Managed Forex Accounts

Justin Freeman
Managed Safety

The complexities of the financial markets often confuse newer and less experienced traders. There’s technical analysis, fundamental analysis, buy signals and sell signals, various kinds of data and a vast choice of brokers, trading styles, and instruments to choose from. It can all be very intimidating for those who do not have much free time to study it all, and information overload can set in quickly.

Traditional forex trading is high risk and can be difficult, especially for beginners. Casualty rates tend to be high since success demands specialised knowledge, experience, and emotional control. It is easy to become impatient, look for shortcuts, and then allow your emotions to take over, which is usually a recipe for failure.

There are, however, alternatives to doing it all yourself, such as managed forex accounts, when you employ another trader, or a team of traders, to manage your funds for you in the forex market. Today you’re going to learn how managed forex accounts work and precisely what are their advantages and disadvantages.

The Advantages of Managed Accounts

You may ask yourself, “Are forex account managers legit?” That is a fair enough question. As is the case with many financial services, there are some totally legitimate offers around, as well as some scammers and disreputable managers. As with any opportunity, always do your research, and do not get involved with random “account managers” who approach you online.

There are various advantages to using managed forex accounts, with the main one being that it is, of course, easier for new traders. You do not have to spend hours learning about all the many aspects of forex trading that you need to know about to trade successfully. You simply hand it over to an account manager, although you should monitor your trades to keep an eye on how well your forex manager is doing with your account.

New traders may lack a few of the qualities and resources needed to trade successfully. Experience is the main issue and one of the only things that can reduce or even negate the considerable risks associated with currency trading. A lack of discipline can also be a problem for newer traders as, again, this is something that you tend to develop over time. A lack of sufficient time is another issue that discourages beginning traders from seriously committing to currency trading. A full-time account manager can help a new trader overcome all these issues.

Increased profit is a definite advantage of a managed account. New traders tend to lose money as they learn the markets and invariably make mistakes. Experienced account managers are much more likely to turn a profit, sometimes of 10 or 20 per cent, or even more in periods of high volatility.

Forex account management companies often use PAMM assistance, also known as Percent Allocation of Money Management. This system uses sophisticated trading software to allocate gains, losses and fees on an equal percentage basis to each client. This type of managed account allows you to get started with a much lower deposit, and there are no “lock-up” periods, which generally makes managed forex accounts more accessible for new traders.

managed forex accounts

Read our recommended forex account managers article including PAMM accounts

The Disadvantages of Managed Accounts

The above might sound simple and appealing, but every trader needs to consider some disadvantages of using managed forex accounts.

By allowing the manager to trade on your behalf, you benefit from that person’s accumulated experience. But if you choose a managed forex account, you also lose the opportunity to practice and study and ultimately of developing your own skills and trading strategies. You effectively tie your fortune to that of the manager and deprive yourself of the independence of trading for yourself and developing a long-term trading career.

By handing over the emotional responsibilities associated with trading to the manager, you also give up the opportunity to slowly develop the trading discipline and emotional strength that allows traders to evaluate the market independently and ultimately trust their judgment.

Choosing the right managed forex account is not easy. While the past records of money managers can be a helpful guide, they can also be misleading. In many cases, it is impossible to evaluate these records due to a lack of sufficient background information. Performance data is often insufficient for successfully evaluating the trading style and method of the manager in question. And, of course, past performance does not guarantee future results.

In addition, while managed forex accounts tend to yield better results than the average beginner trader could hope to achieve, they also come with fees, which are generally set as a percentage of profits and can be quite high. Minimum deposits for some managed accounts may be higher than beginner traders are comfortable with. The accounts are also subject to certain conditions, which may consist of “lock-in” periods when you cannot withdraw funds. It is also not unusual for management firms to charge a penalty for early withdrawal of funds and various other admin fees, the details of which may be hidden in the small print. They are not apparent until you look at your account and realise that money has been deducted in a way you were not expecting.

Recommended Account Managers

To protect yourself and your funds, we always recommend using a regulated broker and doing independent research to find the best-managed forex account services for your needs. Avoid those ‘account managers’ who might approach you online, especially if they offer you unrealistically high returns or other perks. This could be a sign of a scam or could simply be that the manager is taking high risks with other people’s money that sometimes pay off but often doesn’t.

recommended account managers

There are generally three types of managed forex accounts – individual, pooled, and variations of the “PAMM” account.

An Individual Account is a separate account in your name managed by a professional forex account manager. The minimum deposit is usually quite high: at least $10,000, and fees will be customised according to various factors, which should be made clear to you in advance. Check past performance data and client testimonials carefully as part of your assessment of any individual managed forex account.

A Pooled Account is like a mutual fund, where many investors pool their capital together in one fund and then share in the profits after fees and expenses. Many brokers offer these pooled funds and may have several funds to choose from, each with its risk/reward profile, fee structure, and terms and conditions. Your initial deposit may be as low as $2,000, but there may be a required period for participation before a withdrawal can be made. Check the rules of the fund carefully before deciding.

A Percent Allocation Management Module (PAMM) is an approach to account management that may go by the name of PAMM, LAMM, RAMM or MAM. Each system uses sophisticated trading software to allocate gains, losses and fees on an equal percentage basis to each client. Your broker enlists the professional trader, and you execute a Limited Power of Attorney agreement with the trader, which allows them to trade on your behalf. An advantage of these accounts is that there is usually a lower minimum deposit and no “lock-up” periods. You access a PAMM account through your broker, and there is generally high transparency.

Conclusion

Ultimately, there are pros and cons to using managed forex accounts, and only you can decide exactly what is best for you. You must choose your forex account management services carefully, invest only with reputable regulated brokers, and educate yourself on the different types of accounts available. Also, be aware of the fees and charges to ensure that you pick the best forex manager for your circumstances.