With the emergence and development of online trading platforms, the dynamic forex market has become easily accessible to everyone. Hence, many newbie traders are approaching the market with a lot of expectations for profits. But becoming a profitable forex trader is not that easy for anyone. In the earlier days, forex traders always had to trade themselves, as self-trading was the only option, but now there are some innovative trading solutions like managed forex accounts, which have become popular among modern traders.
In this article, you will get to know various aspects related to self-trading as well as managed forex accounts covered and reviewed in detail. By the end of this write-up, you can decide which is better for you.
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How to Get Started- Self-trading Vs. Managed Forex Accounts
Before we get into the details of these trading approaches, we need to know how you can get started with a normal trading account and a managed forex trading account. How does the starting phase differ for both, and how easy or tough is it to sign up for a trading account?
Self-trading is all about trading on your own without any assistance. You will be the one planning and placing your trades. You have to manage your trade positions and will be the only one responsible for the trading results.
To get started with self-trading, you just need to find a reliable broker of your choice and sign up for an account through registration. You need to provide personal details to complete the online verification, and then you can start trading on your own after depositing enough funds. For forex-managed accounts, you are actually investing in the trading system of a professional and experienced trader functioning as an account manager.
These account managers won’t get direct access to your funds, but their trade positions will get copied to your trading account in real-time. Many other investors will rely on the same account managers for trading, and the profits/losses will be shared on the basis of funds invested as trading capital.
To get started with managed account services, you need to find a trusted broker offering this type of service and sign up for an account with them. Managed Forex account services can be availed through PAMM and MAM accounts, the most popular types of accounts in this category. The account opening procedure and sign-up process are not any different from the traditional self-trading accounts. But the fees will be higher as you get an expert managing your trading activities.
Things to learn for self-trading
- Market Knowledge – The first and foremost thing you need to learn about as a new trader in the forex market is the market itself. The global currency market is unique as it is the largest and most liquid financial market. A beginner should take some time to study the market and also learn various technical terms related to forex and trading. You need to study different types of currency pairs, which are the trading instruments in forex trading. In short, there is a lot to learn as someone engaged in self-trading needs to be well-versed in the market to begin with.
- Forex Strategies – You also need to learn about various forex trading strategies and how they work before getting into trading yourself. You should never start trading without a solid trading plan and strategy to follow. Traders follow many popular and distinct strategies, and choosing the best one for yourself gives you an edge. You also need to determine your own trading style, profit targets and risk tolerance first, as the strategy you choose should be well-aligned with these.
- Market Analysis – Learning about market analysis is an unskippable part of learning. You should be good at market analysis for spotting ideal trade setups and making profits out of them. Most forex traders rely on technical analysis, which involves using price charts, but a little knowledge about fundamentals is also essential to easily navigate the currency market. Analytical skills take time to develop, and a beginner needs to put in effort to learn the technicalities as they need to be good at interpreting and applying the analysis in actual trading.
- Trading Skills – Trading skills are something that a trader acquires from practice and experience gathered over time. It is a combination of all the things we mentioned above but also includes other aspects like trading psychology, timing and calculation skills. You can rely on automated tools to make the calculation part easy, but the rest of the things must be acquired independently.
The best place for developing and polishing trading skills as a beginner is a demo account. Because it allows you to get some exposure to real-time market conditions without any real risk, it allows you to trade freely and learn your lessons.
Those who are planning to invest in a forex PAMM/MAM account can also use the demo account to learn trading. This way, you will be earning and learning at the same time. You can open a demo account on MT4 or MT5 based on your preference. The MT5 platform is perfect for modern traders who want to diversify by exploring multiple trading instruments.
What Should You Know About Investing in Managed Accounts?
Unlike self-trading, you don’t need to possess a lot of knowledge or trading skills to invest in forex-managed accounts. In fact, forex-managed account services aim to let novice and inexperienced traders make profits in the volatile forex market. The professional trader acting as the account manager will be in charge of all the trades that get executed. So, the investor doesn’t need much preparation or planning to get into managed account investing.
However, you have to do some research about the scope of managed forex account services and what kind of trading results you can expect by investing. You need some basic knowledge for a smooth start, but you don’t need to dig in deep like how a manual trader doing self-trading has to do. The first piece of information you need to learn is the type of managed forex accounts. The most popular ones are MAM and PAMM accounts.
MAM and PAMM accounts look almost the same on the surface, but there are some differences in how they operate and manage the risk. MAM account is the abbreviation for Multi-Account Manager, as the account manager gets to trade on their own account with the ability to manage the investor accounts that are linked with their account. The allocation of funds, as well as the distribution of profits/losses, can be personalised as per the requirements of investors.
Those who invest in MAM accounts get some authority over risk management as they can set parameters to control the use of funds for trading. This allows them to decide how their funds will be used by the master trader or MAM account manager for trading. MAM account investors can be sure about the trades being managed as per their risk profile,, which makes the MAM accounts a popular option for experienced investors.
The full form of PAMM is the Percent Allocation Management Module, and in this type of managed account, the profits/losses get shared on a percentage basis. PAMM account investors do not get much say in the usage of funds for trading or risk management. They just need to find master traders that suit their requirements in terms of profit targets and risk profile. PAMM accounts are more suitable for complete beginners who lack knowledge in key risk management.
Pros and Cons of Self-trading
- You get complete control over the trading process.
- Chance to learn from hands-on experience.
- Lesser trading costs as you are not relying on account managers.
- Beginners have to get through a prolonged learning process.
- Self-trading is time-consuming and tedious, and not suitable for busy individuals.
- Higher risk of loss when you lack enough knowledge or skills.
Pros and Cons of Managed Forex Accounts
- Easier to get started
- Takes less time and effort
- Higher profit potential
- Professional approach to trading
- Passive income generation
- Account management fees may add up to trading costs
- No direct control over the trading process
- Profits are not guaranteed.
As you can see, the pros of investing in managed forex accounts clearly outnumber its cons. Complete beginners who want to start earning right away can surely consider forex MAM/PAMM account services to invest and make profits alongside learning. It is also a perfect solution for passive traders who lack time or interest to trade themselves or just want to increase their profit potential via professional trading and account management services. It cannot be a replacement for self-trading but is still a feasible alternative for those who are unable to trade on their own.