In forex leveraged trading, managed forex accounts refer to investment opportunities for people who want to undertake serious risks. They entrust professionals to carry out the trading on their behalf. It usually involves putting money in a forex account, with a professional trader taking over, and trading the amount on the forex market. The main reasons why investors choose this method is the hope and expectations of earning huge sums of profit, banking on the professionalism and skill of a professional trader.
Forex accounts are usually opened by individual spectators, who attempt to trade based on their own skill, understanding and trading techniques. This method, however, is notoriously difficult if one does not possess the required skill and expertise. With such best forex managed accounts users can access the services of a professional manager, skipping the extra time and loss that is needed to get a hang of the market.
Why People Use Managed Forex Accounts?
Sophisticated traders usually enjoy lots more success in foreign exchange markets, which can pose a problem for novice traders. It can be dangerous for them in terms of their finances. Without a complete understanding of the effects of high leverage on forex returns they can end up making ill-informed decisions and irrecoverable losses.
Thus, those traders who do not want to take the immense risks associated with leverage forex trading can instead use a managed forex account. They can then take advantage of an experienced and proven forex trader with a transparent track record. The only real downside of this method is the high -performance fees charged by forex managers, which usually lie between 20 to 30% of a trader’s earnings.
Choosing a Managed Forex Account
A major consideration, while deciding on a managed forex account, should be the account manager’s Calmar Ratio. The Calmer Ratio compares the average annual compound return rate of their trading fund, with the maximum drawdown experienced in the particular period. When measuring this ratio, a three year period is usually taken. As a rule of thumb, a good risk adjusted return result of a manager is indicated by a high Calmar Ratio. Similarly, a low Calmar Ratio indicates an inferior risk adjusted return result.
Trading On a Managed Forex Account
There is no universal method to open a managed forex account as it mainly depends on the broker chosen. The process to trade on behalf of an investor on a managed forex account usually involves some steps which have been highlighted below.
- The investor signs a limited power of attorney with the trader to allow them to trade their account on the investor’s behalf. A fee structure is agreed accordingly.
- The investor then funds their account with the chosen broker, allocating the capital to the trader’s master account. This is sometimes called a “MAM Master”.
- The trader can see when the money comes in or goes out, depending on the client’s deposits and withdrawals.
- Trading begins with the master account where the trader starts engaging with the forex market, with the investor’s capital, in the hope of earning profits.
- The agreed fee will be transferred by the investor to the trader’s bank account.
Types of Incomes from a Managed Forex Account
Depending on the contract agreed beforehand, a trader can earn income in the following ways.
- Rebates: The trader earns a slice of the spread each and every time he/she opens or closes a trade. This is usually considered as a disincentive to trade responsibly, as it often leads to over trading using excessive risk.
- Performance Fee: Performance fees are paid to the trader when he/she earns some profit for the client/investor, usually in the form of equity gains. This usually aligns the interests of the traders with that of their clients.
- Management Fees: This usually involves paying the trader an on-going fixed percentage fee for managing the client’s or investor’s money.
A managed forex account, thus, offers a high-risk, yet the high reward method for investors willing to allocate finances without investing their own time and energy. However, success largely depends on the broker chosen, as well as the professional experience, technical knowledge and skill set of the trader entrusted with the task.