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Digital stock chartGAIN Capital is a brokerage service that focuses on foreign currency (forex). This brokerage runs several products and downstream companies that market its services to the public. While you may not actually know that you’re working with GAIN Capital, if you trade in the forex market there’s a good chance you’ve run across them. A financial advisor can help you pick a currency trading platform that fits you’re goals, budget and risk profile.

Services & Features: What Does GAIN Capital Offer?

The foreign currency (forex) market is a complicated place. By its nature this asset class crosses borders, which means that brokers operating in forex have to deal with different regulatory environments all around the world.

At the same time, few asset classes live as close to the surface of the consumer economy as forex does. While securities like stocks and bonds filter consumer activity through the heavy lens of investor behavior, foreign currency markets generally reflect the current state of actual consumer activity.

While investor behavior does drive the price of foreign currencies, ultimately the investor market for foreign currency is literally the global market for foreign currency. When you buy a product made in China, someone up the supply chain had to convert dollars into renminbi at the listed exchange rate. When General Motors sells a car in France, an auto dealer in has to convert euros into dollars in order to pay for that vehicle. When you simply take a vacation and convert a few hundred dollars into British pounds, someone needs to actually make that exchange in order to give you your money. That money moves around on the forex market.

This makes forex one of the most volatile markets in the world. Prices between currency pairs are constantly changing to reflect the activity of consumers and companies as they do business. Brokers that work in this space play a critical role in helping to capitalize those entities and the banks that they rely on. By trading currencies, brokers help money move around the world to ensure that there is liquidity where it’s needed.

When someone trades euros for dollars, he is literally sending a batch of dollars in exchange for an amount of euros. This then makes those dollars available in a European market, ready for anyone from a tourist to a car dealership who might need to buy something in America.

GAIN Capital is one of the larger forex brokers in the world and operates in more than 180 different countries. From an investor-facing perspective it operates several trading platforms which all access its brokerage services. Some of the most common include FOREX.com, CITYINDEX and Daniels Trading.

While GAIN Capital is best known as a currency broker, this firm does provide a wide spectrum of assets.

Like many brokers, GAIN Capital serves multiple roles. Much of its business is routed through its investor-facing portals like FOREX.com. The firm also accepts investments directly. This is a service generally reserved for institutional investment firms or other exceptionally large clients, but qualifying entities can log into their accounts directly through the brokerage’s website rather than through its trading platforms.

Finally, GAIN Capital allows third parties to access its services. Financial companies that want to set up trading platforms, but which may not operate a brokerage themselves, can link their trading platforms to GAIN Capital’s systems. This is a common arrangement, and in cases like this the firm will accept the trading instructions from the third party software and process it as normal.

Fees: How Much Does GAIN Capital Cost?

There are usually four types of fees to look out for when choosing a trading platform. You should look out for these when evaluating any investment or trading service:

  • Trading Fees – Any fixed charge attached to each trade that you make. This can come in the form of a flat fee or what’s known as the “spread.” This is when your broker charges you based on the difference, if any, between the buying and the selling price of an asset.
  • Trading Commissions – This is when a broker will charge you a percentage based on the volume or value of each trade.
  • Inactivity Fees – Any fees that the broker charges you for not trading, such as for keeping money in a brokerage account.
  • Non-Trading/Other Fees – Any form of fee for trading on this platform not covered above. For example, a brokerage might charge you for making deposits into your brokerage account, taking money out of it or signing up for additional services.

As a firm that specializes in foreign currency, GAIN Capital’s business model depends mainly on commissions that it charges on the bid-ask spread in a currency pair. In currency the bid-ask spread is expressed as pips, reflecting not only the small margins that currency pairs tend to offer but also the lack of any standard notation. In this market every asset uses a different pair of currencies, so “pips” is the only standard way of discussing the price of every asset. So, for example, if the currency pair EUR/USD was trading at 1.0000 to sell and 1.0005 to buy, the spread would be 5 pips. GAIN Capital would charge its commission based on this spread.

However, while its pricing generally relies on this commission model, GAIN Capital does not have a standard price across the board. Instead this firm relies on different pricing models based on the specific account and trading platform in question.

What Is a Pip?

Currency exchange monitor

When trading currency, it is essential to understand the concept of “pips.” Pips are a shorthand used by traders in several different financial sectors. A single pip refers to the smallest amount by which prices of an asset can change, regardless of that asset’s class or market. In foreign currency markets, prices are almost always expressed out to four decimal places. This means that a single pip will mean 0.0001 (1/100 of 1%) in whatever unit of currency is being traded. This can also be referred to as one basis point.

Note, however, that a pip does not always have to mean 0.0001. A pip is defined as the smallest unit of change for a given asset regardless of how that unit is measured. If, for some reason, a particular asset were measured in tenths of a cent, then a pip would mean 0.1.

Effectiveness: How Well Does GAIN capital Work?

GAIN Capital is one of the largest and most well-known foreign currency brokerages in the world.

This firm is relied on by both institutional and individual investors to process their foreign currency claims, and from that perspective it works extremely well. It has an excellent reputation for security and reliability, and is known in the market as a brokerage that processes trades reliably and well. Investors get little drift (the difference between the price at which a transaction is ordered and the price at which is it completed) and complex orders like stop limits are executed quickly.

It is difficult to assess the investor experience of GAIN Capital directly, of course. The truth is that most of an investor’s relationship with a brokerage will come through their trading screen. As in any digital product, user interface and design plays a predominant role in the user experience. However, as the back-end financial firm which actually produces the transactions for many forex trading platforms, GAIN Capital works extremely well.

The Bottom Line

Digital currency price chartGAIN Capital is a brokerage that specializes in foreign currencies, although it offers a wide range of additional assets as well. This is one of the largest currency brokers in the world, and its services underlie many of the trading platforms that investors rely on. Investors using its service can trade many major asset classes, including equities, bonds, commodities, CFDs, futures and options in addition to currencies. As a result it may be a good choice for beginning currency investors.

Tips for Investing

  • Make sure your investment assets fit your risk profile. SmartAsset’s free, easy-to-use asset allocation calculator will help align your assets with your risk tolerance.
  • Should you dip your toes into forex? It’s a big risk, but the thrill can be equally real. Consider working with a financial advisor in deciding whether to expand into currency trading. Finding an advisor doesn’t have to be hard. With SmartAsset’s matching tool you can find a financial advisor quickly near you to help figure out exactly how to structure your portfolio to embrace that kind of speculative asset class. If you’re ready, get started now.

Photo credit: ©iStock.com/primeimages, ©iStock.com/matejmo, ©iStock.com/Matthew71

Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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