Managing Money in Forex Trading – A Practical Approach

Yesterday I wrote a post about how successful forex traders develop their ability to make money and how anyone interested in making a living from trading should absolutely consider the managing of other people’s funds as the easiest way to achieve their financial freedom. The reason for this is that simply most people won’t have the necessary amount of money to make a living (about 250-350K USD) with the risk levels necessary to preserve capital through the draw down periods which are characteristic of all long term profitable trading strategies. Today I want to write a post about the practical aspects of money management and the technical and legal aspects of this journey.

First of all, I consider that if you want to be a money manager you need to have a track record that shows net profitability through a statistically relevant amount of time. This means that you should have a real live account that can show a verified track record of at least 5 years. This will show that you are able to tackle a wide variety of market conditions and that your systems and abilities are able to both make and preserve capital. The initial balance of this account is actually not that relevant and even a 5 year, 1K account with net profitability will be enough.

What next ? Well, the most popular model for account management is done through a limited power of attorney in which you receive permission from a client to manage their funds but you don’t have the ability to withdraw any money. Effectively either the broker or your client have to make the payments for you when they are due. Payments are usually made on new equity highs as a percentage of profit from equity high to equity high. For example, if an account was at 110 and then reached 120 the client made 10 and if you charge a 20% commission then you keep 2.

One of the most important aspects you need to consider here is that the limited power of attorney approach – even if it does not give you power to withdraw your clients’ funds – is a type of money management practice and it is therefore subject to the pertinent regulations. In the US – for example – you can manage up to 140K USD or 15 clients without becoming a CTA (Commodity Trading Advisor) but anything above that requires registration by law, bear in mind that the waive of registration also requires you NOT to advertise yourself as a money manager so you will be limited to a small crowd of investors (probably friends). This however only applies to US customers and to manage money from investors from other parts of the world you will need to deal with their own country’s regulations as you will be subject to the regulations of the customer’s home country.

Now, managing 140K from US customers is a very good start (even more if you have customers from other countries) but if you are truly serious about your business then you need to become a Commodity Trading Advisor. Registering requires you to pass a Series 3 exam and to pay almost 1000 USD in annual fees and this is therefore a step you may want to take only after managing your first small customer base for 2-3 years. Once you reach this point you will be able to start a business and manage a limitless pool of investors which effectively makes your income potentially VERY large. Even if you only manage an average yearly return of 10% (a return many new forex traders would laugh at), managing 20 million dollars this will already mean a 400K income for you at a 20% commission.

In conclusion, if you really want to live from trading and if you really want to make a lot of money from it then probably you will have to work hard for the next 8-10 years to perfect your ability to make money and to begin your journey as a successful money manager. This indeed sounds MUCH more realistic that what expert advisor and forex system sellers told you, doesn’t it ?

If you would like to learn more about the use of automated trading systems to achieve success in trading and how you too can learn to code, evaluate and use your own systems based on sound trading tactics please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

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