Forex Trading Account Management June 2020

Forex Trading Account Management June 2020

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What is a forex managed accounts?

A managed forex account is where a professional trader/money manager manages the trading on the clients’ behalf. The account is made up of a personalized portfolio owned by a single investor. The portfolio and account is handled accordingly to the investors needs.

An investor may advise the money manager on strategies and signals to look for while trading on his behalf. An investor may do this to take themselves out of the equation and trade without the psychology and emotions that come with wins and losses. On the other hand, some clients simply choose to let the brokerage/money manager trade the account based on their own systems and strategies.

Forex managed accounts can be compared to traditional investment accounts of equities and bonds, in the way that an investment manager handles the trading logistics. In no instance can a money manager withdraw or add funds to the account, they are granted trade only access to the account, and the investor has full control over their account. Money managers charge a fee or commission for managed accounts, so it is important to research a variety of options, as their prices can vary greatly.

How does a managed forex account work?

For an investor to have a managed trading account, they must first open a trading account at a reputable brokerage firm of their choice. Then allocate the necessary amount of funds for a managed account. The money manager has limited access to the account and operates on a trade only basis. The investor remains in full control of the account and its deposits and withdrawal processes.

Now, if a money manager does not have any control over the investors money, how can they conduct trades? Well, upon setting up a managed account, both the investor and money manager must sign a document called a Limited Power of Attorney Agreement (LPOA). This is an agreement for both parties, allowing the trader to trade on an investors account on their behalf, without needing to transfer the investors funds to the traders account. This agreement provides a high level of security, control, and transparency that’s comfortable for the investor.

With the signing of this agreement, the managed account gets placed in what’s called a “master block”, and as stated before, the investor continues to have full control of their account. They can check the balance, deposit or withdraw funds, monitor trade activity, and even revoke the LPOA agreement at any time if they are not happy with the money manager. One thing they can not do is conduct their own trading on the account, unless they revoke the LPOA agreement.

Regarding the money managers aspect of managed forex accounts. They may trade for many investors all from a single master account using PAMM, LAMM, or MAM software and technology. These technical procedures are integrated into most reputable brokerages and various online trading platforms, making it possible for traders to manage investor accounts.

Account Types

Investing through a managed account has been around for a long time. In fact, it’s been around for as long as investing. With that in mind, there have generally been 3 types of managed forex accounts that prevail- Individual, Pooled, and more recently; varieties of PAMM accounts.

Individual Account

This type of account is the most simple and standard type of account when you think of a managed account. The account managed is a segregated account where the money manager makes all the trades on your behalf. The traders’ decisions are based solely on your instruction or desire, he/she is trading for you and only you.

Their decisions will be based on your risk level and whether you provide any specific strategy or guidance. Since there are no additional traders’ funds involved in this account, the minimum deposit may be quite high- exceeding $10,000. For this reason, and the fact the manager is trading this account individually for you, you will want to ensure a professional and competent money manager is chosen. A great deal of research and client testimonials will be beneficial when going this route.

Pooled Account

This type of account is very similar too mutual funds, in where many investors pool their money together in a separate account and share the profits after fees and expenses. With pooled accounts, there are often a variety of pools to choose from. Each may be offering different risk levels, minimum deposits, investment strategies, currencies traded, and fees and expenses. These types of accounts are managed for a variety of investors, requiring you to choose or be advised on which pool suits your needs.

Unlike individual accounts, the manager is trading for numerous investor desires. To help determine an account for you, each fund will have years of past performance for review. A main benefit of pooled accounts is the lower minimum deposit required to enter, being as low as $2000. Although, there are often minimum participation requirements upon entering a pool fund. These are all factors you need to consider before diving in.

PAMM, LAMM, & MAMM Accounts

These types of accounts use sophisticated technology to distribute profits, losses, and fees based on percentages of funds each investor has involved in the master account used for trading. These account methods are relatively new in comparison with the other two listed here, and offer the satisfaction of dealing directly with the broker of your choice in a secure and transparent way.

It’s similar to the mirror and copy trading features some brokers offer, because of the automation and technicality. Although, it still has more similarities to a managed account. All these types of accounts are basically pool accounts, in the sense that numerous investors pool their money together and reap the profits or losses of the money manager