Is the Stock Market the Place for Forex Brokers?

 New York Stock Exchange

New York Stock Exchange

2015 hasn’t been a particularly good year for Forex Brokers that are publicly traded. The biggest standout is FXCM which was once trading at over $17 a share and with a market cap of $850 million. Now the one-time powerhouse is trading at $1.46 a share with a market cap of merely $74 million.  Even with the recent acquisition of Citibank’s retail client base and growing volumes the market does not seem to have a great deal of confidence of FXCM returning to its earlier glory days.

On the other side of the Atlantic Plus500 which has been dealing with its regulatory issues with the FCA has also had issues with its share price. Even with a recent cash offer from Playtech at over $700 million the share price and corresponding market cap is currently trading well below that. The market here seems to have some doubt if this cash offer will stand at the proposed levels, not to mention all of the regulatory still issues facing Plus500.

Some Forex Brokers are even having issues trying to get their IPO off the ground. One example of this is FXPrimus, a Mauritius-based broker which has a sponsorship deal with Manchester City. FXPrimus was looking at a $200 million IPO in the ASX which is currently being blocked by ASIC the regulatory authority in Australia. Problems arose when the broker was claiming it was licensed to offer trading products to citizens of Australia and eventually acquired hundreds of customers from Australia. The IPO is still on hold pending a review and the word is that ASIC is in talks with the company to oversee the necessary changes to the way they market.

There are a few reasons as to why Forex Brokers haven’t fared so well in the public market. It may be more challenging to place a valuation on Forex Brokers. Forex Brokers haven’t been around as long as other financial services firms and there is no another category to put them in. Since the events of January 15 brokers are now also looked upon as a higher risk investment even with the changes in leverage. Forex Brokers also must navigate an often treacherous ever-changing regulatory environment. This can also make investors wary of Forex Brokers as an investment. With these recent events and the attitude from the marketplace, any brokers out there looking to go public may now have second thoughts.

 

Trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary.