The stock markets have taken a huge hit over the past few years. However, in contrast, forex managed funds have outperformed the market, beating all other asset classes in the process. Let’s take a look at them, and try to understand why the returns are so much better than a traditional stock or bond fund.The forex market has grown massively over the last few years. In the 90′s, only exclusive banks and private investors had access to the currency markets. But today, everyone is getting in on the act.
So what should an investor be looking at when he is deciding what managed forex fund to invest in? Looking at the returns might be an obvious place to start. But things aren’t that simple – one needs to consider the drawdown, ie how much the fund can potentially lose.
The investor should also speak with the manager of the forex managed fund and enquire as to how much leverage the manager is using. The wrong use of leverage can have serious consequences on a forex managed fund.
The negligent use of leverage is why the vast majority of retail investors lose their shirt in the forex market, and end up investing in a forex managed account.
But what if it all goes wrong? In practice, you are already quite a lot down on your account, as you need to pay the spread, ie the difference between the buying price and the selling price. You have to realise that as soon as you enter the trade, you are in a loss position, as you need to pay the spread. Then if the market is volatile, you can soon get in a very bad position, lose your shirt, and then start to get sensible and invest the rest of your savings in a forex managed fund.
Consequently the potential client much choose a currency fund which suits his appetite for risk. If the investor wants to get triple figure returns, he must accept a higher level of risk, with higher leverage. Alternatively, a client who places a higher level of importance to the preservation of his capital might want to look for a forex managed fund which takes lower levels of risk, and which uses lower leverage. In summary, therefore, the client must find a forex managed fund which fits his comfort levels vis a vis risk, and can maximise his investment goals.
