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Three things to remember when investing in a forex managed account?

For many traders or forex managed account is an easy way to make money in the forex markets. As the name suggests, a forex managed account is where an investor puts money into a managed account. The fund is usually managed by a forex manager. The basic premise behind a forex managed account is that, if you do not have the time or the knowledge of trading the forex markets yourself you could pull your money along with other investors to be managed by a forex manager.

Although a forex managed account might seem a safer option for investors, there are quite a few risks associated with it. The most common of these include the threat of being scammed, resulting in the investor losing their money. Besides this a forex managed account can also turn bad when the forex fund manager starts to take on undue risk.

Unfortunately, many forex investors tend to focus on the wrong aspects when choosing a forex managed account. Many times, investors focus only on the returns that are generated by the funds. This means that many times, the investor does not focus on the risk that the forex managed account takes.

Because of the fact that the forex managed account and the regulations that come with it are loose, there is a very real risk that an investor can lose the same amount of money if not more in a forex manage account.

Let's take a look at some of the real threats that are associated with a forex managed account.

1. Investing in a scam forex managed account

If you are on social media, chances are that you might have come across advertisements and links posted by random bots. Most of the time such advertising material promoting a forex managed account focuses on the short term profits made. This entices the reader into thinking that investing in a forex managed account can be profitable.

However, in most cases, the investor does not dig much deeper and does not do the due diligence when it comes to choosing a forex managed account. Without knowing complete details of the fund and the regulatory aspects of it, it is quite easy that you can get scammed.

The best way to avoid falling into such a trap is to conduct your due diligence. This means that the investor needs to check if the forex managed account is registered as a business, and that there is some kind of an insurance if you lose your money.

2. Lack of audit

One of the best ways to avoid being scammed into a forex managed account is to ensure that the fund is audited by an external third party. However, there is a tradeoff for this. Firstly, hiring an audit can be expensive. Therefore, it is quite likely done a forex managed account with a smaller amount of capital might not be able to afford such luxury.

But on the other hand, having access to a third party audit can be helpful to calm your nerves. It can also provide a general sense of assurance that your money is safe. But this might mean that the forex managed account might require a higher amount of capital rather than just a few couple of hundreds of dollars.

3. Managed account versus pooled accounts

One of the biggest factors that differentiates between a managed account is the fact that whether the fund is managed directly by the forex fund manager or if it is a pooled account. The difference is very subtle. In a managed forex account, the account is in your name but the capital that you have is allowed for trading by the forex fund manager.

On the other hand, in a pooled account, the fund manager basically collects the trading capital from different traders and is then able to trade with that money. Here the forex fund manager has complete control over the funds.

Lack of understanding on the difference between these two types of managed accounts can be very disastrous.

In conclusion, the above 3 points only scratched the surface when it comes to a forex managed account. At the end of the day, it is up to the investor to do their own due diligence. While there is no guarantee that your funds will be safe, at the very least the investor is able to ensure that they're not investing in a Ponzi scheme.

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