The intricate, complex ways of the financial markets often confuse the beginning traders. The two types of analysis, the different kinds of data and their contradicting signals, the vast choice of brokers, various trading styles, the many voices that shout buy and sell all the time are very intimidating to those who do not possess the free time necessary to study this field and for staying up to date with the data releases, news, and analysis offered by the myriad media channels.
Traditional forex trading is high risk and can be difficult, especially for beginners. Casualty rates tend to be high since success demands specialized knowledge, experience, and emotional control. It is easy to become impatient, look for shortcuts, and then allow your emotions to take over, a recipe for failure.
At the same time, many are intrigued by the tales of the spectacular success in currency markets achieved by some astute traders who have made the necessary investments and reaped the benefits. In response to the complex issues related to traditional trading, the brokerage industry has developed a number of reasonable alternatives over the years that permit you to delegate trading control to another party.
In the caser of “mirror” or “social” trading, you may pick an expert or anyone else in the broker’s network and then emulate his trading decisions. In order to use these options, you may still be confronted with the need for experience and emotional obstacles, and for these reasons alone, you may find the managed forex account an exceptionally alluring offer.
A managed forex account allows a professional manager (or someone who claims to be so) to trade your funds on your behalf for a salary or a fixed share of the profits. You may select a specialized firm for this purpose or a broker that offers a sophisticated software feature that permits your account balance to be traded by an expert.
The latter service does provide an extra level of risk protection. You must always be careful in selecting a money manager that you can trust and that has earned a good reputation in the industry. While most money managers are legitimate, there have been several notable scams in the past (a few are discussed below). In many other cases, an enterprising person will setup a firm advertising his services to clients and will trade their funds on an independent basis. This second type of manager and the dangers created by associating with him is the subject of this article.
Advantages With Managed Accounts
There are a number of advantages that a managed account offers to the trader. Experience, which can only be gained through long-term involvement in the markets, is the only asset that can reduce or even negate the large risks associated with currency trading. Since a beginner lacks such a background by definition, cooperating with a money manager may seem to be a good choice. Emotional difficulties involved in trading cannot be tolerated by everyone, because each person has a different character profile and some are more prone to emotional extremes than others. Working with a money manager can also help you overcome this problem.
Lack of sufficient time is another issue that discourages beginning traders from seriously committing to currency trading. A full-time account manager who can devote all his energies to trading for his clients is another positive aspect of this approach. Finally, many online traders, who act as fund managers, provide their past records to provide guidance on potential future returns. This knowledge may also help the beginner in choosing the best offer for himself.
In fact, paying someone to buy and sell in the forex market for you is a becoming a popular thing to do and increasingly more so as folk, like yourself, discover them. They are a relatively unknown investment, that historically have been only accessible to large financial institutions and investors with a lot of money behind them. With the advent of the internet and high speed broadband connections, they have become accessible to everyone.
It is all very straightforward. First of all you don’t need to go out and find a trader for yourself, nor do you need to negotiate deals with them. No, it is all done for you. You end up paying them to buy and sell currency for you but it is taken out of the profits that they make for you.
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In summary though, this is what happens
• You open up a forex trading account in your name.
• You fund the account.
• You give the trader an LPOA (Limited power of attorney). This enables them to buy and sell FX for you.
• They do the buying and selling for you.
• The trader takes a performance fee from the profits. Usually 25% to 50%. Although I have found one that only charges 15%.
• You withdraw funds whenever you want to.