2 Brokerage Stocks to Buy Before Their October Earnings Reports

Interactive Brokers ended September with 5.58 million client accounts, up 35% year over year, while client equity rose 27% to $964.7 billion; however, September daily average revenue trades increased only 6%, posing a potential Q3 commission-revenue headwind. Schwab gathered a record $64.8 billion in August core net new assets, bringing July-August inflows to roughly $123 billion, near its entire $137.5 billion Q3 2025 total. Both brokers posted strong Q2 profitability—IBKR revenue rose 28% and EPS 35%, while Schwab revenue increased 21% and adjusted EPS climbed 42%—with Schwab presented as the lower-valuation option at about 12x forward earnings versus IBKR's roughly 27x.

Analysis

SCHW has the cleaner near-term setup because asset-gathering can support fee-bearing balances and securities-based lending even if retail trading normalizes. Its lower valuation leaves more room for a positive re-rating if management confirms that new assets are arriving in advisory, ETF, and cash-management channels rather than low-margin sweep balances; the key incremental variable is net interest revenue sensitivity to the expected rate path. A renewed cutting-cycle risk remains material: faster-than-expected Fed easing would pressure asset yields before funding costs fully reprice, limiting the earnings conversion of strong flows.

IBKR's account growth is strategically more valuable than a single-quarter trading metric because its international and active-trader customer base creates recurring interest, FX, market-data, and margin monetization opportunities. However, the stock's premium embeds sustained account growth plus stable client leverage; a deceleration in margin balances, lower volatility, or declining short rates would expose a larger multiple-reset risk than at SCHW. The relevant 6-18 month competitive loser is smaller retail brokers with weaker global product breadth and lower interest-income scale, including HOOD, but IBKR's premium valuation means operational outperformance may already be largely capitalized.

Consensus appears too focused on headline net flows and not enough on balance-sheet mix. For SCHW, flows that migrate into advisory assets and transaction balances are materially more valuable than flows parked in money-market funds; for IBKR, client-equity growth without corresponding margin, options, and FX activity is less immediately monetizable. The October updates are therefore binary only if management changes forward commentary on trading, net interest income, deposit/sweep mix, or margin utilization; absent that, the monthly data alone are unlikely to justify a durable breakout.

Key Decisions for Investors

• Initiate a 1-3 month long SCHW / short IBKR relative-value position ahead of the October updates, sized beta-neutral. SCHW offers the more favorable valuation cushion, while IBKR is more exposed to a revenue-trade or rate-driven de-rating; target 8-12% relative outperformance. Exit if SCHW signals material net-interest-income downside from deposit pricing or if IBKR reports continued margin and commission monetization despite lower activity.
• For directional SCHW exposure, buy only after the business update confirms flow quality: advisory/net fee assets, bank deposits, and money-market migration should be disclosed or inferable. A positive confirmation can support a 3-6 month re-rating; avoid adding if the flow mix is predominantly low-spread cash equivalents or management lowers NII guidance.
• Do not chase IBKR ahead of earnings at its premium multiple. Set an alert for a post-report selloff caused by softer trading or margin commentary while account growth remains above roughly 30% and client equity remains resilient; that would create a better 6-18 month entry for the structurally stronger platform. The thesis is falsified by simultaneous deceleration in accounts, client assets, and margin balances.
• Use HOOD as a watch-list read-through rather than a direct sympathy trade: evidence that IBKR is gaining active or international customers while retail trading cools would reinforce a share-shift thesis against lower-scale brokers. Require customer-asset and trading-activity data before expressing the short, since a volatility rebound would benefit HOOD disproportionately.