Becoming a successful trader in the forex market is a challenging task for a beginner who is still in the phase of learning about the intricacies of currency trading. Trading without enough knowledge and experience makes it more risky as you are prone to losses in the absence of a solid strategy and risk management plan. It takes some time to devise a trading plan and you should not trade on a live account without enough preparation. Thankfully, the majority of brokers offer free demo accounts to help new traders learn without any risk as you will be using virtual funds for practice.
Learning indeed comes before earning but the dynamic forex market offers a lot of innovative trading solutions to help new traders and investors who are unable to trade themselves. Maybe you are not yet ready to carry out the trading process or haven’t found the right strategy. Or you know the basics of trading but you don’t have the time to actively manage your trading account. In any case, managed forex accounts can be an ideal solution for you.
In this blog, I will be sharing some important things that beginners need to know about managed forex accounts.
Purpose of Managed Forex Accounts
The first thing that you need to understand about managed forex accounts is the purpose of investing in them instead of trading on your own. Like I said earlier, managed forex accounts are for those who are new to the forex market and want to make some money while they are still learning to trade from scratch. The managed Forex account is a place where multiple investors allocate their funds and an expert trader is in charge of initiating and executing trades on your behalf. Thus, those who want their accounts to be managed by an experienced or professional trader can feel at ease by investing in these accounts.
The investor’s funds will only be used for trading by the account manager and you cannot enter or exit any trades on your own. You will be earning profits based on how much funds you have invested in a trader’s system. The account manager will also get a share in profits or commissions based on the compensation policy. You can choose the account manager after reviewing their performance and the strategy followed. Firstly, you need to sign up with a broker offering managed forex account services and then start investing.
Types of Managed Forex Accounts
There are different types of managed forex accounts and you need to understand the differences between them to select the type of account you want to invest in.
- Forex PAMM Accounts
PAMM accounts are very popular among forex investors and it is the simplest form of managed forex accounts. PAMM stands for Percent Allocation Management Module which means the fund allocation and sharing of profits/losses are based on percentages. If the funds you invest in an account manager’s strategy is 10% of the total money they manage, you will get 10% of the total profits earned by that trader as he/she will be managing the trading activities of multiple accounts through their main account.
The losses will also be reflected in your account balance as even the expert trader may lose some trades. Hence, investors are advised to diversify their portfolios by investing with different account managers. This way, you won’t be risking all your capital with one trader and will be able to cover the potential losses from the profits you earn from the funds you allocated to another account manager. The only problem with a PAMM account is that you don’t get any control over the trading decisions.
- Forex MAM Accounts
MAM account is the abbreviation for Multi Account Manager and it is another type of managed forex account that you can invest in. Here the top trader or account manager will be managing multiple investor accounts by trading with their funds on their behalf. But in this type of account, the allocation of funds is not solely based on a percentage basis as you can choose an investment criteria which gives you more flexibility in comparison to PAMM accounts.
MAM accounts are more suitable for those investors who want to manage their own risk by setting some conditions for how their funds will be used for trading and this means you have more control over the trades being placed. But you still can’t enter or exit trades on your own as it will be done by the account managers that you choose to invest with. But you get to decide the level of leverage and hence this account type is ideal for getting more control as an investor.
- Copy Trading Account
Copy Trading can also be considered as an option to manage your trades with the help of an expert trader but here you are not really investing the funds with an account manager. You are simply copying the trade positions of a top trader and for this, you need to join copy trading platforms. Many platforms offer automated copy trading and you can choose the trader to copy by reviewing their performance and profitability. But you need to make sure that the traders you copy have similar risk tolerance and diversification is needed for managing the risk.
- Advisory Service
Advisory service is quite different from other Managed account services as you will be able to meet the advisor and discuss the strategy that will suit your trading goals and requirements. They will give valuable advice and guidance about how your trading account can be managed, helping you to get the best possible results. You can think of them as a financial advisor you can hire to assist in trading activities. Here, you will get the opportunity to take part in the decision-making process.
- Managed Portfolio
This is a portfolio management service, where your investment portfolio will not only include forex but also other assets. In the case of forex trading, this type of managed service will work if you are interested in holding trading positions for a longer duration. Because your portfolio will also include trading instruments from other financial markets, they will help you to build a well-diversified portfolio. This minimises the risk and optimises the potential profits.
- Pooled Accounts
Just as the name suggests, a pooled account will use the funds from different investors and pool them together to raise the trading capital. The benefit of this type of account is that the minimum investment requirement will be low and the account manager will be trading for the clients who have invested in the pooled money account. The profit sharing can be based on the amount of funds that you have invested and they will be managing the trading activities through a single account.
Conclusion
To sum it up, forex managed account services are surely a revolutionary idea in the world of trading as they make the market more and more accessible to everyone even if they lack expertise in trading. Many beginners give up on the idea of trading due to the complexity and risk. Such individuals can surely consider these forex investment options.
