Forex Managed Accounts: Strategies For Evading the Pitfalls

If you do not have the skills or time to actively trade you may still take advantage of the potentially lucrative foreign exchange market. A forex managed account will give you access to be able to trade forex with no need to watch the markets around the clock. An established money manager can trade your account and help then add more diversity to your investment portfolio, with no added exposure of adding to investments that already may have too much exposure to the equities markets.

Managed forex is the name applied to accounts which are traded on your behalf by an experienced professional trader, usually referred to as the money manager. The money manager is in charge of 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 of double digit returns per month and invest everything you have in it. It is fair to suggest that of your total capital an acceptable percentage to classify as risk capital is 10 to 25%. Do not be greedy and bet the farm, start with the minimum capital requirement and if it turns out to be a profitable and well run managed account program invest what you can reasonably afford.

Trading on margin with high leverage is classified as risky, however, managed correctly the down side risk is manageable. By making 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 is to be effective, which is why it’s best 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 over 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 risk 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 foreign exchange market. This along with the fact that the market is open 24 hours 5 days a week signifies that positions can be liquidated virtually anytime.

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 which allows the money manager access to trade your account with a broker, whilst not actually allowing them any access to withdrawal funds. This gives you significant protection from any potential abuse. Be extremely wary if this facility isn’t provided to you as an investor.