A Firm in the Sweet Spot for Forex

 | Jun 27, 2012 | 1:00 PM EDT
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Money, money, money. It makes the world go round, you may have heard. But it needs at little help from time to time, scooting around the world. And that is where our next emerging growth company fits in.

Based in New York, FX Alliance (FX), or FXall as it likes to be known, is one of the largest independent global providers of electronic foreign-exchange trading solutions in the world. The company gives clients 24-hour access to the foreign-exchange market on its proprietary technology platform, which includes real-time pricing, trade execution and post-trade services on more than 400 different currency pairs.

FXall's platform is entirely electronic, and according to Citigroup Investment Research, it holds the No. 1 spot among E-trading platforms with nearly 30% of the market. Despite this dominance, FXall represents only about 2% of the total $4 trillion of foreign-exchange volume traded daily around the world. In addition to its primary focus on currency trading, the platform offers over-the-counter trading of gold and silver and access to bank deposits.

The company's client portfolio is impressive; it includes more than half of the S&P Global 100, more than 100 Fortune 500 companies, six of the top 10 hedge funds and all 25 of the top banks across the foreign-exchange sector. Besides its headquarters in New York, the firm has offices in Boston, Washington, London, Zurich, Tokyo, Singapore, Hong Kong, Mumbai and Sydney. It does business in more than 65 countries, with a very diverse geographic footprint, as more than half of FXall's trading volume originates outside the U.S.

The origin of the company's platform was a result of a partnership of several global investment banks, including JPMorgan (JPM), Bank of America (BAC), Credit Suisse (CS) and Goldman Sachs (GS). Additionally, the private-equity firm Technology Crossover Ventures took a significant stake in the company and now owns about 28% of the business.

Philip Weisberg is chief executive of FXall, and he has been at the helm since its inception in 2000. He previously spent more than a decade with JPMorgan before joining LabMorgan, its e-finance incubator, which identifies and cultivates ideas in the financial services industry.

Despite its origination with the banking industry, the firm is independent and doesn't have any conflicts of interest with any of the big investment banks. For this reason, it can provide an efficient and transparent trading process to more than 1,000 clients, including asset managers, corporate treasurers, hedge funds, active traders and market makers.

Voice trading still represents a third of the volume, but electronic trading continues to gain market share, and FXall is well positioned to benefit from the transition. The global foreign-exchange market is the largest and fastest-growing trading market in the world, and lower processing costs, greater access to liquidity, and enhanced price transparency is driving electronic volumes.

Three-fourths of the firm's revenue is generated by transaction fees charged to clients on basis of the value of the trades executed across the platform. Fees are tiered and are lower for high-volume clients. The remaining quarter of FXall's revenue is variable and includes fees for premium trade summary reports, licensing fees, messaging for transaction settlement and other ancillary services.

Average daily trading volume has been growing at the excellent rate of 40% and 34% respectively over the last two years, to $82.1 billion in 2011. Shares went public earlier this year at $12 and are up just over 12% so far on improved foreign-exchange trading volume.

FX Daily

Despite the run-up, the outlook remains rosy for both the firm and a segment of the markets that's growing faster than either the equity and bond sectors. Look for any 10% pullback over the summer to grab FX Alliance shares and participate in the currency market without having to know a "pip" from a pop.

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