Forex Account Management

If you traveled abroad, you are familiar with the foreign trade exchange, also known as forex. Beyond the obvious needs, foreign currency is also an investment, with forex trading systems in place. In this post, we’ll give you pointers to understand the basics of forex account management, and how to avoid scams. 

My first contact with forex was in the early ’90s. Before the Brazilian economy tanked — not that it was that good — my uncle used his life savings and purchased dollars. 

A few months later, inflation skyrocketed, devastating the economy. Brazilians watched the value of their paper money fade right before their eyes. 

My uncle came out on top due to his wise investment earlier that year. Unfortunately, not many avoided the detrimental consequences caused by inflation and monetary devaluation. 

In countries where the economy is stable, such as the United States, Canada, and some European nations, you are not likely to see a repeat of my uncle’s story. However, there are many benefits to trading in the forex market. But that is a discussion for another post.

Besides helping people stay afloat in shambling economies, foreign currency exchange is an ancient form of investment. 

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A Brief History of Currency

The earliest medieval method of economic exchange was barter. The forms of payment were predominantly service and agricultural product exchanges. 

At first, people traded to cover their needs. One would barter a bushel of oats for a hen because he needed the meat. But as feudal villages became more sophisticated, feudal lords started minting currency. 

Some coins carried more weight, value, and respect more than others — due to the consistency of their minting.

By the ninth century, silver was the primary metal in medieval coins. It was not until the Byzantine Empire that the government minted coins with gold — making it more valuable than silver.  

The weight and purity of the coin determined its monetary value. As traders traveled to different countries seeking supplies, coins were standardized more.

As buying and selling demand increased, so did the need for a standardized form of currency. 

The Rise of Banks

At first, banks were in the hands of Jewish moneylenders. The Jewish communities spread throughout Europe and the Middle East. Because of their extensive network, they could take the money from just about anywhere and anyone. 

The continuous growth of trade led to the rise of banking. Given that most international markets took place in the north of Italy, banks flocked to the surrounding towns in the area. 

These banks pioneered financial instruments crucial for the rise of modern global commerce. Eventually, they would host stocks, shares, letters of credit, and foreign currency exchange. 

What is the Forex Market?

While money exchange has been around forever, the forex market is a relatively new concept. According to Bretton Woods, it was not until 1971 that major currencies began to float freely against one another. 

Forex, or foreign exchange market, is the market where currencies get traded. 

Whether people realize it or not, currencies are a significant part of our daily lives. The exchange is necessary to conduct foreign trade and business. 

If you live in the United States, and you want to purchase a bottle of wine from Italy. But the currency in the US is not accepted in Italy. Thus, your financial institution, or the seller’s, would have to exchange the equivalent value of US Dollars (USD) into euros (EUR). 

Unlike the stock market, there isn’t a central marketplace for foreign exchange. Instead, people trade electronically, over-the-counter style. Meaning, all of the transactions happen via computer networks between traders around the world. 

The market is open 24 hours a day, five and a half days a week. The major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sidney trade currencies worldwide.  When the trading day is ending in the US, it is just starting in Tokyo and Hong Kong. 

These locations stretch across almost every time zone. Thus, forex markets are active at any time of the day, with prices constantly changing. Because of fewer regulations, and the benefit of a 24-hour market, people take advantage to make it an investment. 

What is Forex Account Management

Because the trading of foreign currencies is also an investment of sorts, forex account management is an actual profession.  However, with the rise of software and artificial intelligence (AI) to help you make profitable decisions, these types of jobs will be dead in a few years.

Forex account management is similar to traditional investment accounts where a professional money manager handles the trading on the client’s behalf. The investor personalizes its portfolio, and the manager executes according to the investor’s wishes. 

Investors will grant the manager trading access to their accounts. Managers cannot withdraw or add funds; they are only responsible for trading logistics. The comptroller does charge a fee or commission for the accounts they manage. Before signing a contract with a broker, investors must research their options before making a selection. 

The investor can advise the money manager on strategies and signals. The manager, in turn, follows the required guidelines when trading on behalf of the client. Conversely, to avoid the emotions it comes with wins and losses, some clients prefer to take themselves out of the equation. They let the manager trade the account based on the firm’s strategy. 

A forex account manager is crucial for someone just learning the ropes of forex. Though not regulated by an official body, it is very technical and requires a deep understanding. That is where a manager comes into play. You can brain drain his/her knowledge. Eventually, you can move on to doing it on your own, if you wish to do so.

How Does Forex Account Management work?

First, the investor must have a trade account. A wide array of reputable brokerage firms offer the service. Then the funds are allocated, and investors give trading access to the managers of their choice.   

