IntercontinentalExchange Inc (ICE), Gain Capital Holdings Inc (GCAP): Should You Buy Into the Forex Brokerage Sector?

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In its latest fiscal year, Intercontinental posted marginal overall growth, with increases in revenues and operating income of 2.7% and 4.3%, respectively, versus the prior year. While reduced price volatility of financial assets lowered demand for protective derivative contracts, the company enjoyed large volume gains in its energy and power contracts. In addition, the company’s dominance in popular energy and agriculture products allowed it to raise contract prices, leading to the maintenance of a strong operating margin. The future also looks bright for the company, as the ownership of NYSE Euronext (NYSE:NYX)’s Liffe derivatives unit would greatly expand IntercontinentalExchange Inc (NYSE:ICE)’s market share in the European market.

The foreign exchange brokerages should be positioned for further growth once global central banks reduce the scale of their monetary actions and asset price volatility returns to the markets. However, competition with large banks will also likely intensify, hurting their overall profitability. Since exchanges earn fees on both sides of financial transactions, they provide a better investment story. As such, Intercontinental is one company to own.

Robert Hanley owns shares of Gain Capital Holdings Inc (NYSE:GCAP). The Motley Fool has no position in any of the stocks mentioned. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Should You Buy Into the Forex Brokerage Sector? originally appeared on and is written by Robert Hanley.

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