Managed Forex Accounts – How to Receive Consistent Long Term Profits
July 29th, 2010
Investing in any market or asset class is a serious business and requires serious consideration and research. Below are a few very important points you need to take into consideration when choosing where to invest in any managed forex fund.
The Company You Deal With
The Company you invest with is perhaps the most critical factor. The Company needs to be able to provide a good, honest and responsive degree of service. They should be able to give you a point of contact and be able to address your questions and concerns swiftly and transparently.
What is The Minimum Starting Balance?
What is the companies minimum balance requirement? Are you realistically able to find the minimum starting balance affordably and never have to borrow funds to do it?Remember that any funds for forex tradingshould be understood as ”risk capital” so that any losses of said funds does not adversely effect the economic well being of you or your family. That’s only risk what you areprepared to lose. If you are not prepared to lose these funds, leave them in the bank.
Past Performance Results
Perhaps the very first thing you are likely to look at when considering a managed forex account is their results. People invariably are astounded by big numbers but don’t let this fact alone blind you to the down side of impressive looking statistics. Much like physics, where reactions are equal and opposite so are profits. Big profits equal big risks. Look for consistent and sustainable profits, don’t base your assessment on 2-3 months worth of performance. The market goes through cycles, sometimes these cycles can last sixth months and deliver unusually high returns. Because of this to be realistic you really should look at 2 years worth of results. If a trader can only offer you 6 monthsworth of history it probably isn’t enough.
The Broker You Choose
Which broker you choose can be critical in determining whether or not your managed forex experience is a profitable and pleasant experience of a complete nightmare. From experience I can say that which broker you choose needs to be uppermost in your considerations. Do your homework on the broker and make certain they can deliver competitive spreads and commissions.
Fees and Commissions Payable
Before you invest you also must ensure you knowexactly what the costs are in terms of commissions and fees you have to pay. Typically you will be asked to pay a commission consisting of a percentage of profits gained, anywhere from 15-50 percent of new profits. On top of this percentage it is possible you may have to pay an annual fee based on a percentage of the balance as well as a fee based on turnover or volume. Make sure you have a thorough understanding of what the fees are, how they are applied and whether or not they are based on rewarding actual performance or simply based on the volume of trading. Obviously you want to make certain that the money manager has some incentive for good performance rather than for simply making large numbers of trades, otherwise known in the market as “churning”. I would suggest a performance fee of up to 30% based on achieving new profit highs is reasonable.
Be sure You Have Full Control of Your Funds
Make sure that your provider gives you absolute control of your own funds at all time. The account should be opened in your own name, or that of your chosen company name. All monies should be sent directly to the account of a registered and regulated brokerage house rather than the provider themselves. There should be no exception this. Any bona fide managed forex provider will ensure that you are provided with an “LPOA” or “Limited Power of Attorney” to sign that allows them to only execute trades on the account and nothing more.
How Much Capital Under Management Do They Have?
By knowing exactly how much a particular money manager has in trade it gives you a fairly reasonable indication whether they have a well established business or not. If a fund manager has over $50 million in trade it is a good indication that they have been able to establish a level of trust with some astute investors. Of course this in itself gives no absolute guarantees it does indicate that the company is a serious investment company.
Trading Strategy And Money Management
Make certain that you’re well versed in the methodology used by your forex managed account provider and ensure that you are comfortable with the way they trade and that it is compatible with your risk profile. Only you know what your risk tolerance is, so only you can answer the question of what constitutes too many losses or too much draw down.