There are two different ways you can start your forex trading career. First, you can start learning everything from scratch, slowly learning about the market and its concepts. The second way to make money in the forex account is through a management account.
Managed trading accounts are also offered by forex brokers just like other types of accounts, yet they are different from traditional trading accounts. They offer traders a way to make money with the guidance of professional forex traders, who trade on their behalf, while they spend time learning the market to sustain themselves for a long time.
New traders and even professionals find forex management accounts a convenient method to trade in forex. Let’s see how you can use them to maximise investment returns.
Understanding Forex Managed Accounts: How Do They Work?
Forex management accounts, as the name goes, are a type of account where you invest in an account with pooled funds where multiple traders have also invested. A professional trader makes trading decisions on behalf of all investors. After a trade, every trader who has invested a sum in the pooled account will get their profit.
Profits are divided by the ratio of the investments. So, if you invest 10% in the investment pool, you will get 10% of the profit that you would make on your investments. Brokers offer different types of managed accounts. There are three types of managed accounts that you could choose: PAMM, MAM, and LAMM. All three differ in their functionality. For instance, with MAM accounts, a trader can operate and manage multiple trading accounts via a single terminal. They are helpful for both traders and investors.
Benefits Of Forex Managed Accounts
Expecting to make money from trading can be a slow process. It takes an average of 2-3 years to expect a consistent income; sometimes, it is more than that for others.
However, with a managed account, you can expect some return since professional traders are the ones making decisions on your investment. Not only do they have experience, but they also have a well-tested strategy to achieve profit targets.
Moreover, managed accounts are good for traders who have time constraints because of their busy professional lives.
Regulatory Compliance And Security
Are managed accounts safe? This is the first question traders ask when opening a management account. Yes. Like other trading accounts, forex-managed accounts also fall under the jurisdiction of a regulating broker if the broker is regulated.
Therefore, you don’t have to worry about their security. You need to pay attention to which professional manager you should choose to take care of your investments.
Risks Associated With Forex Managed Accounts
When trading with management accounts, you have put your faith in the hands of another trader. What determines whether they are good at their job? This is a dicey situation because, despite an excellent trading record, nobody, including your professional manager, knows how the future trades will turn out.
You could choose a manager whose strategy has a higher success rate. Review all the stats – trading history, ROI, trading experience, certifications, if any, etc.- under their profile before choosing to open a managed account with them.
Strategies Employed By Forex Managed Account Providers
Professional traders know the ins and outs of trading. They know which strategies work and which do not. Because different forex traders trade with different strategies, you will find plenty of options to try out – trend trading, breakout strategy, mean aversion, etc. Or a combination of all those.
Historical Performance And Track Record
How do you decide which forex manager to go with? As we have discussed earlier, there is no sure way to tell if this or that forex manager is best for your investments. Good and bad trading days happen to even professionals. However, you can get an idea of a forex trader’s expertise by background-checking their previous trading performance.
See how many trades the trader has won and has lost. How many investors trade with that manager? You could even reach out to them, asking about the performance of the manager and if your brokers allow such a feature.
Evaluating The Fees And Costs Involved
In exchange for their services, professional traders will charge a fee, and this is not fixed. Some forex traders are great at their jobs. Hence, they expect a higher fee than others. Therefore, when you invest, keep the cost upfront, next to the trader’s skills and knowledge. The total breakdown cost of using a managed account may include management costs, commissions, and other additional charges. You should know how much money should be allocated to keep your managed account under budget.
Diversification And Risk Management
When dealing with a forex management account, you must consider diversification. From different strategies to choosing different managers, you can diversify your account to minimise risk. Let’s say you open a managed account with two forex managers. One is a top trader, and the second is an average trader. In days of extreme market volatility, if the second trader fails, your first trader will stand a chance to give you a decent return on your investment. Another way of diversification is by opening another account where you will be trading on your own, but for that to happen, you must learn it first. You will have to spend time in a demo account, trading with virtual funds to get the hang of trading and develop some strategies that could work in live trading.
Regulatory Compliance And Security Measures
When choosing a forex-managed account, you should open a trading account with a regulated and secured broker. This will reduce the risk of fraud. Your forex-managed account provider will ensure that you get all the services and are treated fairly as per the guidelines set up by the regulating authority.
Assessing Transparency And Reporting
If you want to grow your investments with the help of managed accounts, you need to keep track of your trades. Always prefer an account that provides you with more transparency. You should know what traders are doing with your investments.
It is best if you prefer a broker that offers transparent reports and regular updates about the performance of your account.
Common Misconceptions About Forex Managed Accounts
Although trading with forex-managed accounts looks easy—you invest money and get returns—it is far from that. It is a fallacy among investors to think that you don’t need to do any work. Think about how your investments would turn out if you invested in a poor account manager. Not only will you lose all your investments, but you will also be charged commission fees. That’s a double loss!
Therefore, be very selective with the process of filtering the options for a forex manager. Another thing that you should not assume is that “you will always win.” No. You will not. Because even expert traders will have a bad day, profits are not guaranteed. So invest at your own risk. Think of managed accounts as another means of making money, and continue working on your skills to achieve long-term sustainability in the forex market.
Forex management accounts are a great way to step into the market. But don’t think making money in forex is an easy alternative. You need to put in work and effort like you would put into an account that you are trading on your own. From shortlisting account managers to investing capital, you need to stay in a constant loop with the performance of your trading account. You will make money; you will lose money.
To make the most of managed accounts, use them as a learning source to get ahead in the market. Identify how professional traders execute trades. Get in touch with them! You can even replicate their trading strategy on a demo trading account, as this will help you make a strategy that works for you after a few twists and updates. There are different ways to learn and make money in trading, and it is only in your hands to shut the door or keep it open.