Managed forex accounts simply refers to a process whereby a forex investor opens a forex account and gets an expert to trade the forex account for him or her, enabling such an investor to benefit from the forex market without actively participating in the market in form of trading the account.
Usually, retail investors who have little or no knowledge of the market, or who have perhaps heard of the potentials of the forex market as an investment tool, but who do not have the time, skill or knowledge to trade the market, engage the services of an individual trader to trade the account for them. The extent of skill of the trader who manages the account is another matter entirely, but usually the relationship between investor and account manager is either informal or semi-formal.
Usually the investor and account manager can agree on the compensation or sharing formula for any profits accrued; these are usually negotiable and not fixed. There are companies that also offer managed forex account services.
Included in this category are hedge funds. These companies usually pool together funds from several investors and trade them in one central account. The relationship between forex investors and the managing companies is usually a formal one, with a fixed set of fees which are not limited to a share of the profits.
In addition, the minimum investment amount is usually large, which effectively locks out many retail traders. The advantage of using this model of forex account management is that the operators of such managed forex account services are usually professionals who have been well trained in the art of forex trading. PAMM accounts are what you may call a mix of the managed forex account services which have been discussed above. It is not exclusive to either small or big time investors, and there are measures which have been put in place to ensure that the same professionalism and security of trading funds that are seen in hedge fund style account management is also the case with the PAMM account management.
Investors have several means at their disposal to evaluate account managers before they take on a service. There is usually no minimum investment amount, except where this has been stipulated by the broker providing the platform for such a service. There are several modes of account management. It can also be done by a combination of the two styles.
Whichever style is used does not really make a difference. The most important factor is for profits to be made. Advantages with Managed Forex Accounts Services.
The fact that forex managed accounts are quite popular and have stood the test of time despite some of the challenges that have emerged over the years is a testament to the advantages that are inherent in this trading style. The learning curve is pretty steep. It takes years of training and practice to start achieving consistency in profitability, especially when such training has not been done in a formal school of finance that the professional hedge fund traders have been exposed to.
Since a forex beginner has no such experience and lacks the required educational background, picking the brains and experience of a managed forex accounts manager is probably the better choice. Trading is a highly emotional affair, and not everyone has the grit to withstand the emotional stress that can come with money appearing and disappearing with each win or loss. Making use of a managed forex accounts service will overcome this problem.
To solve this problem, a trader can engage a full-time forex account manager, who is in a position to devote all time and energy into trading for clients. Due to the measures that have been instituted on many platforms, it is now possible to verify the records of past results of a managed forex accounts service provider before taking on the service.
A PAMM account guarantees this. However, it must be noted that past results are not indicative of future outcomes, but it is definitely a better option to use a trader who has been profitable than to use one who has never been profitable.
Disadvantages of Managed Forex Accounts Services. Trading with a managed forex accounts service may have some powerful advantages, but danger can lurk in the corner in several forms. A managed forex accounts provider may be very profitable and all, but what if the trusted manager falls ill and is unavailable to trade, or dies?
The skills and profits die with the manager and continuity in the service can therefore not be assured. Another facet of this problem occurs due to the fact that past results are not always indicative of future outcomes. It is possible for even a profitable account manager to hit a rough patch.
If you were to sign up with the service just as the losing streak commences, the trader comes off worse. Invariably, such traders would pull out, and if the losing streak ends, the trader is then in a position not to be able to benefit from the profitable streak.
If a trader were to acquire trading skill, this skill is kept and used for life. But by using a managed forex account service, the opportunity to learn to trade the markets is lost.
The trader now becomes subject to the will and skill of the managed forex account provider. It is imperative that the investor performs the necessary checks, and the best way to do this is to use the PAMM account model.
It is also imperative that the trader understands what is going on with the account, so as to know exactly when to pull out or stay in.
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