Managed Forex provides non-traders the opportunity to conveniently invest without knowing how to trade.
Managed Forex is a brilliant concept that understands the needs of investors who wish to have a more speculative portion of their portfolio. Managed Forex brings options that are available to those investing in equities to those investing in currencies and commodities. The need to learn how to code an algorithm, the pains of learning how to trade, and the extensive screen time associated with Forex are eliminated. Service providers have went through the trouble already and have verified and well-documented track records for investors to base their investment decisions.
Managed Forex does not offer complete solutions though… there is one donut hole with Managed Forex, but first…
Forms of Managed Forex Services
PAMM (Percentage Allocation Management Module) Accounts
These are pooled money accounts where investors allocate funds of a desired proportion to be managed by fund managers/traders/investment firms of their choosing. This pool of money includes the capital contributions of the fund managers and other investors. Fund managers are compensated with a percentage of the weekly/monthly/quarterly profits earned. Investors may withdraw profits or principal at the rollover period.
In the simplified example illustrated above there was an initial total investment of $500. The PAMM account manager had 60% of the initial total investment and was entitled to 60% of the profits by the rollover period. The investors receive a proportional amount of the profits based on their investment. The investor who invested 20% is entitled to 20% of the total profit. Each investor in the fund receives a return on investment of 200% during this period.
Things get a little more complex with PAMM accounts than the overly simplified situation above. Consider that new investors, profit-taking, and investor exits take place. Also, the PAMM account manager has little reason to offer the service if there is no revenue generated from opening the fund to the public. The PAMM account manager will charge a service fee much like the way a hedge fund would. The PAMM account manager could have turned $300 into $900 without the PAMM.
Let’s give these players in the PAMM some names to personalize them and it make it easier to distinguish between their investment roles.
- Fund Manager Rick creates a PAMM and puts $300 of seed money into it.
- Investor Morty invests $100 into the PAMM.
- Investor Jerry invests $40 into the PAMM.
- Investor Summer invests $60 into the PAMM.
The fund has a service fee of 20%, an early withdrawal fee of 5%, and a Trading Period of one month. After one month, Fund Manager Rick turns a 100% return on investment and the total amount in the account is $1,000.
- Fund Manager Rick now has a $600 total in the PAMM.
- Investor Morty now has $200 in the PAMM.
- Investor Jerry now has $80 in the PAMM.
- Investor Summer now has $120 in the PAMM.
With the fund’s service fee being factored in, Rick will collect a healthy 20% of the profits he earned for his clientele.
- Fund Manager Rick earns $40 in service fees and withdraws them.
- Investor Morty now pays $20 in service fees.
- Investor Jerry now pays $8 in service fees.
- Investor Summer now pays $12 in service fees.
Morty pulls out his $80 of profits, Jerry rolls his profits over, and Summer withdraws her profits. Beth enters the fund and puts in $400.
- Fund Manager Rick now has $600 total in the PAMM.
- Investor Morty now has $100 in the PAMM.
- Investor Jerry now has $72 in the PAMM.
- Investor Summer now has $60 in the PAMM.
- Investor Beth now has $400 in the PAMM.
Rick delivers 50% returns for his clients. The total in the PAMM at the beginning of the second period was $1,232. Now there is a total of $1,848.
- Fund Manager Rick now has $900 in the PAMM.
- Investor Morty now has $150 in the PAMM.
- Investor Jerry now has $96 in the PAMM.
- Investor Summer now has $90 in the PAMM.
- Investor Beth now has $600 in the PAMM.
After Rick collects his service fee of 20%, his clients can determine whether they wish to rollover to the next trading period. If they continue to invest in Rick’s fund and they exit early, they would be subject to 5% early withdrawal fee and the fund holdings will re-balance accordingly after the daily rollover time is reached.
Every PAMM provider and fund manager has different rules of fund entry and withdrawals. Consider them before entering into a PAMM.
MAM (Multi Account Manager) Accounts
Fund managers have multiple sub-accounts for the purposes of assigning a different level of leverage, which makes it suitable for investors with a higher risk tolerance and appetite. Fund managers are compensated with a percentage of the weekly/monthly/quarterly profits earned. Investors may withdraw profits or principal at the rollover period.
Trading Signals are subscription services that copy trades from another trader whether it be an individual or a company. Instead of collecting a percentage of profits, these Signal Providers collect a subscription fee on a monthly basis. The user of the Trading Signal can choose to automate the process and have the trades be automatically triggered.
Where’s the Donut Hole?
The Donut Hole is the allocation and selection of the accounts and signals. These Managed Forex options are all transparent in their methods, but picking the right one is an absolute mystery. How much should be allocated into each signal or account to be managed?
There’s no service provider that does such a thing for clients. Most Introducing Brokers are glorified affiliates and only a few are actually money managers of any sort.
Freevestor is the only advisor out there creating Managed Forex portfolios and ensuring that clients are not left exposed to unsystematic risk (diversifiable risk). Freevestor is a portfolio provider and signal watchdog for its introduced clients and the services are FREE. Throw in the monthly cash distributions into client accounts and it is very likely that the cost of signal subscriptions on a monthly basis are completely defrayed.