Potential investors ask a lot of questions prior to opening a forex managed account. Some questions are asked many times so I thought I would list some of the most frequently asked ones in the article below.
What Are Performance Fees?
The vast majority of managed forex providers charge performance fees for their income. Fees fluctuate quite a great deal between providers but the typical charges are between 25% and 35%.
A very small percentage of companies charge as low as 15% and as high as 50%.
When Are Performance Fees Applied?
So long as there has been a profit above the high water mark at the end of the month, performance fees will be deducted from your account.
What Is A High Water Mark?
A high water mark is the highest sum of money that a trading account has ever reached once all of the performance fees have been withdrawn from the account.
Before any performance fees can be deducted in the future, the account’s high water mark has to be exceeded.
For instance – let’s say that you funded an account with £5,000 and the performance fees were 35%.
If the trader had a great month and made a substantial 20% profit, it would mean £1,000 in monetary terms.
Once the 35% performance fees totalling £350 were deducted, you would be left with £650 monthly net profit.
Your new high water mark would now be £5,650. Being the opening account balance of £5,000 plus £650 net profit.
During the following month, the trader made a loss of £10%, or £565, your account would now be £5,085. Being the high water mark of £5,650 less £565 monthly loss.
The next month the trader has another 20% profitable month which equates to £1,017.
Your new account balance is £6,102 being the previous account balance of £5,085 plus the monthly profit of £1,017.
Performance fees need to be deducted from the new account balance of £6,102 as it has exceeded the old high water mark.
Performance fees would be worked out on the difference between the new high water mark and the previous high water mark.
So that’s £6,102 less £5,650 = £452 35% of £452 = £158.20 performance fee deduction.
Your new high water mark would be £5943.80. Being £6,102 less £158.20 performance fee deduction.
Performance fees will only be deducted in the future once your account tops £5,943.80.
How Can I Carry Out Good Due Diligence ?
Read about how to conduct due diligence here
What Is A Management Fee?
Performance and managements fees are different. Whereas a performance fee is based on profit, a management fee sometimes charged to cover the cost of administration such as accounting and maintenance.
Not all accounts have a management fee associated with them. In fact, most don’t. The charge of a management fee depends on the account and/or the manager.
In general, if the account has a good performance, the account won’t charge a management fee. Some fees are due on an annual basis and some are just a one-off start-up fee.
They vary from 1% to 4% annually and the normal standard fee is 2%.
Minimum Investment Amount
Each company will have a different minimum account deposit. The amount for retail investors has dropped over the last few years but there are many that accept as little as £5,000 pounds to open. There are as many that will accept a minimum of £10,000.
Institutional investors will be required to pay a lot more to open an account, from £50,000 all the way up to a million pounds or more.
The Account Owner
The account is in your name and you will have complete control over it.
How To Deposit Funds
You will need to log into the brokers client area of their website go to the “Deposit Funds” section. There will be a number of payment options for you to choose from. It is just a case of following through with their instructions.
Depositing Further Funds
You can add to your funds at any time that you want.
Withdrawal Of Funds
As long as all trades are closed on your account, you can withdraw a portion or all of your funds as and when you want.
How To Withdraw Funds
It is a simple process to withdraw your funds as it is normally done online. You will have to log into either the client area of the managed forex company’s, or the broker’s website and go to the “Withdraw Funds” section.
Fill out the form on the withdrawal request and select your chosen payment method and submit.
Depending on the type of withdrawal method, it could take from 2 days up to 5 days.
Fund Withdrawal Fees
Most methods are free to withdraw your funds. For instance, a credit or debit card repayment will not be charged whereas some bank transfers may incur a fee.
Closing Your Account
You can close your account whenever you want to, so long as all of your trades are closed.
Can the Trader Withdraw Your Funds?
No. The trader nor anyone else can withdraw your funds from your account, apart from performance fees, because the account is in your name only. You have total control over your account.
Limited Power Of Attorney (LPOA)
Traders can deduct only their fees for performance from your account. This is only permitted because you will issue them with a Limited Power Of Attorney (LPOA). An LPOA is a form that enables the trader to trade on, and deduct performance fees from your account.
Is The LPOA Permanent?
No. It is only valid until such time that you want to cancel it.
What Is Leverage?
Leverage is the ratio to which a trader can benefit from borrowed money. For example, if your account had leverage of 2:1 and had £10,000 in it, you would have £20,000 at your disposal to trade with.
A trader can utilise a lot of money with just a small amount of money. Leverage in forex differs substantially amongst brokers from 50:1 up to 100:1.
Can You View Your Live Trading Account?
Yes, with certain accounts you can. Your fund manager will send you an email with a link to the trading platform that they use for trading, MT4 (MetaTrader 4) for example. You will need to download the platform onto your computer where you can sign in with the log in details that have been emailed to you.
You will be able to view any trades that are currently open, your account history and be able to download historical accounts.
Do You Need To Study Your Computer?
No. The management team will do the trading and administration for you.
How Long Before You Start Making Money ?
Once your account has been funded you will start to make money as soon as the trader starts trading.
Do You Leave Funds To Compound on Auto Pilot?
Yes. Any profit that the trader makes will go straight into your account and will be used by the trader in forthcoming trades.
Can Trade My Managed Account?
No, the only person that has access to your account to place the trades is the trader himself. They can only do this due to the LPOA that you have issued for them.