User:Martingsy/sandbox

Managed forex accounts are a type of alternative investment that enables investors to participate in the foreign currency exchange market without having to learn how to trade forex for themselves. The trading accounts are traded by professional traders and the administration is carried out by the management company and in some cases by the traders themselves.

Capital Required To Open An Account
With the arrival of fast internet connections, almost anybody can open up a managed account and in consequence, the minimum investment capital needed by most providers is $10,000 USD. There are companies that let investors open an account with as little as $1,000.

Initially, when they first started to operate, they weren’t accessible to individual investors with minimal capital, only to investment companies or individuals with a large net worth. The minimum investment capital needed was $100,000 USD and in many case $1,000,000 USD.

Drawdown Limits
There should be a drawdown limit that is set by the provider. This is a measure to stop the account from losing all of its funds.

For instance, if the drawdown limit is set at 30%. Once the account drops by 30% from the high water mark, then the account will stop trading. In some cases, all open trades will be closed and in some cases, no new trades will be opened but existing trades will be left to run to their conclusion.

There are individual drawdown limits which will stop the individual trades at a 2% loss for example.

Some accounts let you set your own drawdown limits.

Performance Fees
Managed forex account providers charge a performance fee to managed clients’ accounts. These vary from as little as 15% and can rise up to 50%. The most usual fees that are charged are 25% and 35%.

They will only be deducted from accounts once the high water mark has been exceeded.

The High-Water Mark
A high-water mark is the maximum amount of funds that the account has ever reached once the monthly performance fees have been deducted from it.

For example - A new account has been opened and the minimum capital of $10,000 has been deposited. The performance fee for the account is 50%.

In the first month the account made a 10% profit. In monetary terms this is $1,000.

$10,000 x 10% = $1,000.

50% performance fee is subtracted by the provider. This amounts to $500.

$1,000 x 50% = $500.

The net profit for the client for the first month is $500. This has created a new high water mark for the client of $10,500.

$10,000 deposit plus net profit of $500 = $10,500.

High water mark is now $10,500.

During the second month, the client suffered a 10% loss. This is $1,050.

$10,500 x 10% = $1,050.

The account balance now would be $9,450.

$10,500 - $1,050 = $9,450.

The second month would have no performance fees deducted since the high water mark was $10,500 and the new account balance is lower at $9,450.

The high-water mark remains the same at $10,500.

During the third month the account made a 20% profit. In monetary terms this is $1,890.

$9,450 x 20% = $1,890.

The account balance of the client is now $11,340.

Performance fees are only deducted from the difference between the new account balance of $11,340 less the existing high water mark of $10,500. This amount is $840.

$11,340 - $10,500 = $840

Performance fees for month 3 would be $420.

$840 x 50% = $420.

The new account balance and new high water mark after performance fees have been deducted is $10,920.

$10,500 plus net profit of $420 = $10,920.

The new high water mark is $10,920.