FXCM: Profits from a Trading Platform

10/23/2013 7:00 am EST

Focus: STOCKS

James Oberweis

President, Oberweis Asset Management, Inc.

Our latest featured stock is an online provider of foreign exchange (FX) trading and related services to over 170,000 active retail customers globally, explains Jim Oberweis Jr., small-cap money manager and editor of The Oberweis Report.

FXCM Inc. (FXCM) offers customers access to over-the-counter (OTC) FX markets through their proprietary technology platform. In an FX trade, a participant buys one currency and simultaneously sells another, a combination known as a currency pair.

Their platform seeks to present FX customers with the best price quotations on up to 58 currency pairs from up to 38 global banks, financial institutions, and market makers, or FX market makers, which provides their customers with an efficient and cost-effective way to trade FX.

Their primary offering is an agency model to execute trades, whereby, when a customer executes a trade on the best price quotation offered by their FX market makers, FXCM acts as a credit intermediary, or riskless principal, simultaneously entering into offsetting trades with both the customer and the FX market maker.

FXCM earns trading fees and commissions by adding a markup to the price provided by the FX market makers and generates trading revenues based on the volume of transactions and the spread earned on transactions.

FXCM earns other forms of revenue, such as fees earned from: referring broker fees, back office and trade execution, trading in equities and equity options, payments for order flow, FX market prices, and other various ancillary FX related services.

The company's retail trading segment accounts for 85% of total revenues in 2012. Their institutional trading segment, FXCM Pro, offers FX trading services to banks, hedge funds, and other institutional customers on an agency model basis.

In the company's latest reported second quarter, sales increased approximately 53% to $140.1 million from $91.7 million in the second quarter of last year.

FXCM reported earnings per share of $.31 in the latest reported second quarter versus $.11 in the same quarter of last year.

Clients of Oberweis Asset Management own approximately 51,000 shares. These shares may be appropriate for risk oriented investors.

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