September 9, 2010
Managed Forex Funds – Do They Represent The Future Of Safe Investments?
Managed forex funds are quickly becoming the main choice for discerning investors, who are looking for a safe investment, whilst also looking to get superior returns. However this rise is not altogether unexpected. This article examines the reason for this popularity, and will conclude that all investors would have some exposure to the currency markets.
The ascent of managed forex funds started to happen around 4 years ago. Investors were exhausted of losing money on the stock market, and were researching investment alternatives. Many people invested in real estate, buying up properties with cheap credit. However, when the markets crashed, the housing market plummeted, causing many to lose all their savings.
During this period, however, investments in managed forex funds had gone from strength to strength. Forex investments out-performed all other investments during this period. This is because there is little or no correlation between the forex market and the stock market.. What this means is that there is no connection between the performance of the stock market, with that of currencies.
Portfolio theory dictates that the key to improving investment returns over the long term is to diversify your portfolio as much a possible. Investment experts all agree that a broad, diversified portfolio is vital to weather recessions like we are seeing now. A managed forex fund can therefore be seen to be a perfect addition to a mixed investment portfolio.
So, having discussed the potential benefits of a managed forex fund, what about the potential pitfalls? The key problem is avoiding managed forex funds run by unprincipled money 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, an investor needs to do thorough research into potential investments.. This includes carrying out an investigation on the money manager, seeing performance statements, and verifying where the manager is located, to check that he is honest, and not a scammer.
Let’s take a look at the performance of a managed forex fund. Well, the returns depend on a variety of factors, such as leverage, strategy, the manager himself, and the market conditions. Most currency funds will have a target return of some form, but this will depend on the individual strategy of the fund.
Some funds take a more conservative approach to trading, using very little leverage, and targeting lower returns, around 10% to 15% per annum. This may not sound a lot, but if they are not taking big risks, then you do not take a risk to lose all or a lot of you investment. Of course, you could opt for more risky strategies, where you could double your money – but there is also an inherent risk there 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 obvious that the more leverage being used, the higher the risks involved.. What some people fail to understand, is that leverage is the main reason that most currency traders, and for that matter, most forex managers, fail, and blow up their accounts. Managed forex funds are no different. The fund is reliant on the manager, and the more leverage he or she uses, the bigger the risks involved.
As we can see, therefore, it can be seen that managed forex funds have a variety of advantages as opposed to all other asset classes. Nevertheless, investors must still have to perform in depth research into what variety of managed forex fund is right for them. We saw that there are a wide range of managed forex funds, and investors have differing goals and ambitions. Researched well, a forex investment can be very beneficial for investors.
Andy Curtis is a professional forex trader. You can get additional particulars on the subject of a variety of leading managed forex funds and testimonials of individual forex money managers at his web site specially designed for fx traders, Managed Funds.net.
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