The popularity of managed forex funds has been phenomenal over the last few years. Yet this increasing popularity is not such a big surprise. This article examines the reason for this popularity, and will conclude that all investors would have some exposure to the currency markets.
The rise of managed forex funds started around 2 years ago. Investors were weary of losing money on the stock market, and were researching investment alternatives. Many people thought that investing in real estate was the answer, and invested heavily in buying rental apartments, and second and third homes. However, when the markets crashed, the housing market plummeted, causing many to lose all their savings.
But those wise enough to invest with a forex money manager avoided all of this. Forex investments out-performed all other investments during this period. The main reason for this is that an investment in the currency market is totally uncorrelated to any other asset class. In other words, if the stock market goes down, the currency market may still go up.
Portfolio theory dictates that the key to improving investment returns over the long term is to diversify your portfolio as much a possible. Investment experts all agree that a broad, diversified portfolio is vital to weather recessions like we are seeing now. Naturally, an investment in a managed forex fund fits in perfectly with this idea of diversification.
So, having discussed the potential benefits of a managed forex fund, what about the potential pitfalls? The central problem is to avoid managed forex funds run by dishonest money managers. This has primarily been driven by the internet - all a manager need to do is to set up a website, and offer his services.. Therefore, an investor needs to do thorough research into potential investments.. This includes carrying out research on the fund manager, seeing account statements, and examining where the manager is operating, to check that he is honest, and not fraudulent.
So what are the performance figures on managed forex funds like? Well, this depends on the type of forex fund which is invested in, on the market conditions, the forex manager himself, and a host of other factors. Most currency funds will have a target return of some form, but this will depend on the individual strategy of the fund.
Some funds take a more conservative approach to trading, using very little leverage, and targeting lower returns, around 10% to 15% per annum. This is a low return, but the upside is that your risk is also very low.. Of course, you could opt for more risky strategies, where you could double your money - but there is also an inherent risk there aswell. So you need to find out what your risk levels are, and find a managed forex fund which matches those levels.The first, and certainly one of the most important factors which determine the rate of return, is what degree of leverage the manager is using.
It goes without saying that the more leverage that a manager uses, the higher the risk, and the higher the potential gains on the fund. Leverage is the downfall of most currency traders, and this is no different for managed forex funds. Well, this can also happen to managed forex accounts. The performance of a managed forex fund is only as good as the manager, and if the manager takes reckless trades, and big risks, then the fund will suffer the same fate.
As we can see, therefore, it can be seen that managed forex funds offer a significant number of benefits as opposed to investing in all other asset classes. Yet, investors must still have to conduct in depth research into what kind of managed forex fund suits them. We saw that there are a wide selection of managed forex funds, and investors have differing goals and ambitions. Researched well, a forex investment can be very lucrative for investors.
