Financial markets are a complex and multi-faceted world that a beginner might find confusing and in some cases overwhelming. The multiple strands of analysis, the plethora of data and the contradictory directions these pull a traders can be confusing. Choosing a broker, determining the ideal trading style and strategies can be overwhelming too.
A beginning trader doesn’t have the necessary knowledge, and often lacks the required time to study the intricacies of the field. It is also quite challenging to stay updated about the several data releases or the news and analysis available to a trader. A managed forex account is an extremely tempting option in such a situation.
What is a managed forex account?
Essentially it means that a professional trader/account manager carries out the trades on your behalf, and in return receives either a pre-determined salary or a pre-determined share of the profits made while trading.
Trading software has in-built features that allow a client to perform the duties of a money manager (trade of behalf of others), while remaining within the account structure of the broker. This is a safe option. In this the possibility of a money manager siphoning off your money is eliminated. Independent money managers can prove to be double-edged swords. A really competent and honest money manager will maximize your investment, however there is an equal possibility of the money manager duping you. Exercising caution is important as you do not want to be a victim of forex fraud.
Advantages of managed forex accounts
Not everything is doom and gloom about managed forex accounts. It has its own set of advantages. Currency trading involves significant amounts of risks. Only an experienced trader can judiciously utilize trading strategies to take advantage of the market and at the same time reduce or even eliminate risk. For a beginner this is the reason why collaborating with a money manager makes sense. It can in fact, be a great learning curve. An experienced money manager will be able to handhold you through the choppy waters of forex trading and in the process you can learn a lot about the market and its eccentricities.
Trading is a science, but it also involves a bit of emotion too. Keeping your emotions in check during trading is extremely important, as otherwise you might succumb to the volatility in the market. Here again a money manager can prove to be invaluable. Then there is the question of time.
A non-professional trader may not have enough time to dedicate to the market. A money manager solves that problem. A full-time account manager’s job is to ensure that the client’s investment reaps maximum profit, as his earnings are directly linked to it. So, you can expect complete dedication from him.
What you need to be careful of?
Account managers must seem like heavenly creatures who are waiting for an opportunity to help you earn more. Well, it isn’t that simple. There are several inherent dangers that lurk beneath the advantages mentioned above. You need to be wary of these.
The relationship between a money manager/account manager and the client (the actual trader) involves a degree of blind trust between the two. It is physically and practically impossible to keep a tab on the manager’s every action. Also, a degree of independence is also crucial in the manager’s functional role.
The money manager should be given the freedom to utilize his experience and knowledge of the market to increase profitability and contain risk. If this freedom isn’t provided then the fundamental requirement of the manager is eliminated. These aren’t excessive requirements; however the assumption is that the account manager’s intentions are honest. In case his sole intention is misappropriation of funds or mismanagement of the trader’s account, then these same requirements can be a danger.
Hiring an account manager also means that you do not learn anything about the market and the science of trading yourself. The ultimate goal should be to control and trade your own funds. Instead of hiring an account manager take the reins of trading in your hands. Begin with small, low-risk trades. In your free time study the market dynamic to gain knowledge and confidence during trading. Even if you end up losing small amounts, it won’t affect your financial condition much, but teach you about the market.
If you do decide to hire an account manager conduct a thorough background check. Past trading records are a good indication of the manager’s capability, competence and honesty, but they aren’t full-proof. Check the necessary licenses and certifications before you handover the management of your wealth to a stranger.