Tradestation Forex client and volume details found in Gain Capital's SEC filing

Gain Capital just filed a 8-K form to the SEC concerning formation of TradeStation Forex which will no longer function

Gain Capital just filed a 8-K form to the SEC concerning formation of TradeStation Forex which will no longer function as its IB. Consequently we can see some interesting details regarding TradeStation Forex’s volume and clients:

As previously disclosed in GAIN Capital Holdings, Inc.’s (the “Company”) Registration Statement on Form S-1 (file no. 333-161632), as amended, which was declared effective by the Securities Exchange Commission on December 14, 2010, TradeStation Securities, Inc. (“TradeStation”), the Company’s largest introducing broker, has formed a wholly-owned subsidiary, TradeStation Forex, Inc., to assume, own and conduct all of TradeStation’s forex brokerage business. In January 2011, TradeStation Forex, Inc. became a registered retail foreign exchange dealer with the Commodity Futures Trading Commission and became a member of the National Futures Association. As a result, on April 8, 2011, in accordance with the Company’s Introducing Broker Agreement with TradeStation, as amended, a bulk assignment of the Company’s TradeStation-introduced customers, and related customer assets, to TradeStation Forex, Inc. was completed.

For the year ended December 31, 2010, TradeStation-introduced customers represented 6.6% of the Company’s total retail trading volume.

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Customer assets represented by customers introduced to the Company by TradeStation were $31.7 million, or 12.7% of total customer assets, as of December 31, 2010.

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We can now easily extract the necessary data using Gain Capital’s 2010 report: Gain reported a total of $1.6 trillion in trading volume for the whole 2010 year. Therefore TradeStation represented $105.6 billion volume in 2010, that’s $9 billion a month. Not much but not so small either.

It seems though that TradeStation clients trade less than overall Gain Capital’s clients as their assets were twice their comparative volume. This is consistent with my estimate that clients of multi-asset brokers like TD, MF and Charles Schwab may have larger balances but are more conservative – a direct result of this market becoming more mainstream.

Trying to calculate how many clients exactly TradeStation Forex (they refused to disclose this figure for now) we can use an average of 6.6% and 12.7% (lesser volume but larger balance) and multiply Gain’s overall retail traded accounts in 2010 = 64,313*9.65%=which results in 6,206 retail traded accounts (some of them probably not active). Much greater than my own estimate of 1,000-2,000 accounts.

This is a major blow to Gain Capital’s results as it’ll both reduce its volumes, customer assets and number of clients. I guess IBs/WLs coming and going is an integral part of this business and may be offset by signing new similar deals (probably in the Far East).

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