We have a quick followup question here from a subscriber about an article we did last week about trade copying with a subscriber saying that they know how we feel about trade copying, but wanted to know how we feel about Forex managed account providers and whether we would recommend it and how they can find a good one.
So firstly, as always, thanks for the question. Let’s start with the second part first, right? And that deals with how you can go about finding a credible managed account provider. Arguably it is a little bit trickier finding a good or credible Forex managed account provider compared to something like just an investment fund because the structure of an investment fund is usually a lot easier to assess. So what makes a managed account different from a fund is basically the way that you invest. With a fund, you pay the fund the money and you essentially buy a share of that particular fund. Of course, it will be based on the specific product the fund offers and it will vary in risk profile and cost exposure what type of asset allocations it has et cetera.
With a managed account, it’s basically your money in a trading account, but somebody actually manages the fund for you. So, traders, they trade the money on your behalf. Now because a managed account provider is not an investment fund it can be slightly tricky to determine the credibility but there are a couple of things that you can do to try and find a more credible provider. The first thing you want to do is audit the account manager’s performance, right? So if they are truly a professional, they should be both regulated as well as audited. They shouldn’t have any problem providing that information on your request. Third-party auditing is very important as it shows two things. Firstly, the managed account trader is serious about providing or proving their illegitimacy and secondly, they’re not trying to hide anything right? Otherwise, they would not want a third party auditor snooping around their books so to speak. Another thing you need to consider before choosing is what the minimum investment amounts are. So some of the managed account traders that manage high net worth individuals and their capital, they don’t want to waste time by taking on small capital clients as they want to have the most bang for their bucks so to speak or the most return on investment for their time so, make sure that it’s well within your range, but don’t assume that a managed account provider is good just because they have a very large minimum investment amount that is something to watch out for.
On that note, another important thing to find out is what their connection is with a particular broker that they trade with, are they making money from trading commissions because if they are, that means that they will be making money, whether you lose money or not so that’s something to consider as well. And the other consideration is the type of fee so, preferably you would want a level playing field when you work with a Forex managed account provider. So that means that you want them to make money when you are making money. Which means a profit-based fee structure is always gonna be preferable because then the trader is more incentivized to actually make a profit from the trading as opposed to just getting weird fee structures where they get paid a percentage with or without making a profit. Now if there are management fees, make sure that your investment amount and the track record of the provider makes sense. So for example, if the track record of the past performance shows an average monthly gain of 1% per month, which isn’t bad by the way, and you invest $20,000 that means a $200 potential profit per month. Now that might not sound too bad but if the management fee alone is a hundred dollars per month you’re actually only making half a percent, not 1% so the cost is also something that you always need to keep in mind so I hope this has been helpful in terms of ways that you can find a credible Forex managed account provider.
The first bot is, whether we would recommend it. It really comes back to trade copying as well. If your aim is to make money invested I mean, I would probably opt for something like investment fund rather than, because there’s more control, it’s often easier to track the performance of the funds. There’s obviously a lot less risk because a lot of people have you know they’ve invested in that fund so there are a lot more ways for you to stay safe so to speak. I mean it really comes down to what your goals are as an investor and a trader. If your goals are to invest money and have it work in the longterm, going with something like an investment fund would be fine, even finding a Forex managed account. But if your aim is to try and trade your own capital, trade your own money then I would rather take the time to invest in yourself and give yourself the ability to grow your account. I think that’ll be a much more satisfactory result in the end compared to just investing money in a managed account or away fund but of course, there are different time horizons I do have funds in investment funds as well in terms of retirements accounts and stuff like that so it’s not like I’m trading a whole big pot in terms of one capital account and that is everything. So you do need to diversify. So if that is one of the avenues where you choose to diversify in this will at least provide you with some insights to how you can find a more credible one compared to some of the more unscrupulous ones that are definitely out there in the industry.