Business is up. But margins are being squeezed.
FXall (or more formally, FX Alliance Inc.) reported its third quarter 2011 results, by updating the registration statement for its planned IPO. (As we reported last week, FXall's IPO is now expected to come to market early in 2012).
FXall's trading volumes in Q3 were basically flat in its "Relationship Trading" corporate business, but up nicely in its "Active Trading" ECN business to $20.4 billion daily (up 15% over Q2 levels). This was of course not surprising, as FXall's ECN business serves as a liquidity provider to banks and retail Forex firms, and we have already seen nice Q3 numbers from Forex firms such as Swissquote, FxPro, Gain Capital and FXCM. FXall is known mostly in the online Forex world as an ECN and competitor of firms such as Hotspot FX (owned by Knight Capital) and Currenex (owned by State Street Bank), but the majority of its fees (71%) come from its corporate hedging business.
What caught our eye in FXall's Q3 results was the continued deterioration of FXall's operating margin, or rather the amount of money it earns per-volume, calculated as "Average Transaction Fee per Million":
FXall Operating Margins - under pressure
What these charts mean to us, quite simply, is that both the corporate and institutional Forex business are becoming ever more competitive. And we believe that this trend will continue, with the "spreads" earned by ECNs continuing to be under pressure, and decline.
To see FXall's updated S-1 IPO registration statement click here.