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What is managed forex account ?

By admin on July 1st, 2010

A managed trading account allows a potential investor who does not otherwise have the necessary time or skills to engage in the potentially lucrative foreign exchange market. A managed forex account may also be ideal for the investor who prefers to have his trading account to be managed by a group of professionals. In keeping with the sound philosophy of diversified investments it’s well documented that there’s no true correlation between the forex and equities markets. It therefore makes sense to allocate a portion of your investment capital to a forex managed account.

A managed forex account is basically where you allocate the task of trading your brokerage account to a money manager. The money manager or trader is given the job of generating money on the account in exchange for a percentage of the profits in the form of a performance fee. The exact performance fee varies but is usually in the range of 20 to 50% of profits, plus there might be an annual account fee in the realm of 1 to 2% of the remaining balance.

Take into account that you have to be realistic about how much capital you allocate to forex trading. It is easy to be seduced by the thought of double digit returns per month and invest everything you’ve got in it. It is fair to suggest that of your total capital a fair percentage to classify as risk capital is 10 to 25%. Don’t be greedy and bet the farm, begin with the minimum capital requirement and if it proves to be a profitable and well run managed account program invest what you could reasonably afford.

The risks of trading forex can be high but they are also controllable given that strict rules of money management are effectively applied. One benefit to using a regulated broker is that they’ll provide excellent trading tools to be able to risk management techniques in place. Be aware of course that currency exchange dealing is always purely speculative and any capital invested should be what is classified “risk capital”.

Legitimate managed forex accounts will almost always have you invest your funds directly with a registered broker in a regulated jurisdiction. This arrangement gives you the best protection from potential scams, and also gives you significant control over your funds. Usually with trading accounts over a certain size your funds never actually leave your bank account until at the end of the trading month your account is credited any profits less the fees payable to the broker and the money manager. This gives you the ultimate protection as the funds are kept with a government guaranteed bank. You will also earn interest on the unused funds. This is definitely worth looking into if you have an account of over $1m.

The returns on this type of forex investment vary greatly. All you really have to go on is the trading history of the company involved. Since a company was claiming good returns in the past, does not mean these returns can be guaranteed into the future. Your investment returns will depend on the prevailing market conditions and the ability of the money manager to best adapt to these conditions. Most reputable money managers aim for a relatively conservative figure of between 1 to 10%, but more importantly aim for consistent returns and low draw downs, or consecutive trading losses that eat into your trading capital.

Invariably any reputable managed forex provider will give you an LPOA or Limited Power of Attorney Form to sign. This is just a form that allows the money manager access to trade your account with a broker, whilst not actually allowing them any access to withdrawal funds. This gives you significant protection from any potential abuse. Be extremely wary if this facility is not offered to you as an investor.

Supernsetips.com is going to launch many plans in future for Forex trading, commodities and currency trading also.

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