Forex Managed Accounts boost daily forex volume

There are millions of individuals who have opened forex trading accounts and are placing buy/sell orders and making trades in the market and thus contributing to the phenomenal increase in daily forex volume, but the bulk of activity is generated by Fund Managers who have been entrusted with the management of forex managed accounts.

According to the Bank of International Settlements, the daily volume of forex trading surpassed $4.1 trillion a day. The report, which is published only once every three years, is useful since it highlights the phenomenal growth of the forex market.

The forex market is the market through which all global trade activity is made so it’s no surprise that the daily volume is so high.

An important part of the market however is also related to trading or investing activity, the bulk of which is carried out by institutional fund managers as opposed to the retail speculators who hop in and out and trade small lots.

There is no doubt that the majority of investors who wish to trade in forex prefer managed forex accounts handled by professional forex fund managers who use a combination of fundamental and technical analysis tools to trade in the forex market.

There are many who question whether a small retail investor can survive in the forex market. In fact many forex firms who have the license to act as marker makers that is they take the risk and never cover client positions have based their business success on the failure of the retail investor.

The reasoning is that eventually, the retail investor will lose his money because retail investors are not sophisticated, they are not disciplined and they trade with their heart rather than their brain.

An increasing number of market makers thus increase the leverage offered in an effort to convince the retail investor to trade bigger amounts and thus increase the chance of losing the original capital invested.

On the other hand, a professional manager is more likely to use sophisticated technical analysis tools, have access to the latest news and comments hitting the newswires and which are likely to have a major impact on prices and equally importantly trade based on discipline and risk management tools.

 
This is why more and more investors are shifting to professional fund managers, especially those employed at regulated investment firms, giving them the mandate to manage their forex accounts.

Forex Managed Accounts: Automated systems vs. humans

Forex traders face the stark choice of whether or not to entrust the management of their forex accounts to automated trading systems or leave it to the fund manager to trade on the account based on his hunch and trading experience.

In recent years, automated trading systems have sprung up and a Google search will bring up a host of systems promising heaven and earth, massive profits and a sure ticket to happiness and fortune.

But has life become that simple? Definitely not. Most of such automated systems promising high returns are back tested models, meaning the performance is tested backwards on a mix of currency pairs until the desired profit performance is achieved after which the marketing teams go into action.

When the customer signs up for the automated trading system, the actual performance usually does not match the previous performance, which is why investors should listen to the trusted warning that “past performance is not a guarantee of future performance.”

This does not mean that all automated trading systems are marketing tools to suck in unsuspecting investors. There are many systems which deliver good results. By far the most popular automated trading systems are the Expert Advisors, many of which are monitored by independent sites and their performance published.

Here as well however, there are a number of tricks increasingly used by the Expert Advisors or the sites monitoring their activity to boost performance whereby the pips made are reported as the equivalent of dollars, whereas in actual fact, the performance is a fraction of the reported amounts.

The Fund Manager on the other hand is usually bound to give an accurate trading history since in sharp contrast to the developers of the Expert Advisor systems, the Fund Manager is a licensed person employed at a regulated investment firm, as opposed to the EA developer who is usually a programmer, with good knowledge of computers and mathematical systems.

As for trading strategies, the automated systems are based on trend indicators, previous tops, bottoms as well as Fibonacci retracement/extension levels, daily pivot, MACD, RSI and so many other technical indicators. Since the trading signals are automated, they are very easy to fool, and many times, such systems get burned with false breaks, stops and then reversals.

The Fund Manager is also bound to use the same technical analysis tools, but is most likely to combine these with fundamental news, economic data, research and his gut feeling on every move in the forex market.

So when both enter a particular trade with predetermined stop and profit targets, the automated system is bound to wait until the actual levels are seen, but a fund manager can always act if he notices that the profit target or stop is close but the market is having difficulty in reaching it. The different approach could be a big factor in explaining the divergence in results!