1. Max Draw Downs of FX Trader
When you meet a forex trader, ask them for a copy of their recent trading history. If you see months with 20% or more in losses, this could be a sign of future problems with your account. Also, if you notice any more than 3-4 months per year with negative yields, their strategy may not be as sound as they claim. After reviewing their track record, ask them to explain what happened for one of the months with the highest loss. If it seems like they are vague with their answer, they may trade on instinct or rely on an "automated trading program", which is NOT good! Once you have covered everything else, ask the managed forex trader to explain their "stop loss" procedure in thorough detail. This is critical to address, since some traders can involve ego in bad trades and "let it ride" well past the "draw-down limit"!2. FX Trader Licensed or Not
Before investing in managed forex, you must first decide if you want to invest with a licensed trader, or a private trader. Though private traders may have higher yields at times, we believe all investors should start off with a licensed forex trader. In today's market, private managed forex has become very risky and should only be pursued by experienced FX investors. In contrast, it is very simple to make a good long-term decision with a licensed forex investment. All you need to do is visit the NFA website, check their licensing history, and follow the other tips in this article!3. FX Account Opening Details
If you choose to open a managed FX account, there is a certain process that most managed forex investments will follow. First, you receive a contract from a FX broker or clearing house disclosing risks, fees, and other legal details. During this stage it is critical to define the "accountability" of the trader, so you know what your risks truly are. Second, your new managed FX account number is generated, along with the wiring instructions to fund the account. At this stage, it is critical to make sure you are sending money into a segregated account in your name, not to the forex trader or company. Third, once you have been in trade for a month or so, evaluate the transparency, communication, and account fluctuation over that time. If they are licensed forex traders you can relax, but if they are private traders, you should pay close attention to every detail!4. Audited FX Track Record
If you encounter a managed forex investment, see if the trader has a track record covering at least the last two years. If they can't provide that much history, it's a sign that future markets may test their strategy. Usually, over the course of two years, something unexpected happens to a trader, and tests the validity of their strategy. This is when the real traders swim, and the less experienced sink, along with the accounts they were managing. If you are speaking with a private FX trader, remember, all yields should be considered hypothetical unless you know someone you trust who confirms their success and profits.5. FX Trader's Assets Under Management
When you meet a forex trader, you should evaluate their trading strategy in relation to the amount of capital they have under management. Some FX traders can make amazing yields with less than 10M under management, but as their fund grows, their strategy starts to show its holes. As many FX traders learn the hard way, trading with more funds increases your chances of "slippage", which in return affects the prices you enter and exit at. For example, someone with 10M under management may get into a rising Crude Oil market at the right price (ex. 82.10), but a trader with 50M under management will get a price that is usually less favorable (ex. 82.60). In short, when you are implementing 500 positions at once, it is a lot easier to earn high yields than with 5,000 positions. With this being said, look for managed FX traders that either have a large amount of money under management (50M+), or those with small amounts of capital and no plans for growth. Either way, it is good to ask the FX trader to explain their plans for new growth, and how their strategy will adapt to it.
By understanding and implementing the tips listed above, you can protect yourself from poor decisions and move more swiftly towards your investment goals. Though you are bound to come across a managed FX investment that seems too good to pass on, remember, these tips are used by the top forex managers in the world for a reason. Why roll the dice and test fate? If you are a smart investor, you will start off conservative and increase your risk as you feel more comfortable. To summarize our point, let's ask you a simple question?
Wouldn't you rather have 75% per year for 20+ years vs. 300% for 1 year?
If you are not brain dead, the answer is a simple YES. In fact, 1M would compound into $ 1.45B if an account made 75% per year over just 10 years! Yes, those figures are correct!
Stick to the rules and remember, you don't have to swing at the first "pitch" every time. As any Billionaire will tell you, long term wealth requires patience, not erratic decisions based upon greed...
Good Luck !