The Common Types of Forex Managed Accounts
July 6th, 2009
Forex managed accounts present an attractive opportunity for people who want to make money from the lucrative currency trading markets but cannot or do not want to learn to trade for themselves. A managed account means you do not have to do the trading yourself. You are placing your fund to the management company to act for you.
There are two basic types of forex managed accounts.
1. Forex Standard Managed Accounts
A standard forex managed account will place your money into a brokerage account in your name, the manager will have control over it to trade with it. You will be able to see how much and how it is doing. No need to worry, it remains your money.
You have to accept the risk that even a skilled account manager cannot predict the markets 100% and you may have to take some losses. Still, if you are a beginner, he is likely to do better with your money than you would yourself, so it is just a question of whether he can do well enough to cover his fees and make you a good profit.
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2. Forex Pooled Accounts
Pooled accounts are more risky in that there is more possibility of fraud. You will have you rmoney placed into a pooled account, along with other traders, and managed by the broker. A percentage of the profits will be paid to you.
The theory behind pooled accounts is that profit and loss are even spread, creating a more predictable income gain. It is a concern that you may not know what is occurring, and a management company could be making small payments to fool you and stealing your funds.
Be wary of any forex account manager that guarantees a certain percentage of return. Forex trading comes with no guarantees, avoid any company that tells you otherwise.
There are well run pooled accounts, and these will carry with them the benefit of more stability than standard forex managed accounts. However, you should research a company offering pooled accounts even more thoroughly than usual before you decide to invest.
You should shop around even if you choose a standard account. Move on to the next if a manager insists that you sign up with a specific broker. That usually means that they get a commission on all your trades, so they have an incentive to make a lot of small trades even if that is not the most profitable strategy, simply to increase the broker’s earnings from the spread and their own commission rakeoff. This is not the way to find the best broker, even if their commission is worked in a different way. It is better to sign up with a company who will let you choose your own broker for forex managed accounts, even if they charge a slightly higher fee.
It would also be wise to look into automated forex trading software. Automated forex trading robots can take the emotion out of forex trading and increase your chance at success.