With financial markets across the world experiencing record losses and the Real Estate market in shambles, many investors are looking for alternate asset classes to invest their money in. Spot Forex (the exchange of foreign currency) has become a very attractive alternative. The market is open twenty four hours a day, is VERY liquid with almost $3 trillion traded daily, allows for much higher leverage than other markets (100:1 or more), and is possible to make money in no matter what direction it moves. However, it also has its risks. The higher leverage may mean the Forex trader can make money faster but it also means that same trader can lose money faster. The market is also relatively unregulated making it a haven for thousands of Forex scammers looking to make a quick buck off the unsuspecting Forex beginner. The Forex managed account is one option the Forex investor can turn to as a way to limit the risk in Forex.
So, how does a Forex Managed Account work?
1) The investor opens a Forex account at a Forex brokerage house of his/her choice. A Forex broker facilitates the Forex transactions between buyers and sellers. There are different types of brokers and it would be wise of the potential Forex investor to research the different types of Forex brokers and choose the one that best fits his/her investment objectives. The broker account that the investor opens is owned and controlled 100% by the investor him/herself. All investor funds deposited into that account are held by the Forex brokerage where the account was established.
2) The Investor then finds an experienced, honest, Forex Account Manager and authorizes that company (via a Limited Power of Attorney) to make trades on the investor's Forex account. The Forex broker typically must approve the Limited Power of Attorney .This Limited Power of Attorney can be revoked at anytime and trading stopped immediately.
3)The investor authorizes the Forex broker to pay a percentage (performance fee) of new profits on investor's account to the Forex Account Manager at the end of each month as compensation.New profits are profits made above the previous high watermark of the account. Some Account Managers, in rare cases, also charge a yearly management fee which is usually a percentage of the total balance of the account.
4) The investor is given total access to view and monitor his/her account. Remember that the Forex account is owned solely by the investor. With legitimate Forex Managed Accounts, the Account Manager should NEVER be given access beyond the role of executing trades (trading) on the investor account.
5) It is the investor's responsibility to determine his/her own risk appetite and what he/she considers "max drawdown". When researching Account Managers, it would be wise of the Investor to ask the Account Manager what they expect maximum drawdown to be. However, it is ultimately up to the investor to determine at what point he/she wants to "pull the plug". At anytime, the investor can stop all trading on the account and fire the Account Manager.
6) The Client may withdraw profits at anytime. In fact, it is important to take out some profits on a regular basis. This point should be discussed with the Forex Account Manager. Some Forex Trading System's require that funds are only withdrawn at certain times of day or at certain points in the week so as not to adversely affect trading.