Types of Managed Forex Account
If you want to trade in financial markets, one of the first decisions that you will need to make is to choose between self-trading and having a managed account. There are several types of managed account, and they vary in terms of fees and the level of management.
A managed forex account offers the flexibility to take a hands-off approach and leave the market-watching to someone else.
Basically speaking, with a managed account, the manager will make trading decisions on behalf of the client. The level of involvement and the trading signals which are operated vary greatly depending on the type of managed account.
This is in contrast to a regular broker account in which case the broker acts on behalf of the clients wishes, and executes trade orders accordingly.
Benefits of a Managed Account
As with other online trading platforms which assist novice, intermediate and advanced investors, managed on-line accounts are a relatively easy way for investors to gain access to the currency markets with less risk than attempting to develop an independent forex investment strategy.
All financial markets are highly complex and are constantly changing – global currency markets are no exception. Even professional traders need to spend many hours digesting news, learning strategies and monitoring the market to keep ahead of the game ( more ).
Monitoring signals and trends is especially critical of the foreign exchange market which is often extremely volatile and is actively open and trading 24 hours a day, five days a week.
Due to the nature of forex it can be too time-consuming and taxing for the average private investor to keep up with this confusing, fast paced environment. In this instance, a managed forex account offers the flexibility to take a hands-off approach and leave the market-watching to someone else. The primary advantages of a managed account are as follows:
With an initial minimum required investment, a managed account can be a good addition to a well-balanced portfolio. While managed accounts tend to require higher minimum investments and higher running costs than self-managed accounts, the additional fees are typically re-couped in terms of higher risk adjusted returns. A winning forex trading strategy can add an element of diversity to your portfolio and hedge against other assets.
For investors with smaller portfolios an alternative to a fully managed account is to utilize copy trading or use a PAMM account.
Both PAMM and copy trading allow assigning a small pot of capital to follow the strategy of one or more traders. Copy trading can offer similar benefits to a professionally managed account but at a much lower cost. Screening potential copy traders and checking their long term track record is critical though as most online services will not do this for you .
A managed account also brings you the expertise of not just one trader, but a network of traders, researchers and forecasters that have skills in different aspects of foreign exchange.
That’s why the best reason to start with this option is that you can take advantage of their skills and follow their proven trading strategies. This can be worthwhile even if you eventually would like to trade the markets yourself.
A diversified investing method can bring you a higher rate of return over that of an individual focusing on one or two currencies whilst reducing overall risk.
Doing your Research
When choosing a firm to manage your account, you should view data on their past successes and pay careful attention to periods of negative performance when losses exceeded 20%. The firm should demonstrate a proven track record of gains vs. losses over a long period – ideally at least 2 years.
A good manager will always provide reports, tools and tips to help you to understand the market, track your success and gain the skills and confidence needed to perhaps enable you to develop your own forex trading strategy.
I will recommend this for small investors also to institutional clients
Yes It is important to check historical records. It sounds counter intuitive to trust a trader that has had a lengthy period of drawdown. People will think that this means the trader is no good. However, it is the fact that they overcome the drawdown and continue to make profits in the long term that is important. Even the top traders experience losses.