GCAP up 21%, FXCM up 6% to a new all time high after Q2 results and metrics released on Wednesday. Why? Margins.

Leading US forex brokers FXCM and Gain Capital reported Q2 results on Wednesday, and the stock market seems to have liked both. With both brokers reporting record volume metrics in April-May-June, the stellar financial results which followed should not really be a surprise. But clearly both companies beat Wall Street expectations and saw their shares bid up amid above normal volume for both stocks.

FXCM and GCAP one-year share prices. Source: Marketwatch.

FXCM closed at its highest ever level on Wednesday, at $17.99 per share — 29% above its $14 IPO price — and Gain Capital traded up more than 21% (!!) on Thursday to close at $6.81 — still below its $9 IPO price but its highest close since 2011.

So why did FXCM and Gain’s Q2 results surprise investors, given that they already knew what Q2 volumes were? The short answer — is margins. Both FXCM and Gain saw a significant increase in pips earned per trade in Q2, as the more volatile environment made for better brokering conditions.

For example, as we reported when Gain Capital reported Q2 metrics, Gain saw margins from retail trading rise to 2.5 pips per round trip trade during the quarter, up from 1.5-1.6 pips the previous two quarters.

Greater volatility equals not just greater trading volumes in the forex world, but also greater margins, especially for market makers such as Gain. FXCM operates mainly on an agency basis.

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