Is Drew Niv creating a monster?
When FXCM (NYSE:FXCM) went public last December, they pulled in about $200 million dollars. After their investors cashed out about $150 million, FXCM increased their balance sheet by about $50 million.
The company now has about $200 million in cash and they're planning on using it to "buy other forex brokers," said CEO Drew Niv.
Last week FXCM acquired GCI Capital, a Japanese firm, for $5 million. GCI had been an introducing broker for FXCM for some time and follows FXCM's earlier purchase of ODL Securities Japan in December 2010. The GCI acquisition adds another 17,000 customer accounts and $110 million in client equity to FXCM's books.
Niv thinks that the industry is about to undergo a big change. The combination of lower volatility and increased regulation is making it difficult for small brokers to get started and compete with the bigger fish in the Forex pond. Regulation, in particular, has driven a lot of the early Forex market makers out of business.
In 2007, 43 Forex brokers were registered with the U.S. Commodity Futures Trading Commission (CFTC). Today there are 14.
Niv thinks the number of CFTC-registered brokers will fall off drastically, leaving just a relative few large brokerages in the U.S. Thus far, FXCM and GAIN Capital have opted to go public. CitiFX, a division of CitiBank, has now undertaken a public relations campaign to increase awareness among the retail trading public.
Niv believes that those companies who can successfully make the leap to becoming a publicly traded company will have a huge advantage over the smaller brokerages.
The Forex industry is still relatively young and, as more serious traders enter the market, the credibility that accompanies being a public company will be a competitive advantage when it comes to capturing market share.