A managed forex account is a type of currency trading account in which a professional money manager makes trades and transactions on a client’s behalf for a fee.
Individual investors who are not experts in foreign currencies but still want exposure to this asset class may consider a managed forex account.
Understanding Managed Forex Accounts
Managed forex accounts are an investment opportunity for those who want the potential of returns from leveraged forex trading, are willing to take serious risks, and want to have professionals do the work of selection and trading. It consists of putting money in a forex account and having a professional trade those funds in the highly leveraged foreign exchange markets. Investors who opt for this sort of account have the hope and expectations of unusually large gains with the understanding that they could experience severe losses.
Managed forex accounts offer exposure to an asset class much different than stocks or bonds. Unlike these more traditional securities, which deliver returns in the form of share growth, interest payments, or dividends, forex trades gain in value as the value of one currency will rise or fall in relation to another. Those who invest in currencies will either do so as a means of hedging risk in international markets or as speculators who recognize the opportunity for large shifts in pricing and values between international markets.
Safety and Costs of Managed Forex Accounts
Foreign exchange markets are commonly used by sophisticated traders, who take advantage of an ability to handle large amounts of borrowed money to amplify their gains. They have more liquidity and trade at a much faster pace than do stock and bond markets—in fact, forex is the most active market in the world. And the fact that transaction costs on it are lower makes it a popular forum for those who enjoy the thrill of speculation.
At the same time, forex markets can be dangerous for the inexperienced trader who may not have a sophisticated understanding of the effects of high leverage on their returns, and who do not have a good perception of how different news events like economic releases or central bank monetary policy decisions affect currency prices.
Using a managed account, ordinary investors can take advantage of the expertise of an experienced and proven forex trader. The downside to this approach is that the best managers typically charge high-performance fees of between 20% and 30% of a trade’s earnings, or the account profits.
How Does Account Management in Forex Work?
When you open a managed forex trading account, an account manager (or a team of traders) will trade your capital alongside other investors’ capital, buying and selling currencies. They have discretionary power over the funds: that is, they make the decisions and don’t consult you before they trade. They will usually charge a performance fee so they only get paid when they make you money.
What Is the Best Account Type for Forex?
The standard trading account is the most common. This account gives the user access to standard lots of currency each worth $100,000. (That does not mean that you have to put down $100,000 of capital in order to trade. The rules of margin and leverage mean that only $1,000 needs to be in the margin account for one standard lot to be traded.)
However, mini accounts are recommended for beginners, more risk-averse traders, or those with limited funds. They reduce the maximum lot size to just $10,000. Most mini accounts can be opened with $250 to $500, and they come with leverage of up to 400:1.
A managed forex account consists of putting money in a forex account and having a professional trade those funds in the highly leveraged foreign exchange markets.
Managed forex accounts offer exposure to an asset class much different than stocks or bonds.
Managed forex accounts are high-risk, high-reward investments.
Both individual investors and professional managers who aren’t FX experts can make use of managed forex accounts.
Forex account managers do charge high fees: often between 20% and 30% of a trade’s earnings.