FxPro sees falling trading volumes and profitability in the second half of 2010

LeapRate (www.leaprate.com) analysis shows that FxPro, based in Cyprus and one of the world’s fastest growing online trading firms, saw significantly lower trading volumes and profits in the second half of 2010.

Last week FxPro put out a seemingly rosy press release describing its plans for 2011, mentioning that trading volumes in 2010 grew by more than 20% from 2009, to a total of over $530 billion in 2010. Also, it mentioned that profits grew in 2010 by more than 50%.

What was not mentioned, however, is that all of FxPro’s growth occurred in the first half of 2010, and reversed in the second half. Using information obtained from FxPro’s placement memorandum in its attempt to go public in the fall of 2010, we estimate that FxPro’s total trading volume in the first six months of 2010 was about $294 billion – meaning that trading volume in the second half of 2010 was in the $236 billion range, or about 20% lower than in the first half of the year. In other words, average monthly volume for FxPro in the July-December 2010 period was about $39 billion, well below the January-June average of $49 billion, and even below the second half of 2009’s $44 billion monthly average.

Similarly, FxPro’s profit for just the first six months of 2010 (£10.93 million) was already 14% higher than for the entire 2009 year (£9.56 million). Taking FxPro’s statement at face value that total profit in 2010 was about 50% higher than in 2009 would mean that profit in the second half of 2010 was just about £3.41 million, or 69% below first half profit, and 31% below the second half of 2009’s profit of £4.94 million.

Why the precipitous drop? There is no obvious answer to us, given that (we believe) global volumes did continue to grow in late 2010, albeit slower than in previous years. We offer three possible explanations:

1)      Lack of product diversification: About 97% of FxPro’s volume comes from Forex. As we predict in our Industry Report, a good portion of the growth in the online trading business is coming from the non-Forex sector – CFDs for oil, gold, indices, shares, etc. FxPro might not be seeing the shift toward CFDs as much as at other firms.

2)      Asia – the “Asia” market segment has grown to be FxPro’s largest market, accounting for 39% of FxPro’s volumes in the first half of 2010. The second half of 2010 saw significantly lower volatility in the Asia currencies – especially the Japanese Yen, which traded in a fairly tight USDJPY 81-84 range most of the second half – and lower volatility translates very quickly into lower volumes and decreased profits for the trading firms.

3)      2011 arrived early – in our Industry Report we forecast flat to slightly falling trading volumes globally in 2011, driven mainly by new regulations including limitations on maximum leverage. That trend may have already started in late 2010.