As Dollar Tanks, Forex Investment Rises

Lately, it seems like being a currency trader should be the easiest job in the world. Just bet long against the U.S. dollar, and collect a tidy profit versus virtually any other currency around.

Of course, all trading decisions look easy in hindsight. In reality, retail foreign exchange (forex) traders stand a pretty high chance of losing their shirts. Nonetheless, it seems to be an attractive area for investors, judging by recent funding announcements and the planned IPO of forex trading platform Gain Capital.

Another venture-backed company in the space, Currensee, came out of beta today. The company, formerly known as Tradual, runs a community site for forex traders to track their relative performance. I spoke with CEO Dave Lemont about the space, and where his company fits in.

Lemont estimates that today there are 2.5 to 3 million retail forex traders worldwide, and that the number is growing by about 20% a year, with particularly fast growth in developing countries. A hole he sees in the space, however, is a lack of data for retail investors about forex trade volumes. Unlike for stocks, where anyone can see how many shares trade each day, he says, there isn’t a central authority to say how many say, dollars were traded for yen in a particular day. Looking at aggregate patterns, Lemont says, has also been instructuive.

“Historically, when the community has traded at high volumes at certain price points, those served as support and resistance levels,” he says. ‘But we’ve also seen that when almost everyone is in a certain position, it may be better to go against the crowd.

Members join by linking their trading accounts, and ones “friends” on the site can see trades, including entry points, stop-loss orders, and track record for profitable and unprofitable trades. What isn’t shown is the amount wagered. The site is free to traders, but makes money through commissions it receives from brokerages when they create a new account.

Currensee, has raised about $6 million since last year from Northbridge Venture Partners.

But while forex may growing worldwide, it’s not a growth story for all players in the field. Gain Capital, currently in registration for an IPO, had revenue of $77m in the first six months of 2009, a drop from the $88.7m collected in the first six months of 2008. Gain says the revenue decline is primarily due to “overall economic conditions” and termination of services in China.