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Using a Money Manager to trade for me

 

money manager

A money manager, also known as a fund manager is a trader/investor who trades on behalf of their client funds. There are both risks and benefits of using a money or a fund manager. For the most part, a fund manager is expected to be a successful trader.

The primary goal of the fund manager is to use the collective pool of funds in order to make bets in the market. A money manager is often used as a term as someone who trades most currencies. The way a fund manager operates can vary significantly.

People who use a fund manager often find it easier to have their money or capital being used by a professional rather than trade by themselves. In a way, a money manager can also be useful when you want to diversify your investment.

In the forex world, investors use a fund or a money manager mostly to trade currencies on their behalf, and of course to earn a profit.

However, as with any form of investing, you should do your due diligence before choosing a fund manager. There are also different ways you can invest in a money manager to trade for you.

Managed forex accounts or a forex fund

The terms might seem to be almost similar, but there are some subtle differences. A managed forex account is also known as a forex PAMM account. PAMM stands for Percent Allocate Money Manager. Most of the forex accounts offer a PAMM account.

 

PAMM Account

Forex PAMM accounts (Source: Alpari)

 

With a PAMM account, the ease of investing in this account is easy. The forex fund manager has a PAMM account with the broker. You can open an investing account and choose to invest in a PAMM fund of your choice.

There is always a fee associated when using a forex fund manager. The fee of course comes from the fact that the fund manager is trading on your behalf. Therefore, when investing in a PAMM account, you will be shown the percentage of profits that the fund manager will keep for themselves.

If you think this is not a good idea, think again. With a PAMM account, the commissions the fund manager gets is only when they make a profit. Therefore, there are no fees when the PAMM fund takes a loss.

A forex fund works a bit differently. These are mostly closed funds. There is a good chance that the fund manager trades with a completely differently broker. Therefore, a forex fund is not as transparent as a PAMM account.

The fee can also be higher than usual. With a forex fund, you need to be extra careful in your due diligence. You can come across a lot of scams where the fund can just take your money and disappear. On the flipside, a reputable forex fund will no doubt charge you more money.

Between a forex PAMM account and a forex fund, you need to decide what best addresses your needs.

Why should you use a money manager in the first place?

Addressing this question can reveal all the important answers for you. There are a number of reasons why one would want to use a money manager. Here are some of the commonly raised reasons.

  • You have extra funds to invest but don’t quite know how the currency markets work
  • You are not very proficient in trading forex and prefer your money to be handled by a professional
  • You want to diversify your trading in forex, in addition to your regular investments

The list of reasons can go on and on.

At the end of the day, your investing goals and your risk tolerance will determine why you would want to use a forex fund manager. While most investors prefer to think of profits when investing with a forex fund manager, there are also some big risks that one needs to consider.

Risks of using a fund manager

Risks and trading or speculating in the financial markets go hand in hand. It is important to note that you are aware of the risks of using a forex fund manager. A money manager is at equal risk of losing their trading capital just as you are.

The financial markets can be risky and this risk includes a forex fund as well. However, the way the risk is managed can differ. When you invest in a money manager in forex, you should firstly understand that there is no diversification.

Therefore, in the event of a big market shock that affects the currency markets (ex: Swiss National bank removing the peg in EURCHF), the fund can be hit with big losses.

At the end of the day, a money manager can be a good addition to your investment strategy. As with anything related to the financial markets, the first thing to understand is that will always be risks. Whether you want to take on these risks depends on your risk tolerance.

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