FXCM’s Q2 results – a closer look at margins

With Forex industry leader FXCM reporting a net loss in its second quarter results earlier this week, there are many in the industry wondering if the current malaise facing the industry due (mainly) to lower volatility in 2014 is reason for long term concern.

A closer look at FXCM’s Q2 results shows – probably not.

Let us explain.

While we all understand that retail FX trading volumes have been down nearly across the board and geography in 2014, FXCM’s results reveal that margins haven’t been under pressure.

FXCM pips earned Q214

In both its retail and growing institutional businesses, FXCM’s margins have remain fairly steady throughout the past three and a half years, since FXCM’s IPO in late 2010. Our analysis shows that FXCM actually earned 1.92 pips per retail trade in Q2 – its highest such result since Q3 of 2012 – but again, not varying much from long term historical trends.

And other than a blip in late 2012, FXCM’s institutional margins have remained steady too over the past year, at 0.7-0.8 pips, even as FXCM has doubled the size of its institutional business.

What this means, we believe, is that fundamentally there’s nothing wrong with the retail forex broker model. When volumes inevitably increase once volatility returns, which always happens, profitability should be just fine.

FXCM’s Q2 financial report can be seen here.

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