Any investor can do themselves a great service by using a good investing strategy like keeping control of his/her funds- as opposed to allowing an outsideentity direct access to investment monies.
How can that be done? Simple, by using an investor Managed Trade Account.
Essentially an investor’s funds are placed into a trade account, a manager trades the account, but more importantly only the investor can remove assets. The trader is automatically paid his/her percentage of profits, but will never have access to the funds. Reason seems to indicate that keeping fund control equates to good investing via a managed trade account.
What Types of Managed Trade Accounts are Available?
Usually individually Managed Trade Accounts include: Commodities managed accounts, Forex and Futures.
With a Individual Managed Account a broker/trader handles the account individually and of course makes all decisions on trading. For investors with smaller deposits the option to join a pooled managed account is also available.
All managed trade account holders whether individual or pooled can select a risk tolerance. A risk/reward ratio is ordered by the investor according to needs- less risk for steady, safer returns, higher risk for increased, short terms gains.
Investment minimums are usually from 2,000 for a pooled account to a 50,000 minimum for an individual traded account. Some brokers will allow lower minimums for individual managed accounts, sometimes as low a 10,000. Going any lower than 10,000 however could expose the account to unnecessary risk, as the trade account itself may use margins.
Margins will artificially amplify the funds in the trade account for greater market leverage, however the rub is that losses can be significant if a higher risk tactic was also chosen. If an investor has a smaller amount to
invest, using lower risk trading techniques, or a pooled managed account are safer options.
The Good and the Bad of a Managed Trade Account
The main advantage is in having complete control over the funds, an investment manager cannot suddenly disappear, or hide trading losses. The investor can see everything that is happening and can put in a cease trading order, or can start fund removal if the trading is not satisfactory!
The number two advantage is in having a true professional trade the investor’s account. The experience and expertise of a good trader is invaluable , trying to do this alone can be a massive undertaking. The investor does not have to be parked in front of a computer screen and he/she can rest assured in knowing that a professional is at the helm. For newer investors this reassurance is essential for gaining trust in the system
Cons can include monthly management maintenance fees, while not excessive they are usually a set cost, unless the trader waives the fee. Using a trader that is consistently profitable will dwarf any minor traders fees.
Best way to Pick a Good Trader
It will not matter how low the risk tolerances are if the trader doesn’t have the skills. However there is a way to choose a good trader and to know in advance what to expect reasonably in profit!
Two words: Demo Account.
Any trader worth their reputation will not object to opening a demonstration trading account for a potential investor. This allows the client to see with their own eyes how well a particular trader performs. The investor logs into the demo account and then monitors daily trade activity. Following
the traders profit and loss should show whether or not they are a skilled.
The demonstration account is free to open, no potential investor monies are required, however the trades are real. The investor is simply watching the traders skills from a computer screen. Ask 4-5 traders for demo accounts, then monitor them all for a period of time to determine which of the traders are most consistent.
It can be exciting to watch profits being generated in the demo account- the temptation to join right away can be strong, but patience should be exercised to ensure that profitable trading will be long-lasting. Following the account(s) for a month or longer should give any investor all the feedback required to make an informed decision.
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