The equity market's fall has been the forex market's gain, and Gain Capital, a market maker and provider of currency and metal trading services to retail investors, has seen 50 to 60 percent trade volume growth rates over the past few years. This has led the firm, which has customers in 140 countries and supports trade volume of more than $200 billion a month, to make major investments in its IT infrastructure, overhauling networks, hardware and software.
"When the equities market is moving sideways or down, going long on stocks is not a good strategy; in the currency market you're always buying one currency versus another, going long one and short the other," says Gain CIO Andrew Haines. "So with this price action, there's always an opportunity to make a profit," he adds in explaining stock market investors' flight to the new asset class.
Haines points out that retail foreign exchange is a speculative market and that Gain Capital's accounts are offered at 100-to-1 leverage (Gain Capital provides the margin). "It's a more exciting asset class than mutual funds," he says drily. "We don't market this as something you should put all of your IRA money into."
For this reason, Haines says, he tries to educate retail investors who are often more accustomed to equities and fixed income funds. "While stocks are more about individual companies, in currencies it's more about macroeconomics and the differences between interest rates, employment rates and GDP [gross domestic product] at the country level, which impacts the currency of that country," he notes. According to Haines, his staff wrote a book called "Currency Trading for Dummies" and provides marketing and research webinars.
On the trading platform itself, which is available in a browser-based form or a downloadable application, a Forex Insider function provides running commentary from the trading desk on what's happening in currency markets. Daily and weekly summaries and forecasts are issued. But, "We don't present recommendations, but insights and observations as to what's going on in the macroeconomic currency marketplace," Haines comments.
In addition to its retail business, Gain Capital also white labels its platform for partners that want to add currency and foreign exchange to their current offerings.
Time for an Infrastructure Redesign
While these are heady times, 10 years ago Gain Capital's technology was built "economically," Haines says. "We didn't make large investments in infrastructure and have hundreds of people build the platform out. We had a small team and were fairly scrappy about how we purchased and deployed infrastructure."
The recent growth rates in accounts and trade volume called for a change. "When I looked at the five-year planned growth rates, it was apparent to me that we needed to make an investment in infrastructure and in our platforms to ensure that we could not only support the growth but also improve our execution times and availability," Haines relates, adding that the new architecture also was created in part to eliminate some single points of failure in the trading platform.