Forex Managed Accounts: Why You Should Avoid Them

Are forex managed accounts the solution for lazy traders?

Do forex managed accounts offer forex traders a service that is more hands-off and less time-consuming than forex trading on their own?

The short answer is yes.

But the long answer, as found in this article, you’ll uncover what you should do:

How to learn forex trading or use a forex managed service.

Check it out:

What are forex managed accounts?

A managed forex account consists of a trading account where a trader or money manager trades on your behalf. You won’t actively trade on this account, so you can just monitor its performance instead. You will, however, probably spend more time researching in order to find the right person to manage it for you.

This type of account generally requires a higher deposit and has different cost structures.

Predominantly, the trader will want a performance fee for achieving any returns (if any).

This would be normally pre-agreed.

However, the trader that manages your account cannot withdraw your funds, they are only authorised to trade on your behalf.

With some accounts, you can limit the trade size specifically, the risk reward ratio per trade, and what assets to trade.

The money manager cannot make deposits or withdraw funds from the account. Remember, making a profit in a managed account is not guaranteed due to the volatility in the forex market, so all managed accounts should provide a disclaimer stating that you can lose money.

You can avoid the emotions and psychological issues that accompany winning or losing trades if you let your money manager handle all of them. They’ll make decisions for you, freeing up mental space to focus on other things like family life, work performance, etc.

Forex Trading Accounts for Beginners

Types of Forex Managed Accounts

There are two types of forex managed accounts:

PAMM Accounts

PAMM forex managed accounts are forex traders that pool their money together with other forex traders and work as a team. The forex trader will receive a cut of the profits generated by the forex managed account.

A PAMM Account in Forex trading is also known as a Percentage Allocation Management Module Account. It uses a software solution that allows investors to attach a sub trading account to a specific money manager or asset manager’s “master” account.

The sub account will take the same trades as the master account using the same percentage risk.

For example, if the Master PAMM account traded with 1% of their total trading account, all the sub-accounts would also risk 1% of their total trading account.

MAM Accounts

The MAM account allows you to use the percentage allocation method like a PAMM account, but it provides greater flexibility.

This is because there are different risk profiles for individuals that can be taken into consideration when trades are allocated and risks adjusted accordingly with the LAMM module.

For example, managers have control over how many lots of each trade will go into an individual’s sub-account based on their desired portfolio diversification strategy

What are the benefits of a managed forex account

No learning curve:

One of the core benefits of investing this way is you do not have to learn how to trade forex.

You entrust someone else with a track record to manage your money for you, just like you would with a stockbroker, and they will receive a performance fee.

A performance fee is essentially a share of the profits they generate for you.

This may seem like a good idea because you only pay them upon success, but we’ll tell you why it’s not later on.

No-hands solution:

Once you set up your account and arrangements with the forex trader, you’re good to go.

The trader will take care of everything else and look for growth opportunities in the markets.

This leaves you to focus on other matters in life.

Which is great.

Set your own automatic risk measures:

Even though you are not trading the markets yourself you can assign certain hard-stop measures to your account to prevent huge losses.

This can include standard stop losses and a drawdown feature.

A drawdown feature essentially puts a block on future trades from the managed account and alerts you that your account has hit your drawdown limit.

This then requires you to review your account, its trading history, and to decide if you want to continue with the service.

You could have great success

If you are lucky and find a money manager that can perform in the markets, you could earn a nice return for your capital.

However, you shouldn’t hold your breath, and here’s why:

What are the risks of forex managed accounts?

Stealth fees and poor losses can eat up your account quickly.

Remember when we said the performance fee isn’t all that it cracks up to be?

Well here’s why:

They want to take a share of your profit from every trade.

Which is awful.

You could be £3,000 down in your account but they want to share the profits from your trading – or recovering your losses.

For example:

If you were £3,000 down on your account.

You go and make a £500 profitable trade through the service.

They want a 50% performance fee, so there is £250 paid out to the forex trader.

Leaving you with -£2,750 in the red still.

This style of manager you must avoid.

With that being said, there is an alternative and it borrows the same pricing model from hedge funds.

REGULATED platforms won’t allow this because they have what is called a “High Watermark” in place.

This essentially means the money manager will only generate their profit share on profits that exceed the previous profit peak.

For example:

If you started with £100,000 in your trading account and made £20,000 profit over the last 6 months. All of that £20,000 will be subject to the performance fee charge.

However, the following month was made and the account dropped to £116,000.

Then two months later it was trading at £125,000.

Do you think they could charge money on the £9,000 growth?

The answer is no thanks to the high watermark.

In fact, you wouldn’t be charged a performance fee until you went £1 over £120,000.

Therefore, you would be charged on the £5,000 profit.

Make sense?

Basically, you only get charged on new and improved profits and not for chasing losses.

Fake results used to promote their service

Thanks to unregulated brokers and high-performance fees, becoming a money manager can be insanely lucrative.

So falsifying accounts and reviews are not unheard of from these services.

Just remember, if it sounds too good to be true…

Trusting that the manager will not chase losses to recover fees.

Forex brings a trading psychology demand that traders need to grasp.

At the end of the day, these money managers only make money when you make money.

So, even though their interests are aligned, they could easily chase poor trades to try and grab some quick wins and end up losing your entire capital.

So, what should you do?

What is better: Learn forex trading or getting someone to manage it for you?

Time to be blunt here.

IF you want to trade forex, you have to simply learn it and put the effort in.

It’s worth it.

However, if you don’t want any hassle or take the time to learn the markets, using a managed forex account is NOT the path to take.

Instead, look into buying stocks and accumulate shares and dividends over time.

You can even use a stockbroker for this.

But in a world where forex moves fast, you shouldn’t place your hard-earned money with anyone else to lose.

Should You Use Forex Managed Accounts?

Forex managed accounts become a stress-free option for those who want to earn money by trading currency but don’t want the added pressure of becoming an expert and managing their own finances.

It can be hard enough just to take care of life outside the office!

When considering forex managed accounts, it is important to know the risks involved with them and how they could affect you.

At the end of the day, forex managed accounts should be avoided. They come with a lot of downsides and forex traders could have success if they just take time to learn forex trading.

Just remember, forex trading is a tough game and forex managed accounts can take more of your money than the forex broker ever could.

If forex is not for you, try investing in stocks or annuities instead.

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