What is a Managed Account? A managed account is a fully segregated brokerage account, individually owned by an investor but managed by a professional money manager on his behalf. Money Managers can access that individual account only for opening, modifying, and closing trading positions. A managed account offers the chance to common investors to have their money managed by professional traders, but to maintain full control on their capital, and enjoy safety and real transparency.

Major Types of Managed Accounts

Money managers trade all investor’s accounts via a large master account. The exact structure of this arrangement follows four modules: PAMM, MAM, LAMM, and Pooled Accounts.

(i) PAMM (Percent Allocation Management Module)

A PAMM account type allows investors to allocate only a percentage of their entire capital to reflect a master account. The PAMM account type is designed to distribute all gains, losses, and fees on an equal percentage basis. In other words, all investor accounts get the same percentage returns no matter the size of their accounts. In addition, an investor can select to follow different money managers on the same account. The deposit requirements usually start as low as $500.

(ii) LAMM (Lot Allocation Management Module)

The LAMM account type allows the money manager to allocate different trade sizes (lots) and to use different capital leverage to each investor’s account. The LAMM account type is specifically designed to reduce the risk of large investors maintaining a lot of cash in the same account.

(iii) MAM (Multi-Account Manager)

The MAM account type combines a PAMM and a LAMM account to offer maximum flexibility. Each investor can set his own parameters as concerns order execution and even to modify any MAM trades at any time. The deposit requirements usually start as low as $500.

(iv) Pooled Accounts

This type refers to an account where many investors join their capital in a single fund and share fees, profits, and losses. The deposit requirements usually start as low as $2,000. There is a minimum period before any individual investor can withdraw his capital and penalties for early withdrawal.

Chart: Regulated Forex brokers & PAMM/MAM accounts

How Managed Accounts Work (Step-by-Step)

1. An investor finds a reputable money manager and decides to let him trade on his behalf
2. The investor finds out and accepts the structure of fees of the money manager (usually success fees)
3. The investor opens up a trading account with a brokerage firm that the money manager supports (usually money managers support more than one brokerage firms)
4. Both parties sign a document called LPOA (Limited Power of Attorney agreement). This document enables the money manager to trade an investor’s account (there is no lock-in time period)
5. The investor funds his account (note that neither the money manager nor anyone else has access to the capital, but the investor)
6. The money manager starts to trade the new managed account, he will get paid only for success
7. The investor can monitor the activity and the balance of his account at any time. If he isn’t pleased, he can revoke the LPOA agreement at anytime

Key Advantages of a Managed Account

1. Investors enjoy the rewards of professional fund management
2. Full flexibility and risk control (allocating the level of the desired risk)
3. Maximum liquidity (the investor can withdraw funds at any time -except on pooled accounts)
4. Full transparency on money manager’s past performance
5. Safety of money, as money managers have limited access to the investor’s account (they can only trade)
6. Investors can monitor their account anytime (the account’s balance, the history of opened and closed positions, etc.)
7. A managed account requires less time (the investor does not have to deal with the daily decision-making processes)
8. It can prove ideal for highly experienced investors, but also for non-professionals, and even for beginners

Choosing Among Forex Account Managers

These are some key points when choosing a money manager to manage your account:

1. Supports a broker of your choice (a broker offering the safety of money and the desired fund method)

In addition, a good money manager will provide insights into his system and full reports:

2. Proven and consistent overall profitability (at least for 2 years)
3. Low maximum drawdown level (that means the maximum portfolio loss from a peak to a trough, before a new peak, is achieved)
4. High Calmer Ratio for a 3-year period (the Calmer Ratio makes a comparison between the average annual compound rate of return to the max drawdown over the period)

■ Managed Forex Accounts

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