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"In the second quarter, retail clients have not lost money at all and are actually making money"
Drew Niv, FXCM |
FXCM Holdings, whose roots are very much in retail foreign exchange, has announced that its revenue for the three-month period to June 30 was $66.5 million, a 7% increase over the first quarter; its ebitda was $25.3 million.
FXCM says the main growth driver was its "core business of serving self-trading clients". According to chief executive Drew Niv, these have been able to capitalize on the drop of volatility in the market in a way many other FX participants have not. "The retail business has entered a period of perfection in the last four months," he says. "Intra-day volatility is high but the major currencies are actually in tight ranges and won’t break out."
Niv adds: "It’s breakouts that retail clients lose money on, as 90% are range traders. In the second quarter, retail clients have not lost money at all and are actually making money as a group. This is especially refreshing as the three quarters before that were brutal on clients."
According to Niv, FXCM is now starting to see the benefits of its switch from a principal to an agency business. "I do hear that many other retail firms that are still on the principal model have suffered a lot lately. July is an extreme version of the second quarter, and if this continues many firms will have to review their business models. We are already seeing many larger retail clients noticing worsening execution at retail market makers as those guys get more defensive. They move more of their money to us to get the benefits of us being their agent not adversary," he claims.
FXCM’s reputation suffered in the past when it operated on a principal basis. Claims were often made that it basically traded against its clients – the debate about the relative merits of whether an agency or principal-based model is best for retail has become something of a marketing tool, especially in the US. There are many extremely well-regarded operations that utilize a principal model, which would probably claim that they are actually able to provide a more consistent service to their clients because they are not so vulnerable to sudden shifts in spreads from their liquidity providers.