021, the company launched trading in cryptocurrencies, including Bitcoin and Ethereum.
History
In 1977, Thomas Peterffy left his job designing commodity trading software for Mocatta Metals, and bought a seat on the American Stock Exchange as an individual market maker. The following year, he formed his first company, named T.P. & Co., to expand trading activities to several members under badge number 549. At the time, trading used an open outcry system; Peterffy developed algorithms to determine the best prices for options and used those on the trading floor, and thus the firm became the first to use daily printed fair value pricing sheets. In 1979, the company expanded to employ four traders, three of whom were AMEX members. In 1982, Peterffy renamed T.P. & Co. to Timber Hill Inc.; he named it after a road to a favorite retreat, one of his properties on Hutchin Hill Road in Woodstock, New York. By 1983, Peterffy was sending orders to the floor from his upstairs office; he devised a system to read the data from a Quotron machine by measuring the electric pulses in the wire and decoding them. The data would then be sent through Peterffy's trading algorithms, and then Peterffy would call down the trades. After pressure to become a true market maker and keep constant bids and offers, Peterffy knew that he would need his employees to closely pay attention to market movements, and that handheld computers would help. At the time, the AMEX didn't permit computers on the trading floor. Because of this, Peterffy had an assistant deliver market information from his office in the World Trade Center. In November 1983, he convinced the exchange to allow computer use on the floor.In 1983, Peterffy sought to computerize the options market, and he first targeted the Chicago Board Options Exchange. At the time, brokers still used fair value pricing sheets, which were by then updated once or twice a day. In 1983, Timber Hill created the first handheld computers used for trading. As Peterffy explained in a 2016 interview, the battery-powered units had touch screens for the user to input a stock price and it would produce the recommended option prices, and it also tracked positions and continually repriced options on stocks. However, he immediately encountered opposition from the heads of the exchange. When he first brought a by device to the exchange floor, a committee in the exchange told him it was too big. When he made the device smaller, the committee stated that no analytic devices were allowed to be used on the exchange floor. Effectively blocked from using the CBOE, he sought to use his devices in other exchanges.
Also in 1983, Timber Hill expanded to 12 employees and began trading on the Philadelphia Stock Exchange. In 1984, Timber Hill began coding a computerized stock index futures and options trading system and, in February 1985, Timber Hill's system and network was brought online. The system was designed to centrally price and manage risk on a portfolio of equity derivatives traded in multiple locations around the country. In 1985, Peterffy introduced his computer system to the New York Stock Exchange, which allowed it. However, the stock exchange only allowed it to be used at trading booths several yards away from where transactions were executed. Peterffy responded by designing a code system for his traders to read colored bars emitted in patterns from the video displays of computers in the booths. This caused the exchange and other members to be suspicious of insider trading, which convinced Timber Hill to distribute instructions throughout the exchange, describing how to read the displays. In response, the exchange required the company to turn the screens away from the trading floor, which prompted Peterffy to hire a clerk to communicate with the traders via hand signals. Eventually computers were allowed on the trading floor.
Timber Hill joined the Options Clearing Corporation in 1984, the New York Futures Exchange in 1985, and the Pacific Stock Exchange and the options division of the NYSE the following year. Also in 1985, the firm joined and began trading on the Chicago Mercantile Exchange, the Chicago Board of Trade and the Chicago Board Options Exchange. In 1986, the company moved its headquarters to the World Trade Center to control activity at multiple exchanges. Peterffy again hired workers to sprint from his offices to the exchanges with updated handheld devices, which he later superseded with phone lines carrying data to computers at the exchanges. Peterffy later built miniature radio transmitters into the handhelds and the exchange computers to allow data to automatically flow to them.
In 1987, Timber Hill joined the National Securities Clearing Corporation and the Depository Trust Company. By 1987, Timber Hill had 67 employees and had become self-clearing in equities. In 1987, the CBOE was about to close down its S&P 500 options market due to the options not attracting sufficient trader interest. Because of this, Peterffy pledged that Timber Hill would make tight markets in the product for a year if the exchange would allow the traders to use handheld computers on the trading floor. The exchange agreed, and more traders were attracted by the change in pricing; today S&P 500 options are the most actively traded stock market index options in the U.S. In 1990, Timber Hill Deutschland GmbH was incorporated in Germany, and shortly thereafter began trading equity derivatives at the Deutsche Terminbörse, marking the first time that Timber Hill used one of its trading systems on a fully automated exchange. In 1992, Timber Hill began trading at the Swiss Options and Financial Futures Exchange, which merged with DTB in 1998 to become Eurex. At that time, Timber Hill had 142 employees.
While Peterffy was trading on the Nasdaq in 1987, he created the first fully automated algorithmic trading system. It consisted of an IBM computer that would pull data from a Nasdaq terminal connected to it and carry out trades on a fully automated basis. The machine, for which Peterffy wrote the software, worked faster than a trader could. Upon inspection, the Nasdaq banned direct interface with the terminal, and required trades to be typed in manually. Peterffy and his team designed a system with a camera to read the terminal, a computer to decode the visual data, and mechanical fingers to type in the trade orders, which was then accepted by the Nasdaq.
1993 to 2000
Interactive Brokers Inc. was incorporated in 1993 as a U.S. broker-dealer, to provide technology developed by Timber Hill for electronic network and trade execution services to customers.In 1994, Timber Hill Europe began trading at the European Options Exchange, the OM Exchange and the London International Financial Futures and Options Exchange. Also in 1994, Timber Hill Deutschland became a member of the Belgium Futures and Options Exchange, IB became a member of the New York Stock Exchange, and the Timber Hill Group LLC was formed as a holding company of Timber Hill and IB's operations. Timber Hill UK Ltd was incorporated in November 1994.
In 1995, Timber Hill France S.A. was incorporated and began making markets at the Marché des Options Négociables de Paris and the Marché à Terme International de France futures exchange. Also in 1995, Timber Hill Hong Kong began market making at the Hong Kong Futures Exchange and IB created its primary trading platform Trader Workstation and executed its first trades for public customers.
In 1996, Timber Hill Securities Hong Kong Limited was incorporated and began trading at the Hong Kong Stock Exchange. In the next year, Timber Hill Australia Pty Limited was incorporated in Australia, and Timber Hill Europe began trading in Norway and became a member of the Austrian Derivatives Exchange. By 1997, Timber Hill had 284 employees. In 1998, Timber Hill Canada Company was formed, and IB began to clear online trades for retail customers connected directly to Globex to trade S&P 500 futures.
In 1999, IB introduced a smart order routing linkage for multiple-listed equity options and began to clear trades for its customer stocks and equity derivatives trades. Timber Hill Canada Co was founded in 1999. Also in that year, Goldman Sachs attempted to purchase the company and was rejected.
In 2000, Interactive Brokers Limited was formed and Timber Hill became a primary market maker on the International Securities Exchange.