LeapRate's Daily Forex Industry Newsletter
Join now to receive first access to our EXCLUSIVE reports and updates.
Screenshot of a breaking news alert e-mail from Q2 2017
Another day, another disappointing quarterly financial report from a retail FX broker.
And another drop in share price.
After seeing Gain Capital Holdings Inc (NYSE:GCAP), parent of Forex.com, see an 8% fall in its share price Tuesday after reporting Q1 results which were well below Q4 levels, Wednesday it was the turn of KVB Kunlun Financial Group Ltd (HKG:8077). The Hong Kong based forex broker reported Q1 revenues 21% below Q4, with profits off 68%.
This came after KVB had in late April indicated to the market that it was upbeat about expected Q1 results – although the fine print there was based on a comparison to Q1-2014, not to the most recent quarter.
Not surprisingly, KVB shares dropped in Thursday trading – as of the time of writing they were down 6% to HKD$1.66 per share.
So what’s going on?
It seems as though many forex brokers had a decent Q1 from a volumes perspective, but that didn’t necessarily translate into healthy revenues or profits.
For two reasons.
- Low margin trading. Much of Q1 trading seems to have been in the EURUSD pair, which typically carries lower spread. And with the trades being largely one-way – that is, as short on the Euro as the Euro continued to drop versus the USD throughout Q1 – brokers had to go out and hedge their exposure, costing the, money.
- The Swiss Franc spike. Many forex brokers reported at least some amount of negative client balances from the January 15 20%+ spike in the value of the CHF versus most major currencies, and had to swallow those losses.
In KVB’s case, there’s also the complicating factor of the recent (partial) takeover of the company by China’s CITIC Securities, and the expectation among many investors that they will pay up to acquire the 40% minority interest in the company.
KVB’s shares might have been harder hit by their Q1 results report, but the shares seem to be trading mostly of late based on expectations of what CITIC might pay to take the company wholly private. Were CITIC planning to invest in KVB or make some drastic changes, it is reasonable to assume that they’d like to own the whole company before they do so.