5 Ideas To Find A Well Performing Forex Managed Fund
September 3, 2010 by Guest Author
Filed under Debt
Whilst the financial crisis has taken hold of the world, and people have lost their savings in stocks and mutual funds, those who have invested in a forex managed fund are quietly pleased with themselves. Let’s take a look at this phenomenon and try to find out exactly why everyone is investing in forex at the moment.The growth in the forex trading market over the last few years or so has been nothing short of staggering. The contrast to ten years ago is amazing – now all you need is access to a computer, and you can get started in trading currencies!
But how should an investor judge a forex managed fund? Looking at the returns might be an obvious place to start.. But it is not as easy to just choose the managed forex fund with the largest return. One should also look at the drawdown – if the forex managed fund makes 25% return one month, it may sound good, but not so good when the client loses 30% the next month!
The investor should also speak with the manager of the forex managed fund and enquire as to how much leverage the manager is using. Leverage can have a huge impact on a fund’s performance.
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.
Thus the client much choose a forex managed fund which he is comfortable with on a risk adjusted basis. If he wants to shoot for the stars, and have the opportunity to make perhaps 100% or more on his account in a year, then he might choose a more risky forex managed fund which uses more leverage. On the other side of the spectrum, there are more conservative investors, who are happy with 10% or 15% return per year. To summarise, then, the potential client 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.
The web is full of handy resources on managed forex services, and we have listed just two examples here, where you can get additional information about a selection of leading forex managed trading and critiques of individual forex managed funds and find out more about the interesting and valuable world of foreign currency trading.
