Managed forex accounts

From CEOpedia | Management online

Managed Forex Accounts is a foreign exchange account that is managed by the manager instead of investor himself. The manager makes decisions on behalf of his client and is paid for it. Investing in currencies, if done correctly, can be an ideal market for the current global economic and financial environment. Currencies are attractive because you can potentially benefit from events in every corner of the globe. Experts invest clients'; funds in the Forex market in order to get a profit, then usually a part of this profit goes to them. Investors still have full control over their account, for example, they can deposit and withdraw funds, close their account or change manager.

As the prices on Forex market can change quickly, investors that want to respond to opportunities should spend a lot of time monitoring the market.Often due to their poor knowledge of the currency market, insufficient mental resilience and lack of time, traders lose out on Forex so account managers may be the right solution.

Professional manager can do it for many investors simultaneously. The key issue is fee system. Managers can be paid for success for work, or both. Thus fees differ greatly. Sometimes there are also hidden costs which should be checked before signing contract. The fees can take even 30% of earnings.Manager who has many clients can buy larger volumes and therefore obtain better prices.

Advantages of managed accounts

There are many benefits of having a managed account, we can distinguish:

  • Profit - thanks to such accounts investors can earn much more than on classic offers on the savings market, without the need for personal financial management.
  • Time - proper investment requires time spent on training and constant analysis of the market situation, unfortunately few of us can afford it.
  • Capital in the hands of professionals:
    • Who make complex analyses every day to predict the prevailing stock market trends for your profit. In addition, they often have access to exclusive analyses and studies that help them make better decisions,
    • The money at their disposal is not entirely theirs, which makes them more objective,
    • They have many strategies from which investors can choose the right one for themselves (e. g. sometimes it can be adapted to investment objectives)[1].

Managed account is an excellent option for beginners who want to start trading on the foreign exchange market without fear that the mistake made will result in significant losses. The manager always talks about the strategy he has adopted, discusses and consults on it.

PAMM accounts

Percent Allocation Management Module is a technical solution that allows the client to delegate the management of his account to the trader on the basis of a limited power of attorney to trade. Transactions are allocated by means of percentages. makes it possible for one manager to make identical transactions on several accounts at the same time without the need to log on, enter passwords, restart the platform, select the appropriate transaction volume and paste orders. In other words, this technology makes it possible to combine several accounts into a single account.

PAMM accounts are a variety of managed accounts or a kind of equivalent of investment funds. Thanks to managed accounts and economies of scale, they can significantly increase their revenues without excessive effort. By showing the history of their performance, they can encourage a second group of investors who decide to cooperate [2].

Examples of Managed forex accounts

  • PAMM Account: PAMM stands for percent allocation management module. It is a trading account managed by a professional trader. This type of account allows the investor to share the profits and losses with a manager who has more experience and knowledge in the forex market.
  • MAM Account: MAM stands for multi-account manager. It is similar to PAMM accounts, but allows the investor to have multiple accounts managed by the same manager. This type of account is best suited for investors who want to diversify their investments and spread their risk.
  • Copy Trading Account: This is a type of account that allows the investor to copy the trades of the professional trader. This is a great way for new investors to learn the forex market without having to worry about making mistakes.
  • Automated Trading Account: This is an account that is managed by an automated system. This type of account is ideal for investors who don’t have the time to monitor the market and make decisions. The automated system takes care of all the trading decisions for the investor.

Limitations of Managed forex accounts

A managed forex account can be a great way to invest in the foreign exchange market, but there are a few limitations to consider before making a decision. Here are some of the potential drawbacks of this type of account:

  • Lack of Control: When you entrust your money to a manager, you are relinquishing some control over the decisions being made and the investment strategies employed.
  • High Fees: Managed forex accounts often come with high fees for the management services, which can eat into the potential profits of your investments.
  • Lack of Transparency: There is often a lack of transparency when it comes to the details of the investments and how the manager is making decisions.
  • Risk of Fraud: As with any investment, there is always the risk of fraud when dealing with managed forex accounts. There have been cases of managers misappropriating funds or making poor decisions.
  • Lack of Liquidity: Currency markets can be very volatile and lack the liquidity of other asset classes, which can make it difficult to quickly liquidate your position.

Other approaches related to Managed forex accounts

Apart from Managed Forex Accounts, there are several other approaches to investing in the currency markets. These include:

  • Currency ETFs (Exchange-Traded Funds): These funds provide exposure to a basket of currencies and are traded on an exchange. They are a more passive approach to investing in currencies, as the investor does not have to actively manage the position.
  • Futures Contracts: These are contracts that allow investors to buy and sell currencies at a predetermined price for a specific date in the future. Futures contracts are commonly used for hedging or speculation.
  • Spot Trading: This is an active approach to trading currencies, as investors can take advantage of short-term price movements. Spot trading involves buying and selling currencies in real time and is not suitable for all investors.
  • Options: This is another active approach to trading currencies that allows investors to speculate on the direction of the currency pair. Options involve the use of leverage, which can lead to both large profits and losses.
  • Forex Hedging: This is a strategy used to reduce currency risk. It involves buying and selling currencies to offset the risks associated with changes in exchange rates.

Investing in currencies can involve a variety of approaches, such as managed forex accounts, currency ETFs, futures contracts, spot trading, options, and forex hedging. Each of these approaches has its own advantages and disadvantages, and investors should research each option before deciding which approach is best for them.


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References

Footnotes

  1. ↑ Gelet J. J.,Services (2016)
  2. ↑ Ponsi E., (2010)

Author: Natalia Windys

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