Many forex managers use a product called a managed forex fund, which is the equivalent to a mutual fund hedge fund. In a “managed forex fund,” the manager will invest the assets under the POA with the forex dealer member in the managed fund. The a trader or traders for the forex dealer member will then manage the pool of assets. Typically the forex dealer member will receive both a forex management fee as well as a performance allocation. Many managers will then charge a management fee and a performance allocation (or only one or the other) to the underlying clients.
Types of Managed Forex Funds
Like mutual funds, a manager can find any number of different managed forex funds or managed forex accounts which are professionally managed by traders, usually at the forex dealer member which executes the trades. Typically these forex funds or accounts will have specific trading strategies developed by the forex dealer member’s proprietary trading team. These strategies can be either traditional fundamental or technical strategies, or they may vary and include multi-strategy forex trading, forex range strateges, forex trend strategies, or specific currency pairs or regions. Please contact us if you would like more information on finding a specific managed forex fund strategy.
Issues with the Managed Forex Fund
One of the biggest issues with the managed forex fund are the fees. In the typical structure a sponsor or manager will in essence white label a program developed by the FDM. The forex sponsor/manager will then charge a fee ontop of what is charged by the FDM. This is in effect a “double fee” to the client and should, in most all situations, be disclosed to the underlying client. Double fees are not inherently bad, but the investor or client needs to understand what is going on.
Another issue with the managed forex fund is that the FDM will typically also make a pip spread on each position and so the FDM has an incentive to trade excessively or “churn” the account. While the FDMs are very aware of this issue and thus conduct the trading so that the is no churning (and no percetion of churning), it is another issue or risk which should be disclosed to the ultimate investor.
All forex managers who used forex managed funds as the central (or part of the) trading stragey (whether through a forex managed account or forex hedge fund) should discuss their trading program and their disclosure document with a forex attorney. All proper disclosures regarding the relationship should be disclosed to the investor.
Other hedge fund law articles related to Managed Forex Funds include:
- Forex Hedge Funds – Forex Commodity Pools
- What is Forex? Forex Overview
- Forex Hedge Fund Risks (from Forex Law Blog)
- Forex Registration Requirements (please also see our other website on Forex Registration)
- Forex Disclosure Documents Part I
- Forex Disclosure Documents Part II
- Submitting Forex Disclosure Documents to the NFA