A lot of people are looking for ways to earn additional – passive income with the goal to have more free time available to enjoy the good things in life. Investing in financial markets is one of the options that comes to mind and aside from the usual investing in bonds and stocks, more and more people are looking for ways to invest in the foreign exchange market.
Many people decide to do it themselves, even for stock investing, however trading the markets yourself requires a lot of time devoted to following and analyzing the markets which is something that not everyone wants to do.
For some, even if they want, they simply have too many other things to do, and the thing with trading the markets is if you want to succeed doing it yourself then you’ve got to spend some time every day to stay updated on the latest news and developments.
For equities, there are the common mutual funds that people can invest in without analysing the market themselves, and more recently a similar option has been offered by Forex brokers, namely the managed Forex accounts.
The foreign exchange market is the place where currencies are traded and it is also widely known by its shortened name – Forex. It is by far the financial market with the highest daily volume traded.
As of 2013 the Forex market averages over 5 trillion US dollars traded per day, with the US Dollar being the most traded currency followed by the Euro and the Japanese Yen.
This allows for a very high liquidity to be available in the Forex market, hence the unique opportunities that exist by trading it. Namely, the first thing that comes to mind is the gigantic leverage offered in the Forex market compared to other financial markets.
For the stock market, the highest leverage offered is like 10:1, while in the Forex market some brokers offer up to 1000:1 leverage. Of course, the greater the leverage the greater the risk, but the thing is that currencies, unlike stocks, seldom move in an uncontrolled fashion. Currency moves are much more contained and it’s very rare for huge volatility spikes to occur, thus the risk associated with the use of high leverage can be much better controlled.
So, investors looking for higher returns might be interested in the Forex market. A 60% yearly return is not uncommon to achieve with Forex trading, while it’s nearly impossible to do trading other markets.
So, what are Forex managed accounts and how do they work?
Managed Forex accounts are an opportunity for retail investors to earn passive income by just setting up an account and then sit back and let the manager trade his account and make profits for him. The minimum investment required is usually very low as Forex managed accounts are geared toward the small retail investors, thus anyone can invest in them.
Several types of managed accounts for the Forex market are generally available through retail brokers:
- LAMM (lot allocation management module)
- MAM (Multi-Account Manager)
- PAMM (percent allocation management module)
The basic gist of Forex managed accounts is, once they open a managed account with a Forex broker, small retail investors get to choose a manager for their account who will trade for them. The managers are experienced successful Forex traders and their track record is publicly listed on the broker’s platform.
Choosing a particular manager also carries different requirements and advantages because each manager gets to set his own rules and conditions in order for him to trade investors’ accounts. The managers’ trading strategies will vary greatly as well.
Some trade purely technical systems, others may be fundamental traders and a lot will use a combination of technical and fundamental analysis. Their trading styles differ greatly as well, and you will find scalpers, day traders, swing traders and position traders. So based on all those parameters, the investors get to choose a manager that will match their preferences.
It’s recommended that investors only choose managers with a proven track record of at least two years of profitable trading. Also, contacting the manager and asking him about his strategy and approach to the market should provide the needed information for one to make a decision.
A track record of at least two years is needed as an assurance that the manager is profitable in the long run and doesn’t have any unnecessary large drawdowns. Any such big down spikes in his track record or a prolonged drawdown period are warning signs that his strategy has some serious flaws and maybe choosing a different manager is the better option.
The broker is the intermediary between the manager and the investor. Nearly all Forex brokers offer managed accounts these days.
So investors have a wide choice in this regard as well because some brokers will suit them better than others. Also, something that investors need to keep in mind is that many Forex brokers don’t accept clients worldwide, so checking with them to see if a specific country is accepted is also a factor for whether or not one can open an account with them.
So, when the right manager and the right broker are chosen, Forex managed accounts can offer some hefty profits. A 30% – 50% return per year is easily possible from the Forex market and sometimes even doubling of the initial investment can occur.