Foreign Exchange Managed Accounts: Tips For Evading The Pitfalls
If you don’t have the skills or enough time to actively trade you may still benefit from the potentially lucrative foreign exchange market. A forex managed account will give you access to be able to trade forex with no need to watch the markets around the clock. An established money manager can trade your account and help then add more diversity to your investment portfolio, without the added exposure of adding to investments that already may have a lot of exposure to the equities markets.
Managed forex is the name applied to accounts which are traded on your behalf by a seasoned professional trader, usually termed as the money manager. The money manager is responsible for the trading the accounts of many account holders and their primary focus is to trade the accounts according to a particular rule set, and applying risk management and money management in compliance with that rule set.
Consider that you should be realistic about the amount of capital you allocate to fx trading. It’s easy to be seduced by the thought of double digit returns monthly and invest all you have in it. It’s fair to suggest that of your total capital a reasonable percentage to classify as risk capital is 10 to 25%. Do not be greedy and bet the farm, begin with the minimum capital requirement and if it turns out to be a profitable and well run managed account program invest what you can reasonably afford.
Trading on margin with high leverage is classified as high risk, however, managed correctly the down side risk is manageable. By making use of strategically placed stop losses and strict money management it is possible to have effective risk management with forex. Of course a strict and professional level of trading discipline is needed if this risk management is to be effective, which is why it is smart to invest with a managed account program run by a team of professionals.
When setting up a forex managed account it is very a smart idea to keep charge of your funds at every step of the process. By setting up an account directly with a registered broker in a regulated environment you have significantly reduced the risk of any funds being misappropriated by a dishonest company or money manager.
The combination of high leverage and virtually unlimited liquidity is something unique to the forex market. This along with the fact that the market is open 24 hours 5 days per week means that positions can be liquidated virtually anytime.
Invariably any reputable managed forex provider provides you with an LPOA or Limited Power of Attorney Form to sign. This is simply a form which allows the money manager access to trade your account with a broker, whilst not actually allowing them any access to withdrawal funds. This provides you significant protection from any potential abuse. Be extremely wary if this facility is not offered to you as an investor.