Gain Capital, a start-up online foreign exchange system, has had its first $100 million trading day.
The six-week-old firm, which achieved that milestone on June 22, is targeting small fund managers who make trades of $100,000 to $10 million, a small piece of the $1.5 trillion-a-day currency market. Initially Gain is focusing on the four major currency pairs: dollar/euro, British pound/dollar, dollar/Swiss franc, and dollar/yen.
"We are competing against the banks, so we don't want the big clients," said Mark Galant, Gain's chief executive officer and co-founder.
He did not disclose the number of registered investors on the site, but said many of them trade 20 to 30 times a day. Many, he said, are day traders who trade currencies after the stock market closes.
The Warren, N.J.-based company is getting a toehold in a market that is already crowded with banks, including Citibank, Deutsche Bank, HSBC, and Chase Manhattan, which are targeting small investors. Mr. Galant said his firm is "faster and more functional than the banks."
The system, which opened on May 31, can process a trade in less than a second, he said. The site displays a fund manager's personal portfolio by posting real-time updates of trades, technical analysis, charting tools, and daily market commentary from Gain's traders.
"We offer for free tools that banks have spent millions of dollars to implement," Mr. Galant said.
He said Gain also posts foreign exchange quotes from the top 60 banks to show that its rates are better. Mr. Galant said the company almost always posts better rates because of its tighter spreads, which he said are 1/20 that of most major banks. He said the company consistently offers better rates on Swiss franc and British pound trades.
The company's anonymous trading platform eliminates the chance that a salesperson or trader will shade pricing based on knowledge of an investor's portfolio, he said.
Gain generates some revenue from the interest earned on its custodial accounts, which are all at Citibank. Investors wire money to their accounts at the bank, which they draw upon to fund trades. The accounts pay 4% to 5% interest to investors, and an undisclosed amount to Gain.
Mr. Galant, 39, has 20 years of foreign exchange experience, most recently as vice chairman of FNX Ltd., a trading and risk management software company in Wayne, Pa. Before joining FNX in 1994, he was head of foreign exchange options trading at Credit Suisse First Boston.
With banks already targeting smaller foreign exchange investors, Gain Capital may have a tough time gaining a following, said Larry Tabb, group director for the securities investment practice at Tower Group in Needham, Mass. "There is no need to deal with a no-name institution," he said.
Newcomers are at a disadvantage compared to banks because they have to staff a trading floor and lay some of the same groundwork that a bank already has, he said.