These are managed forex account that are not traded by you, but by a money manager on your behalf. This is a similar situation to employing an investment advisor to trade equities and bonds on your behalf.
It is suitable for use if you do not have sufficient knowledge or time to trade yourself. Many traders do not want to learn the often complex and intricate mechanisms of this large financial market.
Individuals who prefer having a professional manage their funds would prefer this type of account.
The Advantages of a Managed Forex Account
One of the most important advantages of a managed forex account is that your money is held by your broker and not by your manager.
This gives the money manager the responsibility to do the trades for you, but he or she will not have the authority to withdraw money from your account.
The other advantages linked to this type of account are:
- Large brokerages offer you extensive experience in this market which you have access to. Your money manager will inspect your portfolio on a regular basis and diversify your investments if necessary.
- You do not need to have experience in the forex market as your manager will be doing your trades. This provides you with a knowledge base based on practical experience which is to your advantage.
- You will normally receive a daily report on all the positions you currently hold.
- The possibility of showing profits irrespective of the state of the market is increased by using this type of account.
- Through your money manager, you will have access to the market 24 hours of every day. If you choose to trade personally, there is always the possibility that you may miss out on a profitable trade because you were not online at the time.
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Disadvantages of a Managed Forex Account
Since you are not personally managing your account, you may face several risks. The risk of being scammed is high as you may have chosen to use an untrustworthy forex broker.
You may be assigned a money manager who is incompetent and this could cause you to lose funds.
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Scammers should be quite easy to recognize as they will constantly request deposits from you. Their main aim is to get as much money out of you as possible.
To avoid this risk, obtain details from your broker as to the manner in which your account will be managed.
Check if you have been assigned a normal account as the account will then be a personal one and in your name. This means that all the funding you put in will go to the forex broker.
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If you are assigned to a pooled account, your funds are normally sent directly to the money manager who is responsible for pooling funds received from various clients into an account that he or she controls.
One of the scariest aspects of a managed forex account is that you could lose all your money through incompetence.
To avoid this, you should ensure that you read and understand your contract before you sign on the bottom line. You must be aware of who will be handling your account and the methods they intend using.