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Frequently Asked Questions
There are many questions that potential investors want to ask before starting a managed forex account. I have listed below the most common questions that are asked. Most of them are generic, which means that they apply to the majority of managed forex companies. There are many more applicable questions that apply to individual companies that I cannot answer here so you will have to check out the FAQ’s on their particular sites.
What Are Performance Fees ?
Performance fees are one way in which managed forex companies make their money. Fees vary with different companies, the majority of them falling somewhere between 25% and 50%.
When Are performance Fees Applied ?
Performance fees will be implemented at the end of every month, as long as there are profits on your account that exceed the high water mark.
What Is A High Water Mark ?
A high water mark is the maximum amount of money created after performance fees are deducted from the account. The high water mark has to be exceeded before any future profits may again be deducted.
For Example – If you opened an account with $10,000 and the performance fees were 25%.
If your profits during the next month were 10%, that would be $1,000 profit for the month.
Deduct performance fees of 25%, which is $250, leaving you $750 net profit for the month.
Your high water mark would be $10,750, which is the original $10,000 plus the net monthly profit of $750.
If you had a loss the next month of $500, no performance fees would be deducted and your new balance would be $10,250.
Only when your account balance surpasses your high water mark of $10,750, will performance fees be deducted and a new high water mark will be created.
What Is A Management Fee ?
A management fee is different to performance fees. Some management fees are a one-time start-up fee that investors have to pay upon opening the account. Some management fees are annual and have to be paid every year.
What Is The Minimum Amount That I Can Invest ?
As a general rule, most companies want a minimum amount of $10,000 to open an account. Some will accept $5,000 and some want much more.
Who Owns The Account ?
The investor owns and controls the account.
Can I Deposit Further Funds Whenever I Want ?
How Can I Deposit Funds Into My Account ?
To deposit funds, you will have to go to your brokerage account and follow the instructions.
Can I Withdraw Funds Whenever I Want ?
Yes, as long as all of the trades are closed.
How Can I Withdraw Funds From My Account ?
To withdraw your funds, you will have to download a withdrawal form from the brokerage. You will have specify how and where you want the money sent to, sign the form and return it to the brokers.
Are There Any Fees To Withdraw My Funds ?
Can I Close My Account When I Wish ?
Yes, as long as all of the trades are closed.
Does The Trader Have Access To My Funds ?
No because the funds are in your name at the brokerage. Only you can withdraw, deposit and close the account. The only limited access the trader has to your account is through a LPOA (Limited Power Of Attorney). This enables the trader to trade your account and also allows them to withdraw the agreed performance fee.
What Is Leverage ?
Leverage, (gearing) in the UK, is the degree to which an investor can take advantage of borrowed money. With a small amount of money, an investor can control a lot of money. Leverage varies between brokers from 100:1 even up to 500:1.
For Example – If you opened an account with $10,000 and leverage was 100:1. You have the power to trade $1,000,000 of currency. You only have to put down 1% of the total transaction amount.
You can make a huge amount of money with leverage, BUT, you can lose all your money in no time at all.
What Is LPOA (Limited Power Of Attorney) ?
LPOA or (Limited Power Of Attorney), is a form that the investor signs that permits the trader to perform certain account actions, such as to trade the funds for the investor and take out performance fees. They cannot withdraw other money or carry out any other primary functions.
Is The Limited Power Of Attorney Permanent ?
No, the Limited Power Of Attorney is not permanent. You can rescind it at any time.
Can I See My Account In Action ?
Yes, you will receive a link from your forex account manager to download the trading platform onto your computer. Most brokerages use the MT4 (MetaTrader 4) platform. You will receive your log in details so that you can see your account history, download account history and see current trades in operation.
What Are The Benefits Of A Managed Forex Account ?
How Can I Carry Out Good Due Diligence ?
Will I Need To Sit In Front Of My Computer All Day ?
No, all the work is carried out by the management team.
When Will I Start To Make Money ?
As soon as you have opened up an account and your deposited funds have cleared, then the traders can start trading.
Do My Funds Compound Automatically ?
Yes, your profits will be added to your account balance and be used in any future trades.
Can I Place My Own Trades In My Managed Account ?
No, only the trader can trade your account by virtue of the LPOA or (Limited Power Of Attorney) that you have given them.
Do I Have To Open Up An Account With A Broker ?
Yes. In order for the account manager to make trades on your behalf, you will have to open up a brokerage account.