Forex managed accounts offers ‘investors‘ a means to trade the currency markets online without having to actually trade themselves. If you notice, we use the term ‘investor‘ as opposed to a ‘trader‘. The reason is because in a forex managed account, although you are required to create a trading account, your primary role is that of an investor.
In that, you are not involved in trading but are rather confined to the role of an investor.
To learn more about forex managed accounts and how to go about creating one, continue reading this article.
What is a Forex Managed Account?
A forex managed account is a feature that is available to investors who want to trade the forex markets without actually trading themselves. When using a forex managed account, you are ‘legally’ giving the authority to a fund manager or a money manager to trade with your funds. The term ‘Limited Power of Attorney’ is almost synonymous with a managed forex account for this reason.
Forex managed accounts offers investors an option to participate from the currency markets without having to trade them directly by themselves. Instead, by making use of the Limited Power of Attorney, investors legally authorize a fund manager to trade on their behalf.
Who is a Forex Fund Manager or a Money Manager
A forex fund manager is basically the trader or a company that employs the traders to trade on your behalf. In most instances, investors who use a forex managed account usually delegate their account either to an individual trader or to a professionally managed forex managed accounts company.
Forex Fund Manager – Individual V.s Company
The choice of what type of a forex fund manager you want to use is a personal choice. In many cases, an investor can opt for an individual forex money manager. It could be that the investor has noticed the returns offered by that particular trader.
In some rare cases, trusting your funds with an individual forex money manager can be risky. An individual manages your funds. Therefore, factors like emotions and sentiments will play a role. To address this, the forex fund manager should have vast experience as a fund manager.
Most individual forex fund managers come with experience. Therefore, check if the forex fund manager can provide verifiable proof of their experience in managing money. The advantage of using an individual forex fund manager is their low cost.
There are some costs involved when using a forex managed account too. We cover this in the following sections of the article.
Using a professional forex managed accounts company brings with it a higher level of management. Because your funds are no longer in the hands of just one trader but rather a couple of traders who obviously have a trade supervisor, your funds are better managed. The only downside with using a forex managed accounts company is that the costs may be slightly higher.
So if you are confused about choosing an individual or a company to managed your forex account weigh the pros and cons. Usually it boils down to risk/safety of funds and transparency. If you are investing large amounts, then opting for a forex managed accounts company is your best option.
The reason is because you can request audits of your trades and also be sure that your funds are in good hands. But this however comes at a premium.
Costs involved in a forex managed account
There are costs since you are allowing a professional trader(s) to trade forex on your behalf. Most forex managed accounts, be it an individual or a company usually charge a management fee and a performance fee.
The performance fee is also referred to as a High-Watermark fee.
What is High Watermark?
To ensure that the forex fund manager does not get paid for poor performance, most forex fund managers set up a minimum watermark level. This infers that if your managed forex fund reaches for example $10,000 during the first month, then the forex fund manager charges you a 20% performance fee.
During the second month, if the fund makes only $5000, then there is no performance fee to pay. In the third month, if your fund rises to $15000, then you are pay a performance fee of $10,000. This becomes the new watermark.
An important component of the watermark is the trading strategy. Therefore, investors should check upfront and inquire about the trading style that is used.
How to open a forex managed account?
When prospecting for a forex managed accounts company, here are some key points to bear in mind:
- Research about the company that will manage your money. Verify that the forex managed account company is legally operational. You can ask for additional licenses if need be.
- Background checks should include calling the company directly. You should also checking on the management and follow up on the individuals. Use a professional networking site such as LinkedIn and also on social media
- Analyze historical statements to gauge how the company is been managing client’s funds. Historical data should be used to only gauge the past performance of the company. You cannot use this information as a deciding factor to open a managed forex account.
- Learn how much leverage the forex managed company uses. Ask for details on their risk management strategies. It is also good practice to view the types of financial instruments a forex managed company will invest int. And don’t forget to ask why!
- Ask how you can open a managed account. Ideally it should be through a Limited Power of Attorney where you have the control over your funds. You should also keep track of the performance fee. This helps you to know about any upfront fees.
- Ask for audits and preferably from a third party auditing service. To open a forex managed account, you should open a currency trading account with a forex broker. In many cases this must be the same forex broker that your forex fund manager trades with.
- Opening a forex managed account is easy. After documents verification, you need to sign a limited power of attorney. This allows you to allocate funds to the fund manager.
Forex Managed Account – Conclusion
To conclude, a forex managed account is a simpler way out for investors. This service allows you invest money if you lack the time or the knowledge or resources. The fund manager is the one responsible for managing your capital.
Even an active investor in other financial assets such as mutual funds, stocks etc can use a managed account services. Investing in a forex managed accounts can be a great way to diversify your investment portfolio. Forex managed accounts come at a premium with average investments ranging from $5000 and above.
First timers who are uncomfortable with investing larger capital can always opt for a forex managed account. This enables them to invest the bare minimum and monitor their accounts. If the returns prove to be profitable for you, you could always increase your investments.