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Most of our customers had accumulated cash selling into this rally': Interactive Brokers founder Thomas Peterffy

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On Monday, the markets are moving higher, despite a surge in cases of the coronavirus pandemic. Thomas Peterffy, Interactive Brokers Founder & Chairman joins Yahoo Finance's The First Trade to discuss the recent rally, what investors are keeping their eyes on and the future outlook for the markets.

Video Transcript

BRIAN SOZZI: As the market volatility continues, no sports on air and people continue to remain socially distant, the concept of day trading is piquing the interest of people across the country. Here discuss that more is Mr. Thomas Peterffy. He's the founder and chairman of Interactive Brokers. Mr. Peterffy, good to speak with you this morning.

I know Interactive Brokers has a lot more sophisticated investors than what you see on a lot of other platforms. What are you seeing from your-- from that client base right now as the market continues to rally?

THOMAS PETERFFY: That is true. Our customers tend to be on the professional side. And well, what we see-- they have-- most of them have accumulated cash, selling into this rally. And as a matter of fact, today we are sitting on something like $72 billion of customer cash.

And so basically, there are two lines of thought here. One of it is that if you don't get into this market, you will never see these prices again, because the Fed keeps pumping money into the market and inflation is going to catch up with us very soon. And stocks are a safe haven.

And the other thought is that it doesn't matter how much money we put into the market. There are no products to make. So people will have difficulty-- companies will have difficulty earning a profit. So that's where we are.

BRIAN SOZZI: Why do you think-- the clients and the folks that use your platform, why do you think they're raising cash right now? That's interesting.

THOMAS PETERFFY: Well, is that they believe that the market is overvalued, right, because the economy is basically suffering and we don't see a quick turnaround on the horizon.

BRIAN SOZZI: Have you seen the same level of-- I know Interactive Brokers has seen really strong new account growth. As the market has climbed to these levels, are you still seeing new investors and new accounts more aggressively come into this market?

THOMAS PETERFFY: Oh, yes. The new account opening has continued very, very strong. Many people opened these accounts, but in the money. They do a few trades.

But they tend to hold onto their money. They don't seem to be buying stocks, at least as far as our customers are concerned.

BRIAN SOZZI: What's your message? You founded Interactive Brokers more than 43 years ago, if I'm somewhat correct. What's your message to day traders out there?

They're home. They're trading this market. They don't have a lot to do. They clearly have a lot of time on their hands.

But you've seen a lot of cycles. What's your message to them?

THOMAS PETERFFY: Well, first of all, I would be very careful of transaction costs, even in a zero-commission world. Because what happens is that when you buy or sell a stock, you basically give an order to the broker. The broker sells your order to a market maker. The market maker trades against your order and pays the broker for the order.

So there is transaction cost in spite of the zero commission. And the transaction costs equals what the market maker earns trading against your order plus what the market maker pays your broker. So these transaction costs accumulate. And even though it looks like it costs nothing, it costs a lot.

So if you just keep on trading back and forth, you will lose your money. So please think about what you're going to buy and when. And don't over trade. Be careful.

BRIAN SOZZI: Mr. Peterffy, before I let you go, Interactive Brokers is more than 80% owned by employees. You're still very much invested in the company. What's the future look like for Interactive Brokers? We've seen a lot of consolidation in the space. What's the outlook for your company?

THOMAS PETERFFY: Well, as long as the digital economy keeps evolving, which as we see it does, online brokers will prosper at the expense of the conventional brokers. And as long as we have an economy that is dominated by free enterprise and free-market economy and basically public ownership of companies, these brokers, including ourselves, will do well. I would like to think how the other feels.

BRIAN SOZZI: All right, we'll leave it there for right now. Mr. Thomas Peterffy, Founder and Chairman of Interactive Brokers, thank you for coming on. And we'll talk to you soon.

THOMAS PETERFFY: Thank you very much.