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Screenshot of a breaking news alert e-mail from Q2 2017
Gain Capital (Forex.com) shares are now down 48% from their late September peak. The problem? Retail volumes.
What goes up sometimes come down… A quick look at the stock market ticker reveals a very tough week for shares of retail forex brokers, culminating with yesterday’s deep dip. Gain Capital shares (NYSE:GCAP) fell 9% Thursday, completing a 48% (!!) drop in GCAP shares since the company hit an all-time high in late September on the wave of great Q2 results for Gain.
London-listed Plus500 (LON:PLUS) saw a 7% decline Thursday, cooling off somewhat after hitting an all-time high earlier this week on talk (reported at LeapRate) that Plus500 CEO Gal Haber was targeting a $1 billion valuation for the company, and a doubling of its current share price level.
Gain Capital share price, past 3 months. Source: Yahoo! Finance.
The reason for the drop, at least for Gain? (Noting that there wasn’t any new ‘news’ out there yesterday).
It seems as if stock market investors became somewhat spooked after having time to digest Gain Capital’s mixed November forex volume metrics report earlier this week. Although Gain reported record institutional volumes in November, it saw falling retail volumes (-10%) — and retail is where Gain makes most of its money.
How much more important and profitable is retail trading than institutional trading for Gain?
We looked at this when Gain Capital reported Q3. As the charts in that article show, we calculate that Gain earns about 0.28 pips per round trip institutional trade, versus nearly 10 times as much, or 2.6 pips, from a retail trade. Institutional volumes are nice, but retail volumes are when Gain makes money.
With Gain Capital shares now back down to basically where they were in August, and below its original IPO price, it looks like Gain will need to reassure markets that it can grow its all-important retail franchise before investors start to buy back in.
And if volumes don’t grow so fast? Are more acquisitions in the works, after Gain recently closed on its acquisition of GFT? Stay tuned to LeapRate…