FXCM’s institutional volumes all but disappear in July

Leading retail FX firm FXCM, the world’s largest online FX broker, announced its Q2 results and July volumes, and both sets of numbers seemed to have disappointed, with FXCM shares going into a two-day tailspin, down in total more than 8%. We had already seen details of FXCM’s Q2 (retail) volumes, which were down somewhat from Q1 and from last year’s Q2, but the drop in revenues far outpaced the drop in volumes — meaning that margins in the business are falling.

Specifically, retail volumes were down about 11.7% in Q2 versus Q1, but revenues from retail were down 16.0%.

Really surprising, however, was the drop in July volumes (as per the graph above) including an absolute freefall in institutional FX volumes, down 63% from June to just $60 billion for the month. This was the first month below $100 billion in institutional volumes for FXCM since they crossed that barrier last August. FXCM claimed in its investor conference call that low volatility in July basically caused summer to come early, and certainly there is some seasonality in trading volumes in the summer months as institutional folks take vacations.

However, it may be a month or two before we find out if this was indeed a one-time seasonality-related drop in volumes, or if something more serious is afoot, such as institutional traders leaving to other trading options, such as the multitude of Forex ECNs popping up and scrambling for business (and causing margins to drop in the industry), as well as new prime brokers angling for similar business.

One more interesting note from FXCM was its announcement that it is going back to a principal market-maker model for small retail investors.

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