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8 Steps to Discover a Well Performing Forex Managed Fund
In the 90's, only exclusive banks and private investors had access to the currency markets. But today, everyone is getting in on the act.
Let's take a look at some of the factors a potential client should look at when deciding whether or not to invest in a forex managed fund. A review of the fund's performance might seem a good place to start looking.. But things aren't that simple -- one needs to consider the drawdown, ie how much the fund can potentially lose.
The potential client should also enquire as to the leverage levels of the forex managed fund. This will affect the performance returns enormously, but on the reverse side, it will also affect the drawdown of the fund, ie how much the fund can lose. Leverage means, in essence how much risk the manager is taking to achieve the returns on the forex managed fund. Thus, for example, if the size of the account is $50,000 and the forex fund manager is using 10 times leverage, the size of each of his trades will be $500,000.
Leverage is the main reason that most retail forex investors fail in their attempt to become forex traders themselves, and end up investing their money in a forex managed fund. Whilst it seems an attractive proposal to use high levels of leverage, this can also, of course, work against you in practice. In theory, it sounds great, you use a $10,000 to buy $1 million of foreign currency, and if all goes right, you can double or even treble your money in a few hours, on a single trade.
But what if it all goes wrong? In practice, you are already quite a lot down on your account, as you need to pay the spread, ie the difference between the buying price and the selling price. Firstly, you need to factor in the spread, this can be as much as 4 or 5 pips. So, taking the figures in the example above, if a trader was trading 10 lots, this would be the equivalent of $100 a pip - so if the spread was 5 pips, the trader would be $500 down on the trade before he even started! This leverage can be a disaster in a fast moving market, which is exactly why forex managed funds have become so popular in recent times, as more and more traders they can't make money on their own, and look to the services of a professional to manage their money.
Hence the investor much choose a forex managed fund which is appropriate for his level of risk. If the investor wants to get triple figure returns, he must accept a higher level of risk, with higher leverage. On the other side of the spectrum, there are more conservative investors, who are happy with 10% or 15% return per year. To conclude, therefore, the investor must find a forex managed fund which fits his risk profile, and where he will be comfortable if there are drawdowns which are typical of the fund in question.
Author Resource:-
The world wide web is filled with handy resources on managed forex services, and we have set out a couple of examples here, where you can get additional particulars about a variety of important managed forex funds and critiques of individual forex managed funds and find out more about the thrilling and valuable world of foreign currency trading.
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