Retail FX brokers see best-ever day in years due to Gold crash

Unprecedented volatility in Gold, increased volatility in everything else traded leads to huge rampup in trading volumes.

LeapRate Exclusive…. LeapRate has learned, in discussions with senior management at various FX brokers in different locations worldwide, that the past two trading days (Fri Apr 12 and Mon Apr 15) were in aggregate two of their best-ever days from virtually every measure — profits, volumes… (But it hasn’t helped the shares of FXCM and Gain Capital, which did even worse Monday than the “market” — more on that below).

For those who follow LeapRate and know the industry well, this shouldn’t really come as any surprise. FX brokers, both market makers and ECN “agent” firms, typically do well during very good or very bad times. They just need lots of trading volume to thrive, and volumes happen whenever there is volatility, and things are moving.

And boy, things have moved indeed. Gold prices, with no seeming precipitating factor, have dived about $200 per ounce over the past two trading days, for Gold’s largest near-term drop in both aggregate and percentage terms since the 1970s, as the following 1-week gold price chart shows:

The Gold sell-off contagion infected other commodities sectors including copper and oil, as well as the general stock market. Equities held their own on Friday, but finally succumbed on Monday to trade down more than 1%. What this means for the FX brokers is — in one word — VOLUME! FX brokers nowadays offer a lot more than just FX trading. And during times such as these, volumes move to where the action is. While we calculate, in the LeapRate-Dow Jones Forex Industry Report, that non-FX products today account for about 13% of volumes at FX firms, that number can rise to 40-50% during times like these where there’s lots of volatility in “other” areas, such as commodities.

So who’s doing best? FX brokers which serve geographic areas that naturally trade a higher percentage of commodities, such as the Arab world and Australia. Also market makers seem to make disproportionately more money in times such as these.

One more interesting note. Ironically, shares of FXCM (down 6%) and Gain Capital (down 2%) did even worse that the overall market on Monday. That can certainly be blamed on a general sell-off in equities and ‘financial’ stocks, but it still seems as though Wall Street still doesn’t “get it” yet in understanding Forex companies. This type of market upheaval is great for business.

It is way too early to state that Q2 will be a good one for FX brokers, but it certainly is a nice way to start the quarter for the industry. Stay tuned to LeapRate as this story develops…

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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