If you invest in mutual funds, chances are you invest in an asset class that is managed professionally. In other words, all you really do is select the mutual fund and put your money into it; all the decisions about what stocks to buy to make up the fund and where your money actually goes to work are made by a professional fund manager who receives a fee in exchange for his or her expertise.
Your benefit? You get peace of mind knowing that you don’t have to make the difficult trading decisions that come with investing in securities. For many people, this is the way to invest – even if fees can get in the way at times.
Managed forex trading follows the same principles. Instead of trading currencies yourself – thus putting in hours and hours of research and analysis to make a smart trade – you only fund your account and give the reins to a trained pro.
Here, we’ll talk about the benefits of managed forex accounts and explore if they could potentially be useful for you.
The Basics of Managed Forex
Pretend you want to trade, say, apples.
You know very little about apples (other than the fact that you love apple pie). You don’t particularly want to spend months researching apples and learning about how they’re grown, how they’re shipped, where they’re sold, and how they go up and down in value. You also don’t want to spend that time learning about, say, oranges, a fruit that competes with apples in the marketplace.
You do recognize that trading apples carries with it some natural benefits. Everyone wants and uses apples, for example. Plus, trading apples can be cheaper than trading other fruits.
So, you decide to take your money and give it to your friend, Jim. Jim is a certified apple expert. He not only knows apples; he knows how to trade apples and knows the ins and outs of the apple market. He even knows about oranges and the orange market, too, particularly how to trade apples against oranges.
You’d probably feel a lot more comfortable if your friend Jim traded for you. You’d have good reason to. That is the basic principle behind managed forex trading – increasing your chances at turning a profit.
Should You Use a Managed Forex Trading Account?
Of course, just because it might be a good idea for some doesn’t mean it’s a good idea for you.
Some traders just do not want to give up control of their funds to anyone. It’s the same principle behind not giving someone the keys to your Ferrari.
Plus, there’s the notion that a professional trader can’t be that much better than you, right? After all, every now and then we hear stories about how hedge fund managers – some of the ritziest traders of them all – produce less-than-stellar returns in some years.
Honestly, it comes down to this: Can you dedicate enough time and effort to learning the ins and outs of not only trading forex, but also trading your chosen currency pairs?
If so, then you may want to maintain control of your trading and make your own decision. If you don’t have time to gain the knowledge you need, or run the analytics and other tools to gain an edge, turning to a pro may be your best bet.
Finding a Reputable Managed Forex Trader
If you decide that your time is better spent elsewhere, and want to pursue a managed forex trading account, there are some things you can do to find a reputable source and not gamble away your money with a scammer or with someone who is, let’s say, “unskilled”.
The first tip is simple: If it sounds too good to be true, it probably is. Some currency traders promise something ridiculous like 20% profits monthly. For starters, if there were ways to make 20% returns on a monthly basis, more people would do it. More people would also move away from stocks, bonds, and other assets and turn to currencies full-time.
The second tip is this: Try to avoid automated trading systems. Some managed traders aren’t traders at all, but instead are automated programs that trade based on certain rules and programming. Instead of going to those systems (which are just software programs), go with humans who are actual traders. Manual trading is more responsive and more flexible. Besides, automated systems are programmed by humans anyway. The difference is that human traders are paying active attention to the market. Programs aren’t.
The final tip is this: Higher fees don’t automatically mean bigger returns. Some firms attract business and make money by promising high returns and charging high fees. While you’re with them, they take money in the form of sky-high fees; even if you get fed up with less-than-promised returns and leave, well, they still had your money for however long you were there.
Read reviews. Look around. Try demo accounts. Ask questions about the company and its trading practices. If you can get responses, that’s a good sign; if the company stonewalls you, that’s a red flag. Look for a managed forex trading provider just like you would a mutual fund for your portfolio and you’ll have more success.
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