Now is the best time to invest in Forex Funds. Because markets are highly correlated, it has never been more critical or challenging to formulate a diversified investment portfolio. Investing in a well-managed Forex fund or managed currency account could offset adverse moves in the global equity and bond markets. Also, managed Forex products can provide significant yields when other markets are going through low volatility periods. While volatility can bring risk, it can also unlock significant rewards.

WHY FOREX FUNDS? I ALREADY KNOW HOW TO TRADE MYSELF

Just as a well-diversified portfolio consists of different holdings, strategies, asset classes, and various types of investments and instruments, so should a Foreign Exchange portfolio.

Traders with significant Forex funds portfolios may have numerous accounts, with a diversified structure as noted above, in addition to self-trading and running automated trading robots or signals on their own.

Managed Forex Accounts generally means that an investor allows a money manager to trade the investor’s Forex account, held in the investor’s name and preferably at a regulated brokerage. Trading authorization is given on a limited power of attorney (POA), which only allows trading (not withdrawals or deposits) by the fund manager until such authorization is revoked or the investor withdraws funds.

Investors crave consistency in performance. Predictable performance is the most crucial characteristic of a Forex fund manager’s track record. Suppose a currency trader’s track record deviates from historical performance. In that case, investors might get worried that the trader’s methodology has changed or is no longer working, which might prompt investors to redeem all or part of their funds. Experienced Forex investors understand that a long track record with consistent returns for many years is no assurance of consistent and profitable future results; consequently, investors must always be following their traders’ performance and comparing it to historical results. Reviewing historical performance against real-time returns should be part of every investor’s overall investigative due diligence process. 

MAKING HARD DECISIONS EASIER

There are many other differentiating factors, both quantitative and qualitative, that will be relevant for an investor to investigate who might be opening a Forex-managed account or investing in a hedge fund that trades currencies.

The investor can diversify by creating a larger Forex portfolio or developing a multi-asset portfolio where the Forex fund will serve as one of the investor’s Foreign Exchange exposure. Managed Forex should not be a medium for an investor’s entire cash holdings. This should be true regardless of dollar amounts or how much a fund has in Assets Under Management (AUM). Instead, it should represent a percentage of holdings an investor allocates to diversify while considering the profit/risk potential.

ACCOUNT OPENING AND FUNDING A FOREX FUNDS ACCOUNT.  WHAT’S NEXT?  WHAT SHOULD I EXPECT FROM INVESTING?

Most technology-driven online Forex brokers operating in regulated jurisdictions provide platforms and back-office services for professional FX fund managers and their clients. However, not all currency funds are available at all brokerages. Here is a hypothetical example: ABC Forex Fund might only clear their trades through Big Forex Broker, but not through Best Forex Broker; consequently, a customer who wishes to establish an account with ABC Forex Fund will have to open an account with Big Forex Broker to access the fund manager.

Once the Forex broker is chosen, the account will be opened and funded. Next, the disclosure documents will be reviewed and signed by the investor. A limited power of attorney (LPOA) will need to be signed by the investor to give the Forex trading manager authorization to trade the account. The investor should now have access to real-time profit and loss statements and all end-of-day reports.

Following the Forex Fund After Making the Investment.

The investment horizon for the fund may include daily, weekly, monthly, or yearly targets. Accordingly, the fund’s performance should be reviewed periodically to determine if performance is aligned with the investor’s initial expectations. This is a critical feedback mechanism for investors to tell if the investment keeps pace with initial expectations.

If the fund’s performance is not keeping pace with its real or hypothetical historical track record, the investor should contact the fund manager to ask why there has been a change in performance.  Possible reasons why the historical returns no longer match current returns include increased volatility in the market or an unforeseen geopolitical event.    If the investor is not satisfied with the fund manager’s explanation regarding performance, the investor should consider decreasing his investment or pulling his investment entirely from the Forex fund.  

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