Forex Brokers That Have Gone Public Fail to Impress

Two of the most prominent forex brokers took advantage of the currency market’s growing popularity and tried their charm on investors by debuting at the New York Stock Exchange. But three months after going public, it seems like these hotshot broker’s stocks have still been unable to impress!

You may know them from the article I wrote late last year.But enough with the suspense, I’m talking about none other than FXCM and Gain!

The New York-based broker FXCM, a.k.a. Forex Capital Markets, is regarded by some market junkies as the biggest retail FX broker in the biz. It went public in December of 2010, raising around 211 million USD in its initial public offering when it sold 15,060,000 shares at 14.00 USD each. However, when I looked up FXCM during the middle of the week, I saw that its price has slumped to 12.12 USD per share!

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As for Gain, well it also hasn’t err… gained. It went public about the same time that FXCM did, raising about 81 million USD for the 9,000,000 shares it offered. The company wasn’t off to a good start though as GCAP opened at 9.00 USD per share, below what the market had initially expected. As of this writing, GCAP is at 7.72 USD per share, a fall of more than 12% from its IPO price.

Part of the reason why Gain and FXCM have struggled lately is because of bad publicity.

Both firms have been subject to lawsuits and complaints from both the general public and regulatory agencies like the NFA. FXCM is being investigated on whether or not they issued misleading statements to shareholders. Meanwhile, Gain is facing a complaint accusing that the firm included a plug-in its trading platform that provided unfavorable execution to its clients.

This is one of the challenges for private firms that go public. Because they are now publicly owned, they are put under heavy scrutiny not only by government agencies, but by shareholders and the general investing public as well.

Furthermore, new regulations have also hampered the forex brokering business. Brokers are now required to have higher capital reserves in case of substantial trading losses or investors pulling out their money. Lower leverage limits have also been put in place. This reduces their clients trading volume, which in turn reduces a broker’s revenue.

Violations of such rules can lead to fines from the NFA that hurts the bottom line net profit. This can be perceived as poor performance, which translates to lower share prices.

The news may seem bad for the retail forex industry, but being the optimist that I am, I see these as positive. The thing is, the forex market is riddled with shady brokers that it’s so difficult to tell the legit ones from the scammers!

Stricter regulations, even if they hamper growth, are NECESSARY to protect customers. You may not like or agree with them, but regulations encourage transparency, which force brokers to avoid questionable practices and operate as fairly as possible.

Besides, if you look at my State of the Forex Industry Address, you’d actually see that the forex market has actually grown a massive 20% since 2007, despite the financial crisis. Numbers and facts don’t lie my friends, numbers and facts don’t lie!

  • V K Rajagopalan

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