Better Fintech Stock: Robinhood Markets vs. Interactive Brokers

Key Points

• Robinhood and Interactive Brokers are both online brokerage firms that were recently added to the S&P 500 index.

• Robinhood is rapidly expanding its platform assets and pursuing growth through initiatives like retirement accounts, wealth management services, and cryptocurrency.

• Interactive Brokers leverages technology to maintain low costs and high profit margins, emphasizing automation and efficiency.

• 10 stocks we like better than Robinhood Markets ›

Robinhood (NASDAQ: HOOD) and Interactive Brokers (NASDAQ: IBKR) both hit a massive milestone after being added to the respected S&P 500 index. Interactive Brokers joined the benchmark index in August, and Robinhood followed suit one month later.

Both companies are strong players in the brokerage space, with solid businesses and stellar growth. If you're on the hunt for growth stocks that have the potential to deliver, these two are worth considering.

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That said, one of these names stands out as the more attractive buy at this moment. Let's explore the two companies and uncover which stock looks like a better buy for investors today.

Image source: Getty Images.

Here's what these two fintechs have in common

Robinhood and Interactive Brokers both offer online brokerage services, but they serve different investor segments while sharing core functionalities.

Robinhood pioneered commission-free trading with a mobile-first platform designed to democratize finance for retail investors, particularly younger users. Its business model leaned heavily on payment for order flow, but it has since added margin lending, net interest income, and other fee-based revenue streams.

Interactive Brokers, by contrast, caters to professional traders and institutions, offering global market access, advanced trading tools, and a wide array of asset classes, including futures, forex, and bonds. It generates revenue through commissions (primarily under its IBKR Pro tier), interest income, and data services.

Despite their differences, both platforms provide zero-commission stock and ETF trading, options access, fractional shares, and margin accounts, and have emerged as competitive players in the evolving brokerage landscape.

Robinhood is pursuing multiple growth avenues

Robinhood is growing quickly. The amount of assets on its platform has increased significantly. Since the end of 2023, Robinhood's platform assets have nearly tripled from $102.6 billion to $304 billion (as of Aug. 31). It has done a stellar job of attracting customers to bring assets to its platform, giving it a solid base to build upon.

The company is taking several steps to drive growth. For one, it is offering retirement accounts to attract and cross-sell to its younger user base. It offers customers retirement savings accounts with Traditional or Roth IRAs, and matches eligible contributions up to 3% for Robinhood Gold subscribers.

It is also building products for core financial needs, such as wealth management and advisory services, with a future focus on multigenerational advisory services, partly through the acquisition of TradePMR. In March, it launched Robinhood Strategies, a digital investment advisory service.

Additionally, it looks to better compete with Interactive Brokers' platform with Robinhood Legend, its powerful browser-based desktop trading platform built specifically for active traders.

Finally, the company seeks to capitalize on the growing trend in cryptocurrency, offering tokenized stocks as it expands its cryptocurrency presence. It sees tokenization as a fundamental shift in financial infrastructure, believing that cryptocurrency and blockchain technology will offer significant efficiencies by reducing the need for traditional financial intermediaries.

Interactive Brokers' technology and cost advantage

Interactive Brokers focuses on tech-savvy investors who prioritize high-level analytics, execution speed, efficiency, and low costs. A significant number of its senior managers are software engineers dedicated to automating as much of the business as possible.

As a direct result of its extensive automation, it has successfully maintained one of the lowest-cost structures in the industry among broker-dealers. Interactive Brokers' focus on automation not only positions it as a low-cost provider but also contributes to the company's stellar profit margins.

As a result of its low-cost structure, which leads to operational efficiency, Interactive Brokers achieves best-in-class profit margins that surpass many financial companies. Last year, Interactive Brokers' pre-tax profit margin was 71% in 2024 and rose to 75% in the second quarter.

Is Robinhood or Interactive Brokers best for you?

The first thing you'll want to consider is valuation. Robinhood is priced at 122 times its trailing twelve-month earnings per share (EPS). On a forward basis, it is priced at 70.7 times this year's earnings and 60.1 times 2026. So while the company is pursuing several growth initiatives, investors are paying up for those expectations.

Interactive Brokers is more reasonably priced at 35.8 times last year's earnings and 30.7 times this year's projected earnings.

Buying Robinhood today will also likely expose you to more volatility. With a beta of 2.4, the stock experiences more than twice the volatility of the benchmark S&P 500 index, making it vulnerable in the event of a downturn. Interactive Brokers has a beta of 1.2, which is slightly more volatile than the S&P 500 but less volatile than Robinhood.

Both stocks are growing at a solid clip, and I think they could both be solid additions to a diversified portfolio. If you're focused on growth and want to take an aggressive approach, Robinhood could be a buy for you today. However, if I had to pick one today, I would go with Interactive Brokers because of its more affordable valuation.

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Courtney Carlsen has positions in Interactive Brokers Group and Robinhood Markets. The Motley Fool has positions in and recommends Interactive Brokers Group. The Motley Fool recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.