FXCM Citi Financial Services Conference Review

FXCM CEO Drew Niv presented yesterday at the Citi 2013 Financial Services Conference. The event is a prelude to tomorrow’s earnings and volume report announcement from the broker. You can check out a transcript of Niv’s comments here with the slide deck below.

The presentation provided an interesting look at FXCM. It was obviously aimed at the analyst crowd so FXCM’s best of breed characteristics and operating metrics were emphasized.

Some interesting points from the review:

US Volumes Falling, Asia Rising: While not much of a surprise, the broker provided a breakdown of global volumes. From 2008 to 2012, yearly US volumes fell from $1,010 billion to $374 billion. At the same time Japan figures rose $521 billion from $63 billion while China volumes were $704 billion in 2012 from $212 billion in 2008. Asia is definitely becoming the place to be for Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term. (see slides for full breakdown)

White Labels Drive 50% of Retail Volume: Niv explained that white labels are an important part of the broker’s business, with 50% of retail volume from the deals. He added that they announce very few of the partnerships they sign. Also, Niv explained that the deals with large firms like ETrade and Barclays attest to their reputation and added value they provide partners.

Conversion Costs: Niv answered that conversion costs “vary, very widely by geography can be as well as $100 or $200 in place like China and it can be high as $1,500 in the Western Europe. I think the average is something like $600 or $700.”

Success Rates and Average Account Size: Niv pointed out that average account size has risen substantially to nearly $7500 from below $3500 in three years. He also mentioned that accounts of above $10,000 contribute nearly 70% of revenue. Very interestingly, he stated that these clients were also achieving success rates above 50%. So the larger clients are getting larger as they are profiting. On the financial aspect, what Niv was trying to drive home to the analyst attendees was that FXCMs most important group of customers in regards to growing revenue are only getting bigger.

Still Consider Themselves Agency Model: Regardless of last year’s launch of dealing desk accounts, FXCM still considers themselves to be an agency broker. Wasn’t mentioned specifically in Niv’s presentation, but FXCM’s agency model was stated repeatedly. This could be due to their white labels business being highly tied to agency accounts as well as perhaps little traction so far with their dealing desk operation. From the operating metrics, FXCM’s growth is definitely being hitched on the higher end clients.

2013 Volumes: Niv stated that February was also a good month. However, he explained to the audience that much of the Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term in FX is derived from interest rate movements. Therefore, Niv partially attributed the spike in recent volatility as expectations from traders that the low interest rate environment is going to end.

FXCM 2013 Citi Financial Services Conference by