In Part 1 of this article, we discussed how an investment in a managed forex fund can boost a portfolio return, increase diversification, and talked about how managed forex funds have grown in popularity over recent years. This part will discuss how an investor can choose a suitable fund for him to invest in.
So, having discussed the potential benefits of a managed forex fund, what about the potential pitfalls? The most important issue is to avoid managed forex funds run by corrupt fund managers. Unfortunately, the advent of the internet has meant that managers can hide behind a website, and rely on the anonymity that the internet provides. Therefore, it is essential that the potential investor does his research before investing. This includes carrying out an investigation on the money manager, seeing performance statements, and examining where the manager is situated, to ensure that he is real, and not a fraud.
So what are the performance figures on managed forex funds like? Performance depends on many things, such as the investment strategy, and the degree of leverage being used. Most currency funds will have a target return of some form, but this will depend on the individual strategy of the fund.
There are some managed forex funds who take little or no risk, and return lower sums, as low as 10% pa. This is a low return, but the upside is that your risk is also very low.. Other more risky strategies could gain you 60% or more, but need to accept that there is a risk of losing your investment aswell. So it is important to find a managed forex fund which suits your appetite for risk.The first, and certainly one of the most important factors which determine the rate of return, is what degree of leverage the manager is using.
It is a simple equation – more leverage equals more risk, and more risk of a fund meltdown.. It is for this very reason why most forex traders blow up their accounts, as they take too many risks, and when a trade goes against them, they lose all of their money. Managed forex funds are the same – if the manager uses more leverage, there is a bigger chance of the fund blowing up, and investors losing all their money.
As we can see, therefore, it can be seen that managed forex funds are better in a number of ways compared to all other possible investments. All the same, investors must still have to execute in depth research into what sort of managed forex fund suits them. We saw that there are a wide array of managed forex funds, and investors different investment objectives. With excellent research, and investor can find the right managed forex fund for them.
