When it comes to managing investments, retail investors have more options at their fingertips than ever witnessed in human history. The internet has increased accessibility while decreasing the barriers to participation that once existed. For instance, trading in foreign exchange used to be exclusively the tools of multi-national corporations, banks, and financial firms. With the introduction of online brokerage and leverage, these instruments became readily available to the retail investing public for trading. This wave of opportunity has also created a more competitive environment amongst financial services providers which has driven down the costs for investors, namely for spreads and commissions. However, with the spread of technology and financial market accessibility, came certain risks for investors that did not conduct proper due diligence. These pitfalls include unregulated brokers, promises of profits, and advice from non-advisory entities.
An Industry Built on Evolution
Despite all the problems associated with the industry, there have been a multitude of positive developments. One suchevolution to come from these vast changes in the financial market structure is the proliferation of money management solutions that were once only available to sophisticated investors with millions of dollars in capital. Successful money managers have recognized the potential for unlocking vast sums of money from retail investors whom were previously untapped. This has caused the popularity of managed forex accounts to soar, with many options out there for investors who want to take a more hands off approach to fund management. While there is no such thing as a risk-free approach to investing (no matter what anyone tries to convince you of), this is one mechanism that is effective for diversifying a portfolio and picking a strategy that matches the risk-reward profile of an investor.
Depending on the services provider, the benefits can be numerous. Besides the obvious benefit of not having to micromanage trades all day, there is transparency to track performance in real-time and ability to pick strategies that matches investing goals. Traders operating proper managed forex accounts, aside from being licensed by the proper regulatory authorities, will also be able to provide an audited performance history to confirm accuracy of results. Good providers will not just highlight profits, but also not be afraid to offer more in depth statistics like drawdowns. Aside from performing proper due diligence on the trader, it is important to make sure the trader is utilizing a regulated broker with a solid reputation. Assuring safety and security of funds will add to the confidence of choosing a professional money manager.
Pick the Right Strategy
A successful investor understands the difference between needs and wants. In an industry that is dominated by promises of high rewards, it is imperative to look through the sales pitch and create achievable goals. Promises of get-rich quick opportunities should be met with caution. If it seems too good to be true, it probably is. Some providers offer 1000% returns to bring clients in the door only to later squander all the trading funds. While 1000% annual returns are possible, they are not very feasible, and typically require risking the entire value of an account. The search should instead focus on fund managers that are providing reasonable rates of return by taking a reasonable level of risk.
Finding the right strategy for a portfolio is paramount to picking the right managed forex accounts. For instance, in the case of a retiree, the strategy is typically more risk-averse and geared towards generating income, not capital appreciation. On the other hand, a younger investor that is not dependent on investment income could choose to focus on more high risk strategies that provide higher returns but also have substantially more risk. One suggestion is to pursue strategies that are not correlated to major market benchmarks like the S&P 500 or FTSE 100. Buy and hold strategies are typically the main retail investor tactics, meaning that performance is linked closely to broader market performance. Choosing uncorrelated strategies is beneficial because it means that in market downturns, positive investment performance is still possible.
In all, managed forex accounts provide a great means to diversify and complement existing investments. They provide a solution for investors seeking less investment risk and stress from the day-to-day management of trading accounts. While there can be pitfalls, proper due diligence and reasonable performance expectations can make this approach very beneficial for retail clients looking to have funds professionally managed.