Street Bullish On Retail FX
At this point, it is a well established fact that most retail traders, be they forex, futures, equities or options traders, lose money. Famously, FXCM CEO Drew Niv conceded this fact, saying “If 15% of day traders are profitable I’d be surprised.” Many retail forex traders attempt to profit from the market using managed forex accounts and signals providers, despite a history of lackluster returns and a high prevalence of martingale strategies. Is there a better way for the retail investor to make money from forex trading?
The two publicly traded retail forex brokers provide an interesting way for traders to get exposure to the market, without having to trade forex themselves. Since FXCM and Gain Capital’s IPOs in December several investment banks have initiated coverage on the stocks of these two brokers. So far, the consensus opinion among Wall Street analysts is bullish.
In FXCM’s case, Barclays, UBS, Credit Suisse, and Citigroup all have “buy” ratings on the stock, with price targets set by Barclays and UBS at $18.00 per share. GCAP is being covered by Raymond James, JMP Securities, Deutsche Bank and Sander O’Neil. All but Deustche Bank have “buy” ratings on the stock withDesutche Bank having a “hold.” Price targets for Gain range from $11.00 a share to $16.00.
The stocks have been trading for only a few months now, so attempts to analyze their recent movements are handicapped due to a lack of scale. So far, the stocks have both underperformed the S&P 500. The S&P 500 is up 9.64%, while Gain is up only 7.91%, and FXCM is down 5.45%. The graph below, provided by Google Finance, compares the two stocks to the leading US equities index.
Do these bullish ratings mean investors should load up on these stocks? While the future of the retail forex industry does seem bright, any investment decision should not be made on such light analysis. Both stocks have enormous opportunity, but also hold a great deal of risk, much of which may be beyond the scope of the average retail investor to successfully identify and analyze. In the coming days, ForexOrgan will be issuing an in-depth analysis of the two stocks, with detailed recommendations for traders. Stay tuned.