VCG Forex.com Blog

Separately Managed Forex Accounts are up-and-coming as the investment vehicle of choice for more and more investors in the forex market. The concept of a ‘separately managed account’ was invented back in the 1970s to accommodate institutions and clients whose goals, needs and objectives did not fit within the order of mutual funds or hedge funds. Separately Managed Accounts have since moved beyond the traditional market application and are now the first choice of a wide range of investors who are attracted to their control, flexibility, and transparency, in other alternative markets including the forex market.

Q. Before we go into the 3 reasons a separately managed forex account is the solution of choice in 2010 and beyond, let’s explore the true meaning of ‘What is a Separately Managed Forex Account?’

A separately managed forex account is an investment account, opened by an investor in their own name with a regulated forex dealer member or brokerage firm, and is managed by a professional money manager or Commodity Trading Advisor (CTA), pursuant to a limited power of attorney giving the money manager or CTA authorization to trade forex transactions on the behalf of the investor.

So, without further delay, here are the 3 reasons a separately managed forex account is the solution of choice in 2010 and beyond:

1. Control

   When an investor places funds in a separately managed forex account, that individual or firm owns that account. The investor has the freedom and control to decide what CTAs and money managers are given limited power of attorney to manage assets within that brokerage account or portfolio on their behalf. The investor can then tailor their own separately managed accounts to address their own personal preferences and financial goals. Although the chosen CTA or money manager may be trading for hundreds of other separately managed forex accounts at the same time, your account is ‘separate’ and distinct from all others. You maintain the control over when funds are deposited and only the investor maintains the authority to request and direct any withdrawals made from your account.

2. Flexibility and Liquidity

   Unlike most pooled investments, mutual funds, hedge funds and even CDs or money market accounts that have restrictive guidelines as to when funds may be withdrawn and the lengthy notice windows that must be given prior to a withdrawal being processed, a separately managed forex account typically carries much greater flexibility and liquidity. An investor usually has the freedom to deposit or redeem funds daily or weekly without any penalty. The determining factor with regard to the restrictions on redemptions will usually be decided based on the style or strategy of the model being traded and whether there are extended holding times on trades. However, most short term models will allow for clients to redeem their funds in an emergency situation in as little as 72 hours. Compared to other alternative investments that can require up to 60 days notice before processing a withdrawal, this measure of liquidity is often an attractive benefit to investors seeking that level of flexibility and liquidity.

3. Transparency

   In the Bernie Madoff era, where we’ve seen ponzi scheme after ponzi scheme in so many different countries around the world, many investors both large and small, have begun to demand far greater measures be put in place to ensure their brokerages and custodians provide a better level of transparency, allowing them to see their investment dollars at work. With the advances in technology, many brokers and forex dealer members who offer access to a separately managed forex account, can now provide their investors direct online login access to see their accounts in relative real time, 24 hours a day 7 days a week. In most cases, investors can see their account summary, the current value of their account, the allocation of the assets in their portfolio, and most importantly how the portfolio is performing in comparison to a benchmark. This level of convenience gives investors access to seeing their account activity whenever it’s most suitable for them, night or day.

There are so many other great benefits to making a forex investment through a separately managed forex account, including the ability to customize a portfolio, and include or exclude strategies or trading styles that you like or dislike. An investor also has the ability to open a separately managed account through a self-directed IRA, allowing their investments to grow on a tax-deferred basis in a traditional IRA or on a tax-free basis if the investor qualifies for a Roth IRA. Lastly, knowledge and experience are two very important qualities that any investor will benefit from when they’ve chosen a professional money manager or CTA to manage their assets on their behalf. Most professional money managers have spent a great deal of time and money invested in research and development of analytical systems that are often completely automated and can help to provide sound risk management and discipline to help attain the specific goals of a particular trading strategy.