Advantages and Disadvantages of a Managed Forex Account
The different types of managed forex accounts, and the advantage and disadvantages of having a managed account.
The forex market is one that is highly lucrative and, thus, the number of intending participants is on a steady increase daily. Some of the intending participants find the activities in the market very overwhelming and decide to delegate their accounts to other individuals to trade for them while they sit back and enjoy the profits.
Types of Managed Forex Accounts
The automated trading managed account
In this arrangement, the owner of the account picks an automated trading system that has been proven to be profitable, and then hosts it on a VPS so that the robot trades 24 hours on his behalf while he merely withdraws the profits. With this type of managed account, the trader only has to pay the costs of buying the robot, and the monthly or yearly fee for the VPS subscription. There is no limit to the achievable profit, and all profits go to the individual without any interference. The individual can invest any amount of money he desires in this trading account.
Institution-based managed accounts
With institution-based managed accounts, the individual has to contact any leading forex trading firm and deposit funds with them. Then, at the end of an agreed duration, a certain percentage of the money is given to him as profit. It could be 10% monthly or 50% yearly. Every company has their own method of operation. With this method however, the investor will only get a fixed percentage of profits so, on months when the company makes profits higher than what is in the trader’s contract, the additional profits go to the company. This is coupled with the charges linked with keeping the account. Again, most companies have a bottom limit to what anyone can invest. Some do not accept any investor that is looking to invest less than $100,000.
Sole manager accounts
In this type of managed accounts, the investor opens a trading account and then links it to the account of an individual that provides managed accounts service. The manager trades the account on a Percentage Allocation Management Module (PAMM) basis. Under this arrangement, the account manager controls all the funds linked to his account and, for every profit made, a portion of the profits (usually 30%) goes to him, while the rest of the profits go to the investor. No monthly fees are required here and the investor can close his or her account at any time.
Advantages of Managed Forex Accounts
- The investor gets to enjoy an additional source of income without bothering about how the money comes in
- The difficulty in trading the forex markets will be bypassed completely
- Traders who already know about the market but are still not profitable can use this as a means of generating income from the market while perfecting their trading process.
- It also serves individuals who want to keep their day job or keep doing other activities while making money from the markets.
Disadvantages of a Managed Forex Account
- Normally it is hard to find a reliable account manager, as most of them crash the investors accounts after a few profitable months
- Using a managed forex account also prevents an individual from learning the trading process and, thus, he or she is left in limbo when the account manager is no longer available.
If you regard forex trading as a hobby that you could make money from, then you can go ahead and set up a managed forex account; but if you regard forex trading as a business, you must put in the hours to learn it and forget managed forex accounts.