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 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. This second type of manager and the dangers created by associating with him is the subject of this article.
There are a number of advantages that a managed account offers to the trader. Since a beginner lacks such a background by definition, cooperating with a money manager may seem to be a good choice. Working with a money manager can also help you overcome this problem. A full-time account manager who can devote all his energies to trading for his clients is another positive aspect of this approach.
This knowledge may also help the beginner in choosing the best offer for himself. Read our recommended forex account managers article including PAMM accounts. All of the above sound simple and appealing, but there are many inherent dangers that are disguised in that simple appeal. By allowing the manager to trade on his or her behalf, the trader does indeed benefit from the accumulated experience of that person.
But by doing so, he or she also loses the opportunity of learning in the markets by practice and study. In essence tying his fortune to that of the manager and thus depriving himself of the independence of mind and the analytical mentality that is a lifelong necessity for a trading career. By handing over the emotional responsibilities associated with trading to the manager, the account owner condemns himself to perpetual slavery to the will and skill of the manager.
Since he is unable to withstand the emotional pressures associated with trading, he can never evaluate the market independently and can never possess the necessary confidence to trust his own judgment. Ultimately, the manager will gain complete confidence over his trading decisions with unpredictable and potentially dangerous results.
Finally, while the past records of money managers can be a useful guide on their skills and prowess, it can also be misleading. First of all, in many cases it is not possible to evaluate these records due to the lack of sufficient background information. It is also true that the black box of performance data is insufficient for successfully evaluating the trading style and method of the manager in question.
Finally, past performance is not a guide to future results: A past record of positive returns does not guarantee a similar performance in the future. In general, remaining in control of your account and trading to gain experience, by risking small amounts and using very low leverage is usually a better idea than handing over the control of your account to a stranger.
It is difficult to predict how reliable a person is on the basis of the brief communication preceding the opening of an account or the signing of a contract. We do not claim that all managers are fraudsters, of course, but it is imperative that you perform the necessary background check. Ask for the required licenses and certifications before deciding on whom you will entrust with the management of your wealth.
In order to clarify the dangers involved, we will list a few of the scams and thefts perpetrated by self-professed managers in the past few years. The nature of the relationship between the manager and his client ensures that a degree of blind trust must be maintained between the two parties, since it is not possible to check the actions of the manager constantly.
Furthermore, by definition the manager needs a degree of independence about the way he uses the funds at his disposal, in order to be able to make profits and to manage the risk of the account successfully.
Talkative and persuasive, Mr. Matthews was an able marketer in spite of his lack of understanding in the currency trading business. Through a dashing, confident attitude to life in general and the audacity provided by his utter lack of knowledge or understanding of the forex market, he was able to lie persuasively by offering his clients risk-free managed accounts facilitated by his sophisticated trading techniques. He requested additional funds to continue his rising career as a forex fund manager.
To cut a long story short, it was eventually discovered that he had spent all the client funds on private jets, real estate, boats, luxury cars and pornography. Ultimately, you're free to do whatever you want with your own money.
You are free to turn each penny into thousands of dollars, but you are also free to turn your millions or thousands into pennies or nothing, if that is your desire.
Our hope is to remind you here that the promises, pledges, and claims of account managers are of little value unless they are corroborated by information from independent sources, such as regulatory bodies and government authorities. But even in those cases where the reliability and honesty of the manager is not in doubt, it may still be a better idea to trade your funds yourself, so as to exercise maximum control over your future and the safety of your assets.
But whatever you do, never act on the basis of extravagant promises made by someone recommended to you by friends or relatives. Be diligent and responsible about whom you entrust your assets to. Isn't the necessity of that due diligence obvious? Visit our forex broker review page to read extensive analysis on the best, honest and fraud free forex brokers available to trade currencies with. Capital Blu Management spent millions from a managed account fraud on luxury cars, strip clubs, a private jet etc.
Read about a Managed Account scam where the advantages with new technology and the Internet was used. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. No information or opinion contained on this site should be taken as a solicitation or offer to buy or sell any currency, equity or other financial instruments or services.
Past performance is no indication or guarantee of future performance. Only the NFA regulated brokers featured on this site are available to U. Read our full legal disclaimer.More...