Managed Forex Accounts

Managed forex accounts present an excellent opportunity for investors to enter the foreign exchange market without having first developed an innate understanding of the market itself. A very popular product, it is certain that you will only hear the industry grow in popularity, and with the entire industry, the managed forex trading segment will grow, as well.

So What is a Managed Forex Account?
A managed forex account is in many ways like a mutual fund, except that the account remains yours, not the property of another person or entity.

To open a managed forex account, you would start an account just as you would if you were to trade your own money. It would require you to fill out forms and provide relevant tax information. Funds would have to be added, and the account would be essentially just another trading account—that is, until you link up with a manager.

The active-manager is responsible to managing your investment, and placing the best trades possible. The manager does not have access to your account, but instead places trades through a proxy. This proxy account is connected to the accounts of all his or her clients, and automatically places trades in their account that mimic the trades made in the active manager’s account.

For example: If the active manager were to identify a trade on the EURUSD on which he or she wished to stake 2% of the account balance, the active manager would place the trade and immediately, all of his clients would see 2% of their account balance invested in that particular trade. It is as if the manager has access to a panel of switches that control all the finer aspects of the individual accounts, but not the individual accounts themselves.

So, while the manager can place trades, they cannot raid your account, nor would it be possible for them to withdraw money on your behalf. In fact, they can’t do any of that at all.

Paying for Managed Accounts
As a general rule of thumb, active management usually costs 2% per year plus 25% of the earnings the trader makes. Thus, if you were to invest $100,000 into a managed forex account, you would pay automatically $2,000 per year for the trader to manage your account, pending the trader doesn’t lose money.

If the trader were to pocket $50,000 in earnings on your account, he would receive $12,500 while you would receive $37,500. In detail, your account would grow from $100,000 to $150,000. The trader would receive 2% of the account balance automatically, or $3,000. On top of that figure, he or she would also take an additional $12,500 (25% of the total performance.) You would be left with a very substantial return of $134,500 without any trading of your own.

Of course, there are some managers who charge different rate schedules. A popular fee schedule is a performance only rate, where the manager is paid only if he or she beats a certain threshold, often 10% per year.

Using the same example as above, an active manager with a performance incentive of 25% for gains beating the 10% threshold would receive 25% of $40,000, or $10,000. The investor would be left with $140,000.

Paying the Manager
In less formal circles, the forex broker can act as an intermediary, allowing the broker access to his earnings at the end of the year, month, or quarter, as defined by the contract. Generally, active managers require minimum investments which often extend into the five figures.

Managers do not require licensing, and in the United States they can work only for a certain number of clients before needing licensure. Thus, many opt to actively-manage the accounts of only a few clients, and keep their lists to only wealthy investors. It is not uncommon, by any stretch, to see account minimums of $100,000 or even $1 million.

There have been several notable scams in the managed forex industry, though there are also a great number of real, tangible investors working for their clients. It would be wise to work only with someone from the same country (for legal concerns) and to seek first those with long, verifiable track records.

Since there is no immediate need for a license, virtually anyone can claim to be a professional. However, not everyone can achieve market-beating returns, and do so consistently.

Related Information