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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 growth in the foreign exchange market over the last 10 years or so has been nothing short of remarkable.  Back in the 1990′s, trading currencies was the preserve of banks and hedge funds.  Today, is a very different story, with every man and his dog opening a forex trading account online, and trying to be the next George Soros, the man who broke the bank of England.

There are a variety of factors a client needs to consider before he invests in a forex managed fund.  Looking at the returns might be an obvious place to start.  But it isn’t that easy – you might think that a monthly return of 10% in one month is good – of course, it is – but not so good when you see that the next month the manager lost 20% of the fund!

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.

Leverage is a killer in the currency market – whilst using high levels of leverage can bring you huge returns, it just takes one or two bad trades, and you can easily blow your account.  This explains the ultimate attraction of a managed forex account, as we will see below.

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.  It just takes one or two bad trades, and your account is busted, which then causes most traders to research forex managed funds in order to access the currency market.

Therefore the client much choose a forex managed fund which is appropriate for his level of risk.  If he wants to shoot for the stars, and have the opportunity to make perhaps 100% or more on his account in a year, then he might choose a more risky forex managed fund which uses more 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, then, the potential client must find a forex managed fund which fits his comfort levels vis a vis risk, and can maximise his investment goals.