Shares of a number of publicly traded Retail FX and CFD brokerage firms are taking a beating, as financial markets have been set off by Russia’s invasion of Ukraine.
While equity markets globally are taking a hit today – DAX is down 5%, FTSE -3%, CAC -5%, and US equity futures are pointing to a 2-3% drop in the S&P 500 and NASDAQ indices – a number of Retail FX firms have reacted especially harshly, even after more recent sharp declines in their valuations.
Hardest hit in the group has been NAGA Group AG (ETR:N4G), operator of the CySEC licensed NAGA.com brand, which is seeing its share price drop by 15% down to €4.25, less than half its 52-week high set in November 2021 and close to its 52-week low from last April. That has come despite NAGA recently reporting strong revenues to begin 2022 in January of €8 million.
Also taking a beating are shares of Swissquote (SWX:SQN), down today by 5% to CHF 147.60. Swissquote shares have now dropped by more than 30% in less than eight weeks, since hitting a 52-week and all-time high of CHF 212.50 in early January.
Other online brokers, and in particular the leading UK based firms, are seeing a much milder drop with IG Group (LON:IGG) down 1.6%, Plus500 (LON:PLUS) down 3.7%, and CMC Markets (LON:CMCX) actually rising slightly +0.2% today.
We find the (over?) reaction in FX broker shares somewhat surprising, and another sign that investors don’t totally “get” the business model at Retail FX firms. Our expectation is that February is going to be a very good month for Retail FX and CFD brokers, both in terms of trading volumes and revenues/profits.
Retail FX brokers do well when they have more trading volumes. And trading volumes increase, even spike, when there’s market volatility in any direction.
Another good example is March 2020. When equity markets had their worst month in years as the COVID-19 pandemic unfolded and the world started to “shut down”, quite a number of Retail FX brokers reported some of their best-ever trading volumes, revenues, and profits.
NAGA Group share price, past 6 months. Source: Google Finance.