With any investment, there are those who are very successful, and those who are headed for disaster from the beginning. The key difference between the two can be summarized in one word, preparation. Though it sounds elementary, when many hear of the high returns associated with managed forex, they skip several common sense steps and go in head first with high hopes, but little chance of success.
In this article, we will communicate the key points of managed forex investing, allowing you to avoid the common pitfalls and choose the right trader. After reviewing the top mistakes of managed forex investors, you will be ten steps ahead of any beginner, and will further understand the complex nature of forex investing. Let’s start now! Take a look below, and make sure to read the details after each tip.
Top Mistakes of Managed Forex Investors
1. Chasing High Yields in Managed Forex: High yields are great, but long term stability is far more important. This is especially true in a volatile market like forex. If you are new to managed forex, go with a trader using a low to moderate risk strategy. If you feel it is needed, you can always step it up after gaining some experience.
2. Working with Unlicensed Forex Traders: If a forex trader is licensed, they are accountable for mistakes and will usually do their best to grow your account. On the other hand, private managed forex traders tend to be risk takers, and have their own interests in mind when trading the money of others. In short, investing with private managed forex traders is risky, and most success is usually short-lived.
3. Investing with a New Forex Trader: If a forex trader does not have a track record or licensing history of over 3 years, it is very risky to invest with them. Usually, over the course of 3 years, there will be a huge event in the market which will test the experience of a trader. Unfortunately, it is very rare that any forex trader will stay successful and licensed for this 3 year period. Those who do last are the best of the best, and are usually the ideal traders to invest with.
4. Investing too Much Money in Managed Forex: In you are smart, you should never invest more than 30% of your money in a managed forex investment. Though some may choose to take the risk and invest more, it should only be done by those with a very high risk tolerance. Desperation and anxiousness can lead to poor decisions, and as we’re sure you know, managed forex can be a double edged sword for investors.
5. Not Withdrawing Money from your Forex Account: If you are earning profit in your managed forex investment, why not withdraw some? Though we do encourage compounding, we also encourage safety. If you are not working with a licensed managed forex investment, it is always best to withdraw your initial investment once the account doubles in value. This ensures that you will at least break even if the worst case scenario develops.
6. Investing in Forex without References: Going into a managed forex investment without a reference is a huge mistake. If a trader is successful at all, he will surely have one client who can vouch for him. If he is not licensed, and will not provide a reference, that is a sure sign to move on.
7. Investing with Offshore Forex Traders: Despite the fact that there are a number of profitable offshore forex traders, investing in FX offshore has become quite risky. In recent years, there have been a number of scams and phantom forex traders that have used offshore FX programs to swindle money. If you invest in a forex program on the other side of the world, you will have basically NO legal recourse if anything happens to your account. Since there are multiple jurisdictions and typically no regulatory body, you are usually left with your hands tied.
8. Finding Private Forex Traders on the Internet: In the era of Craigslist, BradyNet, and other social networking sites, we all must use more caution than ever when evaluating alternative investments. Though some may think forex trading is easy, it isn’t. In all reality, it is far harder to manage millions of dollars of other people’s money than you would think. With this in mind, don’t trust private managed forex investments that provide no proof, and hypothetical returns. You can find a thousand of these on the internet for a reason.
9. Sending Money Directly to a “Forex Trader”: There should always be a clearing house or FX brokerage which holds the investor’s money. This entity should be licensed, and in good standing with their regulatory authority (SEC, NFA, FINRA, etc.). If you choose to send the money to the managed forex “trader”, and not to a licensed third-party, the trader could very well be running a scheme. There is truly no reason to allow someone to withdraw or handle your money in a managed forex investment. Doing so could lead to obvious unfortunate consequences, and regret. It is one thing to lose everything on a bad forex trade, but it is a whole other thing to become a victim to fraud.
10. Investing without Understanding Forex Trading: If you don’t understand forex trading and expect to hit the jackpot, think again! If you are not properly educated in managed forex investing, or trading strategies, you can end up making poor decisions very easily. Do yourself a favor and get a firm grip of the concepts behind forex trading, it will be well worth your time.
Though these “mistakes” may not backfire all of the time, actions such as these can produce a high risk environment. In a high risk environment, you can prosper for a period of time, but the law of averages always leads to some manifestation of that risk.
Always remember, managed forex investing can be great, but only if you know how to qualify and evaluate the trader you are working with. As with everything, your preparation is the key to achieving your end result. If you stay educated, diligent, and persistent, you will be in the driver seat to managed forex success.
InsideTrade LLC Staff
Submitted by InsideTrade Staff on Wednesday, 23 September 2009