Today Forex market / CFD opens up great opportunities for both traders and investors. One way to earn money is trust management. This topic interests many of my colleagues, so today I will tell you that I know about trust management myself.
We will look at the types of remote control, try to find out the difference between ordinary and pseudo-trust management, and also talk about how much a trader can earn on this business.
What is Forex / CFD Trust Management?
The name of this field of activity speaks for itself: a person hands over to someone the right to manage certain assets on his own behalf. In the currency market, trust management is carried out through Brokers. This way of investing means replenishment of the deposit in the brokerage company. Through it, money is invested in managers, to which the market participant, in essence, transfers the right to dispose of his capital.
Trust management in the Forex / CFD market can be carried out in two ways:
• Copying of trader accounts. In this way, the brokerage company pays the reward to the trader. Investors can be connected by subscription, which is paid.
• PAMM-account, when the trader is paid a commission from the received profit in the amount of 10 to 50%.
Both methods can be quite effective. The remuneration is received by all participants of the transaction. The investor earns profits and guarantees the broker. The trader also receives a legitimate income and a guarantee of the brokerage company.
How did trust management arise?
As you know, in the last decade, the Forex / CFD market has been developing at a rapid pace. People quickly appreciated the opportunity to trade on the exchange and get a good income, in connection with which the number of traders has increased dramatically. But some of this area of activity was not under force.
Other players, by contrast, traded successfully and reached a solid profit. However, their own funds were not so much. As a result, the idea appeared: to attract foreign capital and begin to manage it for reward.
Since people who want money to work without their participation are always enough, this idea was supported. As a result, investors and traders found each other, and brokers acted as intermediaries.
Of course, at first the process of such cooperation looked vague. People had too little information. Therefore, often there were situations when investors' funds passed into the hands of inexperienced players or outright fraudsters. It is clear that this state of affairs has caused real outrage and a lot of negative feedback on the network.
The situation changed at the beginning of the XXI century, when the now popular terminal MetaTrader4 began its work. With its arrival on the market, investors were given a choice and certain guarantees, and traders could confirm their consistency and experience in Forex / CFD.
Gradually, the role of brokerage companies has lost some of its importance. Currently, traders can manage the accounts of investors regardless of which broker they are open. This also served as an impetus for the development of such financial relationships.
How does trust management of money
Management of foreign funds in the Forex / CFR market occurs on certain conditions. The number of trading accounts for each manager is limited. At the same time, the minimum investment amount is usually 10 000 dollars, since the management of small accounts is inexpedient for a trader.
Here I would like to give a small example. Suppose, the earnings of a trader who has taken 10 000 to manage, is 10% per month. The income from his trade is divided equally. Therefore, the amount that a trader receives monthly does not exceed 500 dollars. I think you will agree that this is not so much money for basic earnings.
Of course, for a bona fide trader, it is important not only the quantity, but also the quality. In this case, he is interested in looking for large investors with a capital of 50 000 dollars. To interest a partner, you can agree on the ratio of profits 30: 70 in polka person who invests their own money.
At the same rate of return in the amount of 10%, the manager will receive 1 500 dollars per month. Of course, such trust management is more profitable for him, so a trader-pro will prefer to work with two or three large investors.
Therefore, for the management of capital in the amount of up to 10 000 dollars usually beginners are taken. If you want to conclude an agreement with an experienced financier, it is desirable that the amount of capital in its management exceed 100 000 dollars.
The transfer of remuneration in direct DM is carried out on a fairly complex system. The investor needs to withdraw from the deposit the money that the trader has earned. After that, the manager is given a pre-specified percentage. You can transfer it through bank transfer, through one of the payment systems or in another convenient way.
The disadvantage of trust management is the absence of a clear legislative regulation of such financial relations. Although the concept of the contract of the DM in civil law is, but its form has little to do with trading in the Forex market. It remains to be hoped that with time, problems in the Russian law will be eliminated.
