The search for the "best" managed accounts becomes a lifelong process for many investors.
The problem is that investors who normally look for the "best" program are not very experienced investors at all, especially when it comes to the world of managed FX. Instead of having a good understanding of risk and return and knowing how to determine if a program is well risk-managed and fits their investment profile, they look for the one that advertises the highest returns possible; in other words, they equate "best" with "highest returns." This is one of the biggest mistakes investors can make. "How do I find the top Managed Account program, then?", you may ask. Read on and we will tell you the best way to do it.
First of all, Forex Day Trading has over a decade of experience in managed Forex. We have helped launch and risk manage many programs over the years. In fact, we are always incubating new money managers and looking for talented traders via our FastTrack program (learn more). We feel we are in a unique position in this market and have obtained a vast amount of experience in the process. Based on this, we will now tell you what our opinion on this search-for-the-best topic is…
First of all, managed forex programs are dispersed over multiple categories that are impossible to rank. For example, you have investment managers who are CTA's under the NFA. You have some portfolio managers running hedge funds. And finally, you have portfolio managers trading private managed FX programs. All of these three groups have different rules governing each one and all operate differently, so it's impossible to come up with a global comparison to know who the "best" trader is. In the last group, you probably have the most undiscovered talent of all, but investors need to learn how to do their homework to know how "good" these trading professionals really are. The ability to do this is a lot more important than being able to pull a name out of a magic hat or popular financial magazine and come up with the "best" solution.
The first step is to find out how much risk a manager has taken and know how that compares to other alternative investment managers out there. Read our explanation in this section for assistance on doing this. Notice that the first step we recommended requested that you focus on risk and not return; which is the opposite approach that most investors in search of the "Holy Grail" take.
The second step is to look at the returns and compare them to the program's historical drawdowns. During this process, the investor must also acknowledge and be willing to accept the magnitude of drawdowns that might be necessary to continue to achieve those returns in the future. Please read our explanation in the section on managed account performance for more help.
Once an investor masters this process, he could forfeit the quest to find the BEST program, and instead focus on finding the right solution that fits his investment and risk profile. In the long run, this will be a lot more rewarding for him.