Forex Managed Accounts and Absolutes Returns

A managed Forex account must be judged based on absolute returns. However, the performance must be consistent with the Forex funds strategy.  The concept of “absolute returns” is for the Forex account to yield consistent, positive returns over an extended period. The managed Forex account, or Forex fund, can be compared to a fixed income fund, or an asset-backed lending fund based on its absolute return over time.

What Is A Forex Trading Advisor / Manager?

A Forex trading adviser, or manager, is an individual or entity which, for compensation or profit, advises others as to the value of or the advisability of buying or selling currencies for accounts explicitly for profit. Providing advice includes exercising trading authority over a customer’s account via a limited, revocable power of attorney. A Forex trading advisor can be both an individual or a corporate entity. Forex managed account programs can be run by internal trading advisors, i.e., traders who work directly for the Forex managed account program, or they can be advised by outside managers. The terms “manager,” “trader,” “advisor,” or “trading advisor” are interchangeable.

What Is The Difference Between A Hedge Fund and A Managed Account

A hedge fund is defined as an aggressively managed collection of investments that uses sophisticated investment methods such as gearing, long, short and derivative positions in the domestic and global marketplaces with the objective of producing high returns (either in a total sense or more than a particular sector benchmark).

A hedge fund is a private investment partnership, in the form of a corporation, that is open to a limited number of investors. The corporation almost always mandates a substantial minimum investment. Opportunities within hedge funds can be illiquid because they frequently demand investors maintain their capital in the fund for a minimum of twelve months.

Defining Alternative Investments

Defining an alternative investment: an investment that is not among the three traditional types: equities, bonds or mutual funds is considered and alternative investments. Most alternative investment assets are held by institutional traders or accredited, high-net-worth people due to their complex nature of the investment. Alternative opportunities include hedge funds, Forex managed accounts, property, and exchange-traded futures contracts. Alternative investments aren’t correlated with the world stock markets which makes them highly sought after by investors seeking returns uncorrelated to traditional investments. Alternative opportunities are preferred due to the fact their returns possess a low correlation with the worlds major markets. Due to this, many sophisticated investors, such as banks and endowments, have started to allocate a part of their investment portfolios to alternative investment opportunities. While a small investor might not have had the opportunity to invest in alternative investments in the past, they can know to invest in individually managed Forex accounts.

Correlation And Forex Investments

Correlation and Forex funds investments must be well understood prior to making an investment.  The term “correlation” is used to describe the relationship between two Forex funds investments. Correlation will define how to investments are related to each other.  Correlation is measured by calculating the correlation coefficient. The correlation coefficient will always be a  ‐1.0 to +1.0. If the correlation coefficient is a negative number, the relationship between the two investments is negative; i.e., if one investment moves up, the other investment moves down.  A positive correlation coefficient is a positive number the investments will move in the same direction.  If the correlation coefficient is zero, this would mean the two investments are not correlated and an investor can expect them not to move together over time. Ideally and investors portfolio should have a correlation coefficient of close to zero as possible.  Forex investment funds will generally have a correlation coefficient very close to zero when compared to other investments.

Judging the Performance of a Forex Managed Account Trader: Is the Track Record the Only Thing that Matters?

Investors should take particular note of the Forex manager record of performance; however, this in itself should not be the only reason for choosing a specific Forex trading advisor.  The disclosure document should spell out the Forex managed account manager market approach and trading style. This information should be carefully reviewed along with the track record when the investor chooses a particular Forex trader.  Strong performance in the short term may be nothing more than good fortune.  Positive performance over a long time., and over many trades, may indicate that the trader’s philosophy and style are more robust than his competitors.  This is especially true if the track record includes periods of bull, bear, and flat trading ranges. It is important to remember that past performance is not necessarily indicative of future results.

A few metrics to take careful note of when reviewing a track record:

  • How long is the track record good fortune or sustainable results?
  • Worst peak to valley drawdown: Could you still make money even if you entered at the worst time?
  • Assets under management: Is the manager trading and an insignificant amount of money, or has his track record proved to be scalable and sustainable?

Forex Trading Advisors and Managers Defined

A Forex trading adviser, or manager, is an individual or entity which, for compensation or profit, advises others as to the value of or the advisability of buying or selling currencies for accounts explicitly for profit. Providing advice includes exercising trading authority over a customer’s account via a limited, revocable power of attorney. A Forex trading advisor can be both an individual or a corporate entity. Forex managed account programs can be run by internal trading advisors, i.e., traders who work directly for the Forex managed account program, or they can be advised by outside managers. The terms “manager,” “trader,” “advisor,” or “trading advisor” are interchangeable.

Managed Forex Accounts and Diversified Portfolio

With prudent allocation, a managed Forex account may help reduce the overall risk of a portfolio. A sensible investor should ensure that at least a portion of their portfolio is allocated to an alternative asset that has the potential to perform well when other parts of the portfolio may be underperforming.

Other potential benefits of a managed Forex account may include:
• Historically competitive returns over the longer term
• Returns independent of traditional stock and bond markets
• Access to global markets
• The unique implementation of conventional and non–traditional trading styles
• Potential exposure to as many as one hundred and fifty markets globally
• The Forex market typically has a high degree of liquidity.

If suitable to a client’s objectives, devoting twenty to forty-five percent of a typical portfolio to alternative investments may increase returns and lower volatility. Because alternative investments may not react in the same way as stocks and bonds to market conditions, they can be used to diversify investments across different asset classes, potentially resulting in less volatility and less risk. While it is true that many Forex managed accounts have historically profited, there is no guarantee that an individual managed Forex program will continue to benefit in the future. There is also no guarantee that an individual managed Forex account will not suffer losses in the future.

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