Gain Capital (Forex.com) announced its Q3 results late last week, confirming what we have seen from other firms such as FXCM and FxPro – trading volumes were way, way up during Q3, in the wake of tremendous volatility in both the FX and equity markets. However, Gain's Q3 report did include some surprises, including:

• Total move to Asia – in Q3, Asia-Pacific accounted for 74% (!!) of Gain's retail trading volume. This is quite an amazing number, considering that Gain – as recently as 2010 – did more than half of its volume in its home market of North America (see chart below).

• Dramatic drop in nominal US volumes. In Q3, Gain did an average of just $12 billion per month in trading volume in "the Americas". In 2010, US volume alone averaged $65 billion per month. That's an 80% reduction in US volumes! (More, actually, since the "Americas" also includes Canada). To us, this is probably the most dramatic demonstration of the stranglehold which new Dodd-Frank rules have had on the US market, to the detriment of US consumers and Forex firms alike.
• Increase in overall volume hasn't meant a meaningful increase in Revenues or Earnings. Despite a nice rise in overall and institutional volumes, Gain's revenues and net income remained relatively flat (see chart below).

Wall Street remains unimpressed with both Gain and FXCM. Despite the nice rise in volumes reported, Gain's shares remained relatively unchanged, and now (at $6.89) sit 23% below their IPO price of $9 from December 2010. (FXCM, by comparison, is also down from its IPO price, but only by 12%). While Gain has demonstrated the ability to do acquisitions and grow its "base business" and trading volumes, as well as its penetration of the institutional market (Gain' GTX platform for institutional trading achieved record results in Q3, averaging $87 billion in monthly volume), it hasn't translated that into bottom line success.

On a multiples basis, Gain continues to trade at a deep discount to FXCM on the basis of P/E, Market Cap to EBITDA, to Volume and to Clients – for more details on Forex valuation and M&A multiples see the new LeapRate-Dow Jones Forex Industry Report.

Over the next couple weeks we should see some more datapoints with upcoming earnings results from FXCM and Swissquote – will be very interesting to see Swissquote's results, and what effect (if any) the Swiss National Bank's effective revaluation of the Swiss Franc (in early September) had on its results. Stay tuned and check back soon.....