In this article we will speak about what exactly a managed forex trading account (also known as a pamm account) is, what benefits it provides, and what you have to know, before signing up for any managed services. Nowadays, it is difficult to meet a person that has never thought about investing his accumulated savings, or other sources of passive income at least once. IRA accounts, bank deposits, stocks, bonds, Ponzi schemes of all sorts – those are all ways to invest your money. Why is it necessary? First of all, money has a tendency to lose value due to inflation, so keeping your money “under the pillow” at your home, is never a good idea. Second, money should always work and be involved in some activity, only then they will generate any income. Third, investing is always a very reliable source of income, as long as you choose the correct venue, such as a managed forex trading account.
The Forex market is developing rapidly throughout the last decade, bringing even the laziest to give it a try. However, unfortunately, not all are successful in this endeavor. This is why those people who want to make money on the Forex market and have a stable passive income, however have no time or desire to trade personally, should consider trying to fund a managed account. What is a managed forex trading account? The concept is rather simple. The individual that is looking to invest funds (the investor) looks for a trader, or a team of traders, which then receive his funds as a deposit to trade with in return for a certain percentage of generated income. Sounds simple, doesn’t it? Everything that you need to do, is finding the “correct” trader for you, and sit back and enjoy?. Yes, maybe. But, before you find a trader worthy of your investment – you will have to do some extensive research.
So, let’s say that you have finally decided to invest your funds into a managed forex trading account, and meeting the master trader is ahead for you. What do you need to discuss? How to build your discussion? What guarantees are there for the safety of your deposit? Let’s review everything in order. The first thing that the trader has to present, is trading system or strategy of sorts. It has to describe specific conditions for trade entry and exit; a comprehensive money management system, a defined drawdown limit, etc. Secondly, a track record of trades over an extensive time period should be available. When looking at the history of trades pay special attention to the ratio between winning and losing trades, how closely the trading rules of the declared strategy are being followed. Last, but not least, the trader should be straightforward, and warn you about the risks associated with FX trading.
Next, you have discuss the trading conditions offered with your managed forex trading account, which should be summarized in a clear statement. What should those include? Everything that you believe important or necessary: maximum allowed drawdown, max Stop Loss size in pips or a deposit percentage, maximum risk per trade weekly or monthly, maximum lot size, maximum number of simultaneously open positions, currency pairs traded, types of orders used (short & long, hedged or not) as well as number of other parameters. What is the benefit of such an approach? For you – it provides confidence, that your deposit will not decrease below an allowed level. For the trader – those are understandable and solid rules, that he can follow.
How does your relationship unfold from this point onwards? It is simple: The trader uses your accounts or invested funds to open trades, while you receive a part of the associated income. Typically, trading accounts on Forex have two access types: trader(for trading) and investor(for viewing). If your managed account arrangement allows this, make sure to make use of the investor password, install the trading platform, and monitor frequently what is happening on your account, and how trading is going. If the conditions that you have agreed on are being respected, then everything is Ok and you may be confident in your partner. Besides, many Forex brokers offer a PAMM system to open a managed forex trading account, which allows you to track all of the aforementioned parameters automatically. You only have to submit your requirements once, and rest assured that the machine will control them without any emotion or human factor involved. If anything starts happening outside of the agreed conditions, you will receive an email, and any trades that are in violation of those rules will be closed automatically. This type of money management disciplines the trade, and ensures the safety of your deposit.
Still have any questions? leave them in the comments section! Also, make sure to have a look under the educational section of our website – there are a lot of articles that will help you succeed in the Forex market, refine your trading skills, or find the correct way to invest your money safely. Making money with Forex is real, as long as you know what to do, and are ready for the responsibility!