Are Forex Managed Accounts Too Risky?

Forex managed accounts are an interesting alternative for people who would like to make money from the profitable foreign exchange markets but for whatever reason are neither able to trade nor to learn how to do it themselves.

When you set up a forex managed account you do not have to operate any trading yourself. You leave it to the forex management company to trade with your fund on your behalf.

Types of forex managed accounts

Basically, there are two:

1. Standard forex managed accounts

With standard accounts, your fund is retained in your own name in your brokerage account. In this case, the manager controls it to be able to do the currency trading with it. You can check how much money you have in your managed forex account and how the trading is going whenever you wish.

You need to be aware that even the most experienced of account managers cannot be hundred percent accurate with their forex predictions at all times. You must accept that there will be some losses. Nevertheless, if you are starting out, chances are he/she will be more successful with your money than you would be yourself.

Therefore, with these individual forex managed accounts the only thing you have to ensure is that your forex trader makes you enough money to cover the account fees and a good and steady profit for you.

2. Pooled managed forex trading

Pooled accounts are of a different nature. Here the probabilities of fraud increase and therefore they entail a bigger risk. Your money is added to a pool and there is an account manager in charge of operating it. You then receive your share of the profits they declare.

On paper, a forex pool acts like a cushion, a buffer that can protect you from heavy losses because they are shared among several people. Therefore, it would seem that the result should be more predictable than with separate regular forex managed accounts.

However, the problem with these pooled accounts is that if you fall in the hands of a dishonest forex management company, you would be at their mercy. There is no clear way of knowing exactly what they do. They could pass on some small profits to you to avoid complaints and at the same time fill their pockets with the real profit they are making with their customer's money.

If the manager of a pooled forex account guarantees you a fixed percentage return on your investment, you'd better watch out. In the world of forex trading, guarantees do not exist. Be very distrustful of any forex management company that assures you a 10%, 12% or any other fixed percentage return.

The transparency of forex management companies

This is not to say that you can never find pooled forex managed accounts that are operated honestly. And, as we mentioned earlier, they could be a little more predictable that the standard accounts. That said, you must research and check very thoroughly any company that offers pooled forex managed accounts before committing any of your money.

In any case, whether standard or pooled currency trading accounts, you should always do your homework first. Do not settle for forex managers that try to pressure you into signing with their favorite broker.

This could mean that they obtain a commission on each one of your trades and that they will try to run as many small trades as possible even if it is not one of the best forex strategies. With this system, they would augment the earnings of the broker from the spread and their commission cut.

Anyway, even if their commission structure is different, that way is not the best to get the more inexpensive and reputable broker.

It is advisable to sign up with a forex management company that let you select your own broker freely. The fees of such forex managed accounts may be slightly higher, but they are worth it.