Now let's consider the conditions of trust management presented in the Forex / CFD market and their profitability.
Transfer of funds to trust management: what to consider
Those who decided to transfer money to the management, I want to give some advice:
• Find your manager. They can act as one trader, and their group. Be sure to find out through which brokerage company your potential partner works. It will be useful to read reviews on specialized forums.
• Discuss the terms of cooperation in advance. Agree on what commission you will pay the manager, how the payment will be made. Also, do not forget that trading Forex / CFD is always a risk. Therefore, immediately indicate the maximum possible drawdown limit.
• After agreeing all conditions, open an account with the broker that arranges all. Then a pre-agreed amount is paid into the account, and the password for the entry is sent to the trader.
• In addition to the general, you will need a separate password for the investor. It allows you to view any transactions on the account and keep the situation under control.
On this process ends, the funds in trust management will be transferred. The investor only has to make a profit and pay the trader a commission.
Copying of trader's deals
This opportunity can provide many well-known brokers. Their essence lies in the fact that you replenish your deposit on the brokerage site and start trading, copying the strategy of the selected trader. The choice here is quite large: you can see the amount of income and work schedule of partners, as well as their profitability.
The whole process is carried out automatically. Once the trader selected by you opens the order, information about this immediately appears on your account. On the market, this process is also called copying signals, or trading strategies.
Copying from an Alpari broker
As an example, let's take one of the famous companies - At par, operating in the market from 1998 year. An investor can easily connect to his signals:
To do this, just go to the rating page and select traders to copy. Here you can see the data related to its trade:
The screenshot shows information about the account, which is only 2 years old. During this time, its owner earned a profit of 1152,90%!
Trade signals are supplied by the MQL5.community service. True, this is a paid service. The ability to copy a trader's trade costs 29 dollars a month. The process takes place in several stages:
1. Registration with the broker.
2. Installation of the trading platform MT4 (MT5).
3. Registration in MQL5.community, which is carried out through an office opened in Alpari:
At this stage, a special account must be created, allowing you to track subscriptions and connect to traders.
1. Connection of the service on the platform MT4 (MT5). To do this, in the "Tools" tab we select the "Settings" line. In the "Community" tab, a window opens, in which you must enter your login and password:
2. Then we select the signal provider, go to its page and subscribe.
3. We confirm the conditions and pay for the service. You can cancel it at any time.
I want to warn you that the site MT4 (MT5) works only when the computer is turned on. But some traders send signals at any time of the day, and in this case they will not be processed. If you want the signals to be processed around the clock, you can rent a copy of the MetaTrader platform for 10 dollars per month.
Work with the brokerage company eToro
Another broker that deserves attention is the company eToro. The number of its customers has exceeded 6 million people. One of the most famous partners of the broker is Sberbank, which invested millions in it.
One of the differences from Alpari is that eToro connects investors to its own traders without using other communities. The software for it is developed by Microsoft, and you can copy the trade of traders for free.
The work is about the same. The market participant registers, selects the partner and presses the "Copy" key.
Another advantage is that the copying will be performed regardless of whether the computer is turned on. You do not need special equipment, all the work can be done on the site. The choice of assets is also impressive. Not only currency pairs / CFDs are represented on the site, but also crypto-currencies, stocks, and much more. For an example, you can see a portfolio of one of the traders:
Perhaps the only drawback is a fairly large amount of the deposit - 500 dollars. The minimum amount necessary to copy the trader's trade is 200 dollars. But this money is not a management fee, they remain in the investor's account.
Features of management on Forex / CFD through PAMM-accounts
If we talk about full-fledged trust management in the market, it happens through PAMM-accounts. With this method of work, the investor not only copies the manager's trade, but transfers money to his account.
I will try to explain briefly, what is the PAMM-account. This is a special fund, a trader's account, into which different investors can invest. The profit in such funds is paid in accordance with the amount of deposits.
