How to Become a Forex Fund Manager

I was recently asked how to become a forex money or fund manager.

.This got me thinking about how I could guide those looking to manage funds and what it takes to become a forex and/or asset manager. In this article, the focus will be on how a trader can become a money manager and the various ways to build capital to trade

Build a track record

To establish credibility, a prospective professional forex money manager needs to build an audited or verifiable track record. At a minimum, I would say a trader needs to have a track record that spans at least 2 years and to be taken seriously, at least 5 years trading history would probably be needed. This does not mean a trader cannot raise funds to trade with a shorter track record, but it will likely be more difficult using traditional methods.

Typical Ways to Get Started as a Forex Fund Manager

Managed Forex Account – A managed forex account is one where a trader or money manager has the authority to make trades on behalf of a client. In return, the money manager receives a fee, generally based on a percentage of the profits. New money managers often start out with one managed forex account and then try to build more capital to trade based on the account’s performance.

Pamm Manager – Rather than trade each managed account individually, a Pamm Manager will treat capital under management as a pool and allocate trades to each investor’s individual account based on his/her percentage of the total. Similar to individually managed accounts, the client gives a Limited Power of Attorney to the money manager to trade his/her account while agreeing to assume the risks associated with the forex trades being executed. In addition, the money manager is compensated by the client, generally in the form of a performance fee based on the net profits from trading the account.

A slow process

As you can imagine, getting started as a forex asset manager can be a slow process. First, you need to raise capital to trade, generally in the form of a managed account. You then need to build a track record and to scale your efforts will likely take at least 2 years, perhaps longer.to build a track record so you can raise serious capital.

A money manager can raise funds to trade directly or from a third party. The former will take time away from trading while the latter will ask for compensation. This would mean either giving away part of the performance fee or if the money raiser asks for a rebate from adding on to the spread, the higher cost of trading would impact the overall performance.

Is there an easier way to get started?

While the word easy is not in my trading dictionary, there is an alternative way to get started managing money to trade. It is by becoming a copy trader.

Social vs. copy trading

You may see the terms social trading and copy trading treated the same but there is a difference. Copy trading is considered part or a subset of social trading.

In social trading, trading information from other traders is shared and it is up to the individual what to do with it. The user can treat it as information and/or decide whether to use it to execute his or her trades  In this case, the user makes his/her own trading decisions.

Copy trading, on the other hand, is when a user copies the trades of a trader he/she sees in a social trading exchange. This is done by linking the account with that of the copy trader So, whatever trades the copy trader enters are the trades those copying will see in their accounts. Compensation may vary between platforms but in any case, copy traders can benefit from positive performance.

What does this mean for a money manager?

For those looking to get started, being a copy trader allows you to act as a money manager, build a track record and attract capital to trade. If successful trading, the broker may have a program where it helps you raise capital by elevating your status to a higher level.

Pros and cons

There are pros and cons to this approach as those copying you do not have a commitment as it depends on not only your performance but competition from others on the social trading exchange.

On the other hand, being a copy trader is a way to not only benefit financially but to gain experience, build a following and attract attention as a professional forex money manager.

The point here is that to raise serious funds to trade is a slow process where you need to build a verifiable track record. Whatever route you take, remember a trader can get lucky with one big trade but showing consistently and limiting drawdowns with disciplined risk management is the way to build credibility as a money manager.

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