The following is a guest blog post:
Trading online can be a relatively tricky endeavor. There are a number of people who do not have the experience to trade their accounts on an ongoing basis in a profitable manner.
This is why many people would turn to a managed account service. Essentially, a managed option is a trading account that is operated by a professional trader who has experience.
This trader will manage your account at the broker in a “freelancer” type way and will try to earn profits on the returns that they generate you.
A number of people have indeed used a managed account trader to great success. However, there are an even greater number of people who have fallen for an online scam and have lost nearly all of their money.
What is a Managed Account?
In order for a trader to become successful trading, they need a large degree of option education and practice before they can realistically generate reasonable returns. However, there is another solution.
A managed account is a service whereby a professional trader will trade an account for you at a broker. They are usually in full control of your account and charge the client based on the return that they generate.
Many managed account traders will require the client to tie their capital up for a certain period of time. This is so that they are able to properly forecast the returns that they would expect looking forward.
This is of course not always the case and some traders are more than willing to allow the clients full access to the funds for withdrawal.
Managed account solutions are also more informal than those of mutual funds and other long term instruments. They also allow the investor a certain degree of discretion when it comes to the type of strategies that they can employ and the assets that they can trade.
Given that they are smaller than mutual funds and use derivative type instruments, managed accounts can generate some pretty impressive returns on a monthly basis. For example, some managed account traders are able to generate monthly returns in excess of 20%.
Managed accounts could also be a solution for those traders that do not have the most experience with these types of instruments. Indeed, many managed account clients are relative novices when it comes to online trading.
What to Look For
As mentioned, there are a number of binary scams in the industry. This is as a result of relatively inexperienced traders being taken advantage of by a shrewd manipulator.
There are important steps that the trader can take if they want to make sure that they can find the right managed account solution that will generate them the required returns.
First of all, and this is the most important, you need to make sure that the managed account trader only uses brokers that are fully regulated to offer their services. Binary Broker regulation is very important in order to have easy access to your funds.
Too many times, a client will send money to a broker that is operated by the managed account trader. This will mean that the trader will use the opportunity (once he has the clients’ money) to lose as much money as possible. This is a large conflict of interest and should be avoided at all costs.
Once you have established that they use a regulated broker, you have to ask for some verifiable set of returns. You can’t just rely on screenshots and you must request to see the trading record on a site like myFXbook which is an independent third party.
While analyzing these returns, it would make sense to observe the max daily draw down numbers. These are sometimes the amount of money that is at risk on a daily basis and you have to be comfortable with this.
Once you have dug into the trader’s performance history, you will want to have a chat with the him about his operation. Where is he located? How long has he been trading? Is your money tied up or do you have full access to it?
These questions serve two distinct purposes. Firstly, they help you get an understanding of how successful the trader really is. Secondly, they also serve as a way for you to vet the trader over the phone. Given that you are unlikely to meet the trader face to face, telephone or Skype conversations are an ideal way to build rapport and do your due diligence.
Some things also should raise your suspicions and these include such claims as “guaranteed” returns, or outlandishly high performance benchmarks. Indeed, the old adage holds true. If it looks to good to be true then it probably is.
Once you have started with a managed account provider, you have to continually monitor the performance on the account and the day to day draw down. Although you would prefer to leave it to “grow” you have to be proactive in your assessment.
Is the trader keeping to the agreed parameters? Are they taking undue risk? If there is something that is happening in your account that is making you uncomfortable you should let the trader know.
If the trader is underperforming the benchmarks that were set then you could mention this to him. You could let him know that you would like to operate on a variable fee structure. In other words, if the trader is achieving below his target you could ask for a 5% fee cut. You could offer the trader a 5% fee increase if the returns were a bit higher on the upside.
Although it is always great to allow funds to compound and make returns on previous returns, regular profit withdrawals are recommended. This is because a bird in the hand is worth two in the bush. This also keeps your account within reasonable levels with the trader.
Moreover, it allow you to make certain that the broker is indeed allowing easy and affordable withdrawals. Some brokers may charge relatively large withdrawal fees which can be slightly annoying.
Using a Managed Account can be a profitable endeavor. When one is able to leverage the experience of a professional trader then they should welcome the opportunity.
However, as we have shown, you have to have a degree of skepticism and not be blinded by seemingly excessive returns. Proper due diligence and account monitoring is needed in order to make sure that you are getting a legitimate service.
You should also use the managed account experience as a way to learn as much as you can about binary options trading in general. If the trader is reasonable, he would be more than willing to help you improve your record.