Because there is limited access to the money, both the investor and the money manager must sign a Limited Power of Attorney Agreement (LPOA). This contract allows the trader to trade using the money from the investor. Additionally, the agreement provides a sense of security and transparency to the investor. 

Investors are still in full control of the account. They can check balances, make deposits, withdraws funds, etc. The only thing an investor cannot do is to conduct trading while an LPOA is in place. They must terminate the agreement before using the money from the account to trade. 

An investor may trade from one single master account by using software technology. Most reputable brokerages offer the technology in their online trading platforms.

Account types

Generally, there are three different types of forex investment accounts. Individual, pooled, and PAMM/LAMM & MAMM.

Individual Accounts

It is the most standard and straightforward type of account. 

The money manager makes all the trades from a segregated brokerage account. You can still set the risk level or any other specific guidance. 

Because there aren’t additional trade funds to this specific account, the minimum deposit will be high. Some firms require at least $10k to start. 

An individual account has one significant inconvenience. After the manager completes a transaction, you have to transfer the commission, and any other fee, to the trader by using the method you agreed.

At the end of the month, if your investments show profits, you must pay the commission to your manager. But the payment may get a little complicated. You have to come up with the funds or sell part of your investments to make the payment.

Pooled Account

Similar to mutual funds, a pooled account allows you to deposit your money into a separate account with several other investors. The profits, fees, and expenses are all shared between investors. Different accounts pose different risk levels. 

There are several upsides to a pooled account. The performance, for one, you can check how well it did in previous years. But the primary benefit is the lower minimum deposit. You can start an investment with a significantly lower amount of money than a personal account. 

Before jumping into a polled account, it is vital to understand all of the requirements. Some demand more participation from the investors, while others don’t. But because managers trade for a variety of investors, you cannot customize the account for your likes. 

These are all crucial factors to consider before making a final decision. 

PAMM, LAMM, & MAMM Accounts – percentage allocation management module

These names might sound similar, but there are differences between the systems. You should be aware of these distinctions and make a decision that best suits your needs. 

LAMM (lot allocation management module) 

Liquidity is a significant concern in markets of larger funds. If the cash is not available, it is not always possible to fill entire orders at the current market price. Investors use LAMM accounts when percentage allocation loses significance due to the higher trading capital.

In this type of account, you can choose the number of lots traded in the market. The multiples of lots invested will determine the profits and losses. 

Multi-Account Manager (MAM) Accounts

This type of account is highly sophisticated. You can manage multiple trading accounts using a single terminal. A MAM account allows you to have more than one account manager, and you can invest with different risk levels. You can adjust your preferences to each module of the account. 

The master trader receives a fee in accordance with the account performance. Commissions are paid straight from the trading account. 

Percentage Allocation Management Module (PAMM) Account

This account allows you to distribute gain, losses, and fees on an equal percentage basis. Each account in the module has the same percentage of returns as all the others, regardless of its size. 

In this system, you are part of a pool that includes sub-accounts. A forex account manager does everything under a limited power of attorney. 

These types of accounts are perfect when you are buying pooled investments.

Who can manage my forex account

Technically, anyone can “professionally” manage a forex investment account — no licenses required. Unfortunately, the lack of rules and regulations leave an open-door to scammers. Folks also claim they can help you with your trade, but in reality, they do not know what they are doing either.

Conversely, there are several reputable forex account management companies around the globe. You can find reviews for each and try to figure out which one is best for your needs. 

At the same time, several options are available for software on the market to help you make money. Those are usually the best option if you are somewhat familiar with the process. If you are trying out, I suggest finding a reputable company. That way, you can understand what it takes to make money with this type of investment.

Additionally, a money manager can share his/her knowledge and assist you in setting your goals. Keep in mind, it is an investment, and just like any other, you might lose your money. Forex is a complex subject, and you must be extra careful when investing in it. 

You Want to Learn How to Trade Forex

Learning how to trade forex can be challenging. There is so much involving the buy and sell of foreign currency that makes it difficult to learn all in one shot.

If you want to adventure this on your own, I highly suggest using a mentoring service. Forex Mentor Pro has some of the best reviews in the market. They will teach you details about the trade and strategies that will increase your chances of high profiting.

Conclusion

Forex account management is a reliable method to manage your forex investments. It is important, however, to conduct your due diligence before hiring a money manager. Contracting the right company will assist you in determining your goal and the step you should take to achieve those objectives. 

Undoubtedly, forex investments are more complex than the traditional stock exchange. Also, there isn’t a regulating body to manage the market. Keep in mind that currency is volatile and dependant on the host government entities. 

If you are considering investing in forex, you must do a great deal of analysis.