Use Caution With Managed Forex Accounts

Legitimate managed forex trading accounts may not be the easiest investment vehicles to find in today’s forex market. Many unfortunate people have found to their dismay that their forex managed account funds have been stolen by fraud perpetrators operating what turn out to be Ponzi schemes.

Accordingly, if you wish to consider allowing a firm the discretion to trade the forex market with your money, you should make extra sure that the company you give your money to is above board and that they fully intend to deliver what they promise. Also, just about anything that has “forex” in the name can be readily found by doing an Internet search, and managed forex trading accounts are no exception so do some online research.

Furthermore, if you have any real interest in making these sorts of investments, some key considerations discussed in the following sections should be taken into account before you pony up your valuable cash to invest in one of these forex managed account funds.

Basic Considerations for Managed Forex Accounts

One of the first things to consider when making any sort of investment usually involves assessing how much you know about the market you will be investing in. The forex market makes up one of the most unforgiving markets in the trading world, with dramatic exchange rate moves and occasional price action gaps that can result in a large degree of slippage on stop loss orders.

Having a minimum degree of knowledge about the forex market and what is involved in forex trading can only benefit an investor. After all, you would not invest in a business you knew nothing about, would you?

Hopefully, you answered no to that last question. Nevertheless, many people invest their money into this type of forex trading account without having any solid idea about what they are getting into in terms of the fund manager or the market the manager claims to be trading.

Therefore, acquiring some basic knowledge about the forex market, including how trades are executed and what kind of reasonable returns can be expected should be some of the most basic information acquired before entrusting your money to a company offering a managed forex account.

Make Sure Your Fund Managers Know What They are Doing

The importance of thoroughly checking out the credentials of anyone you plan to have manage your money cannot be stressed enough. Often, the fund managers who trade forex for these accounts have a limited amount of experience trading. They also often misrepresent the experience and success that they claim to have.

Furthermore, if the company is soliciting funds, then they most likely have an online presence from which you can review information about their fund managers on their own website, although information obtained independently has much greater value.

Also, by entering the fund’s name into a search engine or by contacting their regulatory agency, you can often discover if the company has had any instances of impropriety or if any indications the company may not be above-board.

A number of online forums that specialize in forex frauds also exist, and you can get information from current or former forex investors of the fund you might be interested in.

Are Your Funds Secured?

Fund security does not refer to having your funds placed securely in someone else’s account with no hope of recovering them if something goes wrong. Because of the largely unregulated nature of the retail forex market, a great deal of fraud is perpetrated on witting investors by purported providers of managed forex trading accounts.

The first step in assessing fund security generally involves checking the managed account firm’s status with their regulating agency. This should be the National Futures Association or NFA, or the Commodities Futures Trading Commission or CFTC for U.S.-regulated firms.

Also, avoid trusting any results of their trading that you cannot independently verify with a trusted third party. Often, these managed account operators will post results that were obtained either by optimized back testing over a chosen high performance period or via a number of other creative ways that allows them to show a large profit.

Check Their Location

Another classic red flag for potential fraud occurs if the company is headquartered in an unusual location for a reputable financial services firm. For example, be highly suspicious of managed account firms located in Indonesia, Panama, Costa Rica, the Bahamas, or anywhere else that you will have difficulty tracing and recovering your money from.

Also, even if the company is incorporated in the United States, many U.S. companies have been sued by the CFTC for forex fraud, such as Capital Blu or CMA Capital Management. In addition, several companies from Switzerland have also been investigated and found guilty of fraud, including firms like Crown Forex and Forex Swiss.

Conclusion

In conclusion, avoid just jumping into placing your hard earned money with a managed forex trading account firm, no matter how attractive the returns they offer seem. You will first want to thoroughly investigate the company of your choice, and do not forget to read all the fine print in their contracts.

Read more about money management here

Read more about Ponzi schemes here.

Please find a list of trusted forex broker accounts here.

Read much more about forex fraud, how to avoid it and spectacular stories here.


Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.