GAIN Capital and FXCM Q2 Financial Reports Preview

With FXCM and GAIN Capital both set to release their Q2 financial reports today, we have reviewed areas of their

Later today, both GAIN Capital and FXCM will be posting their Q2 financial reports. GAIN’s is expected before the open, with FXCM coming out after the close of trading in the US. Here’s what we will be watching today.

GCAP (Analyst estimate: $-0.08 EPS & $107.85M Revenue)

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Revenue capture – Shares of the broker are down about 30% from their June highs as traders have been selling the stock for a slew of reasons. The latest was an announcement that Q2 revenue capture is at the lower range of their historical levels. As such, GAIN could be headed to reporting break-even results or even a loss. What the actual figure amounts to and the broker’s explanation are worth watching. In Q1, the firm blamed one directional trading as hampering the natural crossing of client order flow.

City Index Update – The other main worry hovering over GAIN Capital’s shares is its acquisition of City Index. The firm posted what may be considered aggressive synergy cost reduction expectations, and traders will be watching whether an upside or downside update to those forecasts is provided. With a full quarter of City Index being integrated within GAIN, the brokers are expected to have a clearer idea of how the merger is panning out.

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July Revenue Capture – With GAIN shares already falling going into today’s earnings announcement, the stock may ultimately trade based on future forecasts. Specifically, we’ll be watching whether GAIN provides an update of how its July revenue capture was. A bullish statement could be the main trigger for an upward move in shares. On the other hand, if July is weak, or GAIN doesn’t provide any updates, it could be a red flag on its stock for the near term.

FXCM (Analyst estimate: $-0.18 EPS & $61M Revenue)

Revenue Capture – Since lowering spreads in a number of its broker units, FXCM has seen its revenue capture plunge from the $90 per million dollars of retail trading level to $60 in Q1 (FXCM reported two figures, $67 included units that were being sold and $60 for their ongoing retail business). The drop in revenue capture was forecast by the broker in 2014. However, they also expected to make up for the shortfall with higher volumes traded due to the lower spreads. While customers are in fact trading more, it hasn’t been enough to mitigate the lower revenue capture. As such, FXCM will be watching to see whether revenue capture has bottomed out and stabilizing for the broker.

Market Making – Due to a variety of reasons, FXCM has stated that they will begin to integrate a market making for a portion of their retail customer flow. It will we worth noticing if FXCM provides an update of whether market making helped its bottom line in Q2.

Asset Sales – Yesterday, Leucadia Financial announced that FXCM had paid them $75.9 million during Q2, with the broker having an outstanding loan balance of $228.4 million. Asset sales were the main driver behind the loan repayments. With FXCM’s Japan and Hong Kong units sold, the remaining meaningful assets are the firm’s 35% stake in FastMatch and Lucid Markets. As a seller’s market for FastMatch is materializing, and alternative market makers like Lucid Markets growing market share on ECNs, the two assets could fetch FXCM north of $200 million. Therefore, we will be awaiting any updates of expected sale prices and who the buyers could be.

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