Ups and Downs of Running a FX Fund

by Lawrence Fayman

Tue May 9, 2017


Working as a retail broker is challenging: customer calls, negotiations with liquidity providers, the constant search for new types of marketing – it’s a continuous competition. Pursuing the lowest spread, creating the best way to compensate partners, contemplating the nearest data center and more can be overwhelming.

Many of my clients who have already worked in the industry as retail brokers decided to move to the new business of Investment Management.  Some begin to build an FX Fund along with the main retail Forex business.

The advantages of running an investment fund as a business are obvious:

● Increasing monthly volumes and an opportunity to improve trading conditions.

● Additional source of income such as monthly or annual payments for successful trading.

● Widening the professional network in the industry.

The biggest disadvantage is the daily stress associated with managing large financial investments or the risk of losing your own funds when you invest with a poor strategy. If you are planning to run your own FX Fund, you should first decide exactly what you are looking for:

1)  Perhaps you’re a trader who successfully trades and wants to work with investors on your own. So you’re looking for investors.

2) Maybe you trade independently and want to have a few traders like yourself to diversify your product offering. You’re looking for traders and investors.

3) Perhaps you’re an investor without a clear idea of Forex trading, but you plan to use traders’ services. You’re looking for traders.

Consider exactly how you plan to do business. Here are some work options that might work for you (as a company or individual):

-The investor deposits the funds directly with the broker and gives you the opportunity to trade on the basis of the contract of Power of Attorney;

– You, as a fund, collect money from investors and trade with a total volume using the MAM system or your own platform/interface;

– You, as a trader, work for a brokerage agency, attracting clients to the broker brand with your PAMM account (of using MT4);

-You collect money from the investors and manage their money from your personal account.

The next stage is to define how you’ll get income. Depending on circumstances, there are various scenarios. The most popular and, it should be mentioned, the most profitable, is when a referral of a trader or a company directly negotiates a contract with the broker and gives access to his account to the fund. Typically, the fund has an additional commission of the client’s volume plus a bonus of the investor’s profit.

According to personal experience, sadly, this scheme is often abused by funds with unprofitable strategies. Inexperienced investors often swallow this bait.

Recommendations:

If work is done with a fund that charges only in case of profitable trading, the investor should be on guard. Not all strategies yield the same result every month, and it’s likely that some months will culminate in no profit. If a trader gets any payment based on his trading results, there must be an agreement for at least one year, where limits of a possible “drawdown” must be clearly indicated.

The Legal Point of the Issue:  It’s the same problem as creating a Forex Broker. The decision about licensing depends on your current clients’ requests.

In conclusion, I would like to mention that I often watch successful and unsuccessful traders as part of my job and I often recommend good traders to investors and vice versa.

If you are a successful trader or an investor, perhaps I can be of service to you by providing access to my professional network. My email is lfayman@forexware.com