There are upsides and downsides to Forex dealing. A question to ask yourself is do I want to mange my fund myself or do I prefer an “expert” who will manage my fund for me?
Forex managed accounts present an attractive opportunity for people who want to make money from the lucrative currency trading markets but cannot or do not want to learn to trade for themselves. With a managed account you do not have to do any trading at all. Instead, you entrust your fund to the management company who will act for you.
There are two basic types of forex managed accounts.
1. Standard accounts
With this type of account, your money is kept in your brokerage account in your own name and the manager simply has control over it so that they can trade with it. You can see how much is there and how it is doing at all times. It remains your money.
You have to accept the risk that even a skilled account manager cannot predict the markets 100% and you may have to take some losses. Still, if you are a beginner, he is likely to do better with your money than you would yourself, so it is just a question of whether he can do well enough to cover his fees and make you a good profit.
2. Pooled accounts
Pooled accounts are more risky in that there is more possibility of fraud. Here, your money goes into a pool held by the account manager. You are paid a share of their declared profits.
In theory the pool provides a buffer so that profits and losses are more evenly spread and your income could be a little more predictable than when your money is being managed separately.
The problem is that you cannot really know what is happening and an unscrupulous management company could simply be making small regular payments to keep their customers happy while illegally diverting the bulk of your funds into their own pockets.
If a forex account manager using pooled funds guarantees you a certain percentage return on investment, you could be heading for trouble. There are no guarantees with forex trading and any company that makes promises of a 10% return or whatever should be treated with extreme caution.
Of course there are some well run pooled accounts and they have the advantage of a little more predictability than standard forex managed accounts. However, you should research a company offering pooled accounts even more thoroughly than usual before you decide to invest.
Which Type of Account Should You Choose?
Even if you choose a standard account, you need to shop around. Avoid managers who insist on you signing up with their preferred broker.
That usually means that they get a commission on all your trades, so they have an incentive to make a lot of small trades even if that is not the most profitable strategy, simply to increase the broker’s earnings from the spread and their own commission rake off.
Even if their commission is worked on a different basis, you probably will not get the best or cheapest broker that way. It is better to sign up with a company who will let you choose your own broker for forex managed accounts, even if they charge a slightly higher fee.