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Forex Managed Account Report

Learn how to trade various forex accounts from a single platform without any
administrative or compliance issues.

Managing Forex Trading Accounts

Forex Basics

Organizational Structure


- CPO/ Hedge Fund

Forex Basics

PAMM & LAMM Accounts



Forex Basics

Fee Structures

- Performance Fees

- Management Fees

- Commissions

- Combination Fee

Forex Basics

Registration & Compliance

Forex Basics


Forex Basics


Forex Basics


Combination Fee Structure

With the numerous fee structures available, sometimes money managers find it hard to decide on the appropriate fee structure to use. There is obviously no correct answer, although there are regulatory restrictions. Typically money managers will use a combination of the various fee structures mentioned in this text. The structures depend on the goals that the money manager and the investors are trying to achieve. In this section we will go through a few scenarios to get a general idea of how to align your fee structure with your specific goals as a money manger. There are various aspects that need to be taken into consideration such as trading strategy, your goals as a money manager and your relationship with your investors.

Typically the standard structure for large forex hedge funds is the 2-20 structure. This means a 2% management fee and a 20% performance fee. This structure is standard enough that it will exhibit a professional image to your investors and simultaneously allow you to generate profits from the performance fee. In these structures the management fee usually goes towards any fees associated with the managed program such as accounting and maintenance.

Aggressive Fees
If you are a trader with a very aggressive strategy that you feel very confident about you can charge a higher performance fee and no management fee at all. This way you can trade your strategy without risking your own money and keep a good share of the profits. This is typically a model that you would implement if you are very reluctant about sharing your strategy with investors all together. There are some drawbacks to this approach. First you are only compensated if you make money so if you get into a large draw downs you will not make anything until you recover and generate profits over the high watermark of the master account. Another negative of this approach is because you are charging a higher performance fee when you do get into a drawdown your investor may give you much more grief that they would if you were charging fees that were better aligned with the industry standards. Typically these types of managers charge 25-40% of profits although some very aggressive traders may charge in excess of this.

Family Arrangements
If you are managing money for your family members or close friends you may want to charge a more conservative fee structure. Some managers do not charge anything at all if it is for close family members. Others may consider charging strictly a management fee of 2-3% in order to cover any necessary costs of the program.

Commission and Performance Fee Model
Many smaller forex managers like to take advantage of the commissions that are available with forex trading. In order to accomplish this instead of charging a management fee they charge a commission on each trade that they place in the master account. If the volume is sufficient they can attain much higher profits for themselves with this model than they would with the management fee approach. The commission in many cases outweighs the performance fees also. The one great positive for the manager with the commission approach is that he gets paid whether the master account wins or loses. However there are also some negatives associated with this model.

Typically larger more sophisticated investors are unlikely to agree to pay commissions on forex trades because of the conflict of interest that they create between the money manager and the investors. So, although the commission based approach may be effective short term, it may not be the best approach if you are looking to grow your CTA and eventually manage 100s of millions of dollars.

Another drawback to the commissions approach is that the cash commissions typically dwindle down the sub account balances in the master account. This is particularly true if you have a high frequency strategy. At the end of the day, the cost associated with trading forex is the spread and the commission and the more you trade the more you pay; therefore you have to make higher profits in order to overcome these costs. Therefore if you are serious about growing your business as a money manager you have to make sure that the commissions that you charge to your investors are not so high that they eventually diminish their balance so much so that they decide to leave you all together.

If based on your volume calculations you still think that it makes sense to implement this type of model, a typical fee structures could be a $5 commission per 1 standard lot round turn trades and a 20% performance fee.

Managing Forex Trading Accounts   Managing Forex Trading Accounts
Forex trading involves significant risk of loss and is not suitable for all investors. While you can earn a cash bonus,
you can also lose money due to the inherent risk of trading. Read full disclosure.

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