The PAMM service is a development of the Alpari broker and has become its trademark. If you have some experience, you can also open a PAMM account and attract investors. A special rating is drawn up to help market participants. It allows you to evaluate each of the accounts and choose the appropriate one:
The profitability of PAMM-accounts can be different. Most often it is in the range of 50-100%, but may exceed 200%. However, I advise you to be cautious, because too lucrative trade is a risky business.
To get started, you need to open a rating and see the account information:
Then choose the option "Invest funds", and your money is transferred to the manager. Profit can be output both at a time and in parts.
There is one important point in working with PAMM-accounts. The trader here determines his commission independently. It can be either 10% or 50%. For example, you invested in trust management 100 dollars and received a ten per cent profit, that is 10 dollars. If the commission of the manager is 20% of income, he will take 2 a dollar.
What are the risks of trust management
With all the advantages of trust management, he has drawbacks. Even if you entrust money to an experienced trader, there is no certainty that in the near future he will trade as successfully.
From loss of funds are not insured as beginners, and pro. Therefore, I do not advise you to trust money to one manager, and also to put the latter. You can minimize risks if you make up an investment portfolio. So you will be insured against drawdowns at least partially. If one trader is at a loss, the rest will profit. As a result, you can enter into a common plus.
When choosing a partner, pay attention to the indicators of its activities. If during the last 6-8 months the trader worked without large losses, this is a good indicator. Such a participant does not rely on chance, but trades on a fairly reliable strategy.
Direct DM or PAMM-system: what is better
I am often asked what is more profitable for both a trader and an investor: PAMM accounts or direct trust management. This is not such a simple question. Despite the advantages of DU, it is more convenient for market participants to manage money through PAMM-accounts. They do not have to worry about getting their commission, which is automatically transferred to them. In addition, there is no risk of theft of trade signals, which sometimes happens in direct control.
But for investors, there is a better direct DM. They exercise full control over all transactions, can close any of them at any time and block traders from accessing assets. In Western brokers, such a system is also more common. In many respects this depends on the specifics of the financial and tax legislation. In addition, a quality PAMM-system is available to not every forex broker.
And still, I believe that PAMM accounts are preferred for all participants of the transaction for the following reasons:
• The available minimum investment size allows you to trade simultaneously with multiple brokers. This allows you to differentiate the portfolio of assets and minimize risks. For example, you work with ten managers, each of which invested a thousand dollars. Even if one of them goes to a loss, the rest will keep your portfolio.
• When there is a share of the manager in the total capital of the PAMM-account, this greatly affects the trading process. The trader works more responsibly, because he trades not only on the money of the participants who entrusted him the money, but also on his own.
Pseudo-trust management and its features
In the Forex / CFD market there is also such a thing as a pseudo-trusted DM. This term denotes financial relations, which are technically considered real management, but in reality they are not.
The difference between them is considerable. If in a real DU a trader can decide where to invest the investor's money, he is deprived of such an opportunity in a pseudo-DU.
Currently, the market often develops such a situation. Brokerage companies and investment funds use the funds of depositors in a different way than originally stipulated. Investors are confident that they are transferring money for trading on the currency exchange, but they can be used differently.
Of course, if a depositor receives a stable income, it is not so important to him how the funds were earned. However, pseudo-trust management is periodically used not only by bona fide brokers, but also by scammers.
And yet this form of financial cooperation is widespread. Suffice it to say that this scheme built the work of many well-known hedge funds. There is no particularly negative attitude towards them. Many investors are only too happy if they are managed by experienced traders. About what methods they will be earned, investors do not particularly think.
Before you trust the money of such a company, you need to make sure that it conducts real investment activity. In this case it is possible to transfer to it in management the capital though risks nevertheless exist.
Most often, pseudo-DU is chosen by participants who have started trading recently or are not afraid to play aggressive games on the market. It's easy to explain: the investment conditions in such companies are completely loyal. The