Managed Forex Accounts Explained

Trading currency on your own can be a time consuming, frustrating and difficult task. Many investors would love to take advantage of the returns offered by Forex trading but find the time involved to learn the markets and then track their investments to be too confining and restrictive. Large institutional traders have someone watching the markets all day 24 hours a day, 7 days a week, in an attempt to stay abreast of technical moves as well as fundamental moves in a particular currency. This is something the individual investor is unable to do. Managed Forex accounts were created to allow investors with risk capital available to participate in the Forex markets without having to do the actual trading themselves.

A managed currency trading account, when operated properly, is an individual account that is traded at the same time as other accounts, as a percentage of the entire trade. For example, if a single trader is trading for 100 clients then each client would participate in the trade for 1% of the total return or loss. The investor has access to his funds and can redeem his account once all current trades are complete. A managed account only holds the currencies that you own, and activity in your account is based on your long term strategy and risk profile.

A trader is not able to access your account to deposit or withdraw funds without proper authorization and the investor retains full control over the account at all times. Access to funds for trading is done through a limited power of attorney and this allows a trader to trade your account without actually having access to your funds. This provides greater security for your account and lets you maintain control. The limited power of attorney can be revoked at any time, especially if you are not pleased with the way your funds are being managed.

Traders operate using software that allows them to trade all accounts at the same time under a master account and the allocation software will distribute gains, losses and fees equally against all accounts that are traded. In this manner all accounts, regardless of size, are able to obtain the same percentage return on their money. The sophisticated allocation software allows each investor to determine the amount of leverage they wish to employ allowing small investors to use mini-lots if they so choose. Managed accounts can offer investors a way to level the playing field when working with an experienced fund manager.

In conclusion, using a managed Forex account does not eliminate the risk involved with trading but it can provide higher returns and a way to follow an experienced trader while you study the currency exchange markets. Finding a reputable broker to handle this type of trading is the most challenging part and you should take your time and look for performance measures before deciding on a trader. The possibility of loss still exists and you must treat your managed account with the same money management rules that you would use if trading the account yourself.

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