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Using a managed trading account for your business?
Making trading and investment decisions for your business can be both time-consuming and emotionally draining. Not only do you have to invest time in keeping up to speed with the daily market news, but you also have to manage your emotions in making trading decisions based on that information. Using the services of a third party to take some of this pressure off allows you to put more focus into your business directly. A managed forex trading account is one way of accomplishing this. But what are managed forex accounts?
What is a managed forex account?
In short, managed forex accounts are trading accounts owned either by an individual investor or by a company. A professional account manager oversees them. The account manager, also known as a ‘money manager’, will make trading and investment decisions based on a combination of instructions given to them by the client. They include their risk tolerance profile, the total capital value they have to invest, and any other investment goals they might have.
The account manager is usually a professional money manager trained and qualified to manage client funds in line with their best interests and financial goals. Professional money managers are often qualified fiduciaries, which essentially means they have a professional obligation to make investment decisions that are in the best interests of the client. That adds a high level of protection to your account funds and ensures they will always be working in your best interests.
There are several different managed trading accounts, which include individual accounts, pooled or groups accounts, and institutional accounts.
How do managed forex accounts work?
Once the terms and conditions have been agreed between the client and the account manager – which involves setting out the trading strategy to be adopted and various other conditions – the account manager will then be given limited power of attorney over the client’s funds. This allows them to take control of the funds and assets in question and to invest them as they see fit in line with the agreement between them.
Unlike other types of financial advisors who might work on the basis of a commission, with managed forex accounts they are usually paid directly by the client themselves. The fee charged will depend on a variety of factors including the size of the portfolio, the complexity of the trading strategy, the markets being traded, the size of the account management company, and the types of investments they are instructed to make. Additionally, the exact fee charged will also depend on the level of day-to-day involvement the money manager has.
What are the benefits of a managed trading account for your business?
If you want to set up a managed trading account for your business, be it a company or some other type of institution, there are a couple of key benefits to this:
- No emotional trading: Using a third party to make your trading decisions takes any emotions you might have had out of the equation; whether that be stress, fear, angst, or frustration. It allows for objective decision making.
- Time-saving and efficiency gains: Trading the markets takes a massive investment of time to keep up to speed with the daily ebb and flow of the markets. Using a third party allows you to put this time directly into your business instead.
Things to keep in mind when using a managed trading account
Although the benefits of using a managed trading account seem relatively obvious, there are nevertheless some risks you need to keep in mind before agreeing to avail yourself of this kind of service.
Firstly, and most importantly, using an account manager to look after your investments is no guarantee of increasing the value of your portfolio! This is a common mistake people make when signing up to this kind of service. However, it is one that can prove costly if things go wrong.
While account managers are incredibly skilled and have an in-depth knowledge of the markets, this does not mean they know exactly how trades are going to play out. Sometimes trades executed by money managers do go wrong, leaving their clients out of pocket. There are always risks associated with trading on the open markets, and this is no less true for managed trading accounts.
Secondly, it is also essential to remember that not all money managers are created equal, and there is a massive variation in terms of skill, experience, and trustworthiness. All legitimate account managers need to undergo strict fiduciary training qualifications, but that is not to say you won’t come across a dodgy dealer now and then! With that said, always do your homework as thoroughly as possible, and don’t take everything they tell you at face value. Doing your research before signing an agreement is an excellent way of mitigating this risk.