Why is Gain Capital stock tanking if it just reported record Retail volumes?

Retail forex broker Gain Capital Holdings Inc (NYSE:GCAP) reported its June trading volume metrics last week, and they were fairly impressive.

Institutional volumes of $455 billion were one of the company’s best ever, and all-important Retail volumes of $376 billion were indeed the best ever reported by Gain’s Forex.com brand.

So how has the market reacted?

Gain stock traded down 5% on Friday, and another 3% yesterday, taking GCAP shares to their lowest level in nine months. We’d also note that Gain’s shares weren’t exactly on fire leading up to the volumes release, down 17% in the two weeks before the current two-day slump.

So what has happened?

GCAP shares price July 2015

GCAP shares 2015 year to date. Up, and back down. Source: Google Finance.

It appears as though investors have decided to focus on the statement Gain CEO Glenn Stevens made in the volumes release announcement, saying:

Retail revenue capture during the quarter was challenging, however, coming in towards the lower end of the range of the last four quarters… primarily due to lower volatility in indices and commodities.

It looks like Gain’s Q2 results – the first quarter in which it will include the results of City Index, which Gain formally acquired at the beginning of April – will come in a little light.

Frankly, we don’t really understand Mr. Stevens’ statement. Volatility in financial markets during Q2 was actually quite high, especially during the second half of the quarter, thanks to the Greece-Euro crisis and the Chinese stock market selloff. And that was borne out by the healthy volumes reported by Gain and others during May and June.

As we all know in the retail Forex world, high volatility = high trading volumes. And that’s what happened.

The problem, we suspect, is tightening spreads in a much more competitive market.

It will be interesting to see how spreads/margins pan out for the crowd of publicly traded Forex brokers which will be reporting their Q2 results in the coming weeks. Will they show that the Retail Forex industry is facing a trend of increased competition resulting in lower spreads?

Stay tuned to LeapRate…

Read Also: