Forex Managed Accounts: Strategies For Avoiding the Pitfalls

If you do not have the skills or time to actively trade you could still take advantage of the potentially lucrative foreign exchange market. A forex managed account will give you access to be able to trade forex without the need to watch the markets around the clock. A professional money manager can trade your account and help add some more diversity to your investment portfolio, without the added exposure of adding to investments that already might have too much exposure to the equities markets.

Managed forex is the name applied to accounts that are traded for you by a seasoned professional trader, usually known as the money manager. The money manager is liable for the trading the accounts of many account holders and their primary focus is to trade the accounts based on a specific rule set, and applying risk management and money management in compliance with that rule set.

Consider that you have to be realistic about the amount of capital you allocate to forex trading. It’s easy to be seduced by the thought about double digit returns each month and invest all you have in it. It’s fair to suggest that of your total capital an acceptable percentage to classify as risk capital is 10 to 25%. Don’t be greedy and bet the farm, begin with the minimum capital requirement and if it proves to be a profitable and well run managed account program invest what you could reasonably afford.

Trading on margin with high leverage is classified as high risk, however, managed correctly the down side risk is manageable. With the 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 essential if this risk management will be effective, and that’s why it’s smart to invest with a managed account program run by a team of professionals.

When establishing a forex managed account it’s very wise to keep control 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 chance of any funds being misappropriated by a dishonest company or money manager.

A combination of high leverage and virtually unlimited liquidity is something unique to the currency market. This along with the fact that the market is open twenty four hours five days per week signifies that positions can be liquidated virtually at any time.

Invariably any reputable managed forex provider will provide you with an LPOA or Limited Power of Attorney Form to sign. This is just a form that 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 defense against any potential abuse. Be extremely wary if this facility isn’t offered to you as an investor.

Leave a Reply