Money talks in more than a dozen different languages at FXCM. The online brokerage specializes in over-the-counter (OTC) foreign exchange (forex) trading for individual investors, or transactions that are bought in one currency and sold in another. FXCM operates through FXCM Holdings, which processes more than 300,000 trades per day for its 163,000 account holders. The firm's institutional trading segment, FXCM Pro, used by banks, hedge funds, and other financial service companies, accounts for less than 10% of revenue. More than three-quarters of the company's trading volume comes from outside the US. FXCM was founded in 1999 and went public in a 2010 initial public offering (IPO).
The IPO, which raised more than $200 million, was the first in the online trading sector since 2007. The company used some of the proceeds to buy back stock from existing shareholders, including members of senior management. (FXCM Holdings owns a controlling stake in the company.) It has also used funds to enhance its capital and fund acquisitions, as well as for general corporate purposes.
Catering to both amateur and professional retail investors, FXCM generates its revenue through fees added on to the trading price quoted by forex market makers; the company generates its trading revenue based on the volume of transactions, not trading profits or losses. Its institutional trading segment earns revenue on a commission basis for facilitating spot forex trades, as opposed to future trades. Even after doling out brokers' fees, which subtract about 20% from its revenue, FXCM continues to be a profitable company.
FXCM has made a few acquisitions in recent years as regulatory changes have affected foreign companies trading currency in the US and the amount of capital needed to operate a retail brokerage. The company bought the retail business of HotSpot FX and i-Trade FX and the US business of UK-based ODL Securities in 2009. In 2010 it acquired the rest of ODL Securities for an undisclosed amount to expand to the UK and Japan. With the ODL acquisition, it began offering equity and equity option trading, although not in the US. In 2011 the company acquired Japanese FX broker Foreland Forex. Besides the US, the UK, and Japan, FXCM operates in Australia and Hong Kong.
The company offers its trading software in more than 15 languages, from Micro accounts for novices that require as little as $25 to open, to its high-volume Active Trader account, which starts at $50,000. Since its ODL acquisition FXCM began offering spread betting and contracts-for-difference (CFDs) in gold, silver, oil, and a dozen other commodities outside the US. (The SEC prohibits spread betting and CFDs on the OTC market.) The new offerings have helped FXCM's revenues rise year over year. (Net income fell in 2010 and 2011, largely due to expenses related to the acquisitions.) By 2011, CFD trading represented more than 10% of the company's trading volume.
FXCM's software offers trades for more than 50 currencies, with about 40% going to exchanges between US dollars and the euro. Its international operations keep the company less dependent on any single economy, as well as affording it access to trading in emerging markets. (However, the company also runs the risk that new regulatory restrictions in various countries will affect its business.) And in 2010 the company began offering a mobile version of its most popular trading platform, Trading Station II.
Chairman, CEO, and co-founder Dror Niv owns 12% of FXCM's stock; director Eduard Yusupov owns another 11%. – less