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Forex Managed Accounts – What Are They?

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If you want a hands free way to make money from the foreign exchange or forex trading market, a forex managed account can seem like a great opportunity. Foreign exchange trading can be very lucrative but it can also be very risky and it takes time to learn your way around.

With a managed forex account you have someone else trade for you on commission, saving you all the time of learning the ropes and also, hopefully, reducing the risk because your accounts will be handled by a skilled trader.

But is it really that simple, or is there a risk that you will be scammed?

The first thing that you should know is that there are two main types of forex managed account. They work in very different ways and offer a different service. It is important to choose the one that is right for you.

Standard Forex Managed Accounts

In a standard account, you retain control of your funds. You sign up with a broker and the money is always held in your name. The trader from the management company simply has access in order to trade. You can always log in to see how things are going, and you can withdraw the funds whenever you want, unless you signed a contract for a specific time period. In summary, it remains your money all of the time.

The downside of a standard account is that you will probably find there is a fairly high minimum investment. You are not going to be able to open a $ 100 micro forex account and have someone trade it for you for a few cents. It would not be worth their time at that level.

You should also be aware that even with an experienced trader working for you, you could lose money. There are no guarantees with speculative financial trading. Every trader makes some losing trades and may go through a period of losses from time to time. All you can be sure of is that you could probably not do better yourself.

In some cases the management company will ask you to sign up with a specific broker. This may be because they are receiving commission from the broker. In a sense that is not a problem because if they are earning something from the broker, they don’t need to charge you so much, so this can keep your costs down. On the other hand you need to be sure that they are not paid on a per trade basis because that could motivate them to make a lot of small trades, not necessarily the most profitable plan for you. Check this out with them before you sign up.

Pooled Forex Managed Accounts

The second type of forex managed account pools your money with funds from other investors. The managers hold the funds, trading with them and paying you a share of the declared profits. There is likely to be a lower minimum investment with this type of account, because they can centralize the funds and split the costs between all investors.

Obviously there is much more potential for fraud with this type of account. You have to entrust your funds to the managers and you rely entirely on their reports. Withdrawal requests must be made through them. You cannot gain access to the account yourself. So if they are fraudulent, they could simply keep your money and pay you a small amount each month calling it ‘profits’ until they decide to disappear.

Of course, there are some genuine pooled account managers but you will want to do your due diligence even more carefully than usual before handing over your money. Even the best run companies can suffer losses from time to time in something as risky as the forex market. When that happens, it is possible that a lot of clients will try to pull out their funds at the same time and that could cause financial collapse.

So you should always do your due diligence. Check where the company you are considering is registered, and be suspicious if its official address is not in one of the major nations with strong regulatory laws. Make sure that the company is a member of a regulatory body too, such as a national association of financial managers. Check out the regulatory body to see if they offer protection to clients if the company should fail, especially if the company will be holding your funds in a pooled forex managed account.

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Article Source:
http://EzineArticles.com/expert/Jeffry_Palmer/15260