Managed Forex Accounts
The intricate, complex ways of the financial markets often confuse the beginning traders. The two types of analysis, the different kinds of data and their contradicting signals, the vast choice of brokers, various trading styles, the many voices that shout buy and sell all the time are very intimidating to those who do not possess the free time necessary to study this field and for staying up to date with the data releases, news, and analysis offered by the myriad media channels. At the same time, many are intrigued by the tales of the spectacular success in currency markets achieved by some astute traders who have made the necessary investments and reaped the benefits. To those who are in this predicament, the managed forex account is an exceptionally alluring offer.
A managed forex account allows a professional manager (or someone who claims to be so) to trade your funds on your behalf for a salary or a fixed share of the profits. Some trading software implement a special feature which allows ordinary clients to act like money managers and to trade for others while using the account structure of the broker. This is perhaps the safest way of using a manager as it eliminates the risk that the account manager will somehow run away with the funds. In many other cases, an enterprising person will setup a firm advertising his services to clients and will trade their funds on an independent basis. This second type of manager and the dangers created by associating with him is the subject of this article. See an example of this kind of managed account fraud.
Advantages with managed accounts
There are a number of advantages that a managed account offers to the trader. Experience that can only be gained through long term involvement in the markets is the only asset that can reduce or even negate the large risks associated with currency trading. Since beginner lacks such a background by definition, cooperating with a money manager may seem to be a good choice. Emotional difficulties involved in a trading cannot be tolerated by everyone, because each person has a different character and some are more prone to emotional extremes than others. Working with a money manager can also help you overcome this problem. Lack of sufficient time is another issue that discourages beginning traders from seriously committing to currency trading. A full-time account manager who can devote all his energies to trading for his clients is another positive aspect of this approach. Finally, many online traders who act as managers provide their past records to provide guidance on potential future returns. This knowledge may also help the beginner in choosing the best offer for himself.
Inherent dangers in these advantages
All of the above sound simple and appealing, but there are many inherent dangers that are disguised in that simple appeal.
By allowing the manager to trade on his or her behalf, the trader does indeed benefit from the accumulated experience of that person. But by doing so, he or she also loses the opportunity of learning in the markets by practice and study. In essence tying his fortune to that of the manager and thus depriving himself of the independence of mind and the analytical mentality that is a lifelong necessity for a trading career.
By handing over the emotional responsibilities associated with trading to the manager, the account owner condemns himself to perpetual slavery to the will and skill of the manager. Since he is unable to withstand the emotional pressures associated with trading, he can never evaluate the market independently and can never possess the necessary confidence to trust his own judgment. Ultimately, the manager will gain complete confidence over his trading decisions with unpredictable and potentially dangerous results.
Finally, while the past records of money managers can be a useful guide on their skills and prowess, it can also be misleading. First of all, in many cases it is not possible to evaluate these records due to the lack of sufficient background information. It is also true that the black box of performance data is insufficient for successfully evaluating the trading style and method of the manager in question. Finally, past performance is not a guide to future results: A past record of positive returns does not guarantee a similar performance in the future.
Our reommendation on managed accounts
In general, remaining in control of your account and trading to gain experience, by risking small amounts and using very low leverage is usually a better idea than handing over the control of your account to a stranger. It is difficult to predict how reliable a person is on the basis of the brief communication preceding the opening of an account or the signing of a contract. One will often need years of experience in order to feel safe about the character of such a partner, but in today’s dangerous environment, it is always possible that an unexpected misfortune that will erase his savings in a short time will remove the necessity altogether.
We do not claim that all managers are fraudsters, of course, but it is imperative that you perform the necessary background check. Ask for the required licenses and certifications before deciding on who you will entrust with the management of your wealth. In order to clarify the dangers involved, we will list a few of the scams and thefts perpetrated by self-professed managers in the past few years.
Managers and Scams
We believe that the discussion above already makes it possible to visualize the great “profit” potential of the scammer who acts in the cloak of a money manager. The nature of the relationship between the manager and his client ensures that a degree of blind trust must be maintained between the two parties, since it is not possible to check the actions of the manager constantly. Furthermore, by definition the manager needs a degree of independence about the way he uses the funds at his disposal, in order to be able to make profits and to manage the risk of the account successfully. In a healthy relationship, none of those would be considered an excessive requirement, however, when the manager’s main aim is mismanagement and misappropriations, the principles of the relationship become dangerous and harmful for the client. Visit our agencies to contact article to report any scams or fraudulent behavior by account managers.
Richard Matthews JR.
This gentleman founded the White Pines Trust Corporation in San Diego, California in July 2000. Talkative and persuasive, Mr. Matthews was an able marketer in spite of his lack of understanding in the currency trading business. Through various schemes, promises and profit pledges, he was able to pool more than $30 million of client deposits into his pockets, which he then used to acquire a 12-acre island off the coast of Belize.
During the most active period of the White Pines Trust Corporation and its associated Pinnacle Capital Fund, Mr. Matthews claimed an eight-year cumulative return of 591%, while guaranteeing that 75% of customer deposits are protected from loss each month by the use of various complicated but false methods, as eventually confessed by Mr. Matthews himself. Eventually, when he was deprived of his island and other luxurious possessions in order to repay his defrauded customers some $14.8 million, much of which was of course unreachable, having been spent squandered during the heyday of his once great career.
In proof that a successful life in forex fraud doesn’t require any stellar diploma from a university or years of proven experience. Russell Cline began his meteoric career as a house painter in Baker City, Oregon. Through a dashing, confident attitude to life in general and the audacity provided by his utter lack of knowledge or understanding of the forex market, he was able to lie persuasively by offering his clients risk-free managed accounts facilitated by his sophisticated trading techniques.
After netting around $27 million from 600 clients between 1998 and 2002, Mr. Cline declared that he had lost 97% of the funds, blaming his failure on faulty but honest trading errors. He requested additional funds to continue his rising career as a forex fund manager.
To cut a long story short, it was eventually discovered that he had spent all the client funds on private jets, real estate, boats, luxury cars and pornography. He was sentenced to 8 years and 1 month in prison and was ordered to pay $14.9 million in restitution to clients.
Joel N. Ward
We have discussed the interesting career of Joel N. Ward in the section on Forex HYIP, but to prove how worthless the words and the assumed character of these fraudsters can be, we will just repeat here that this convicted fraudster would sometimes appear on the most reputable financial news channels and newspapers to discuss the ethics of retail forex brokerage and how irrational the expectations of trades were.
Ultimately, you're free to do whatever you want with your own money. You are free to turn each penny to thousands of dollars but you're also free to turn your millions or thousands to pennies or nothing, if that is your desire. Our hope is to remind you here that the promises, pledges and claims of account managers are of little value unless they are corroborated by information from independent sources, such as regulatory bodies and government authorities. But even in those cases where the reliability and honesty of the manager is not in doubt it may still be a better idea to trade your funds yourself, so as to exercise maximum control over your future and the safety of your assets. But whatever you do, never act on the basis of extravagant promises made by someone recommended to you by friends or relatives. Be diligent and responsible about whom you entrust your assets to. Isn't the necessity of that obvious?
Visit our forex broker review page to read extensive analysis on the best, honest and fraud free forex brokers available to trade currencies with.
Like this article? Please share!
- Is Bitcoin a Ponzi Scheme or a Currency of the future?
- Binary Options Watchdogs on High Alert: Don't Mess with a Man’s Money
- $85 million Forex Scam by SNC Asset Management
- The Internet May Facilitate Forex Fraud, but the CFTC Will Still Catch You
- David A. Smith’s Forex Fraud Fame - Has Been Sentenced to 30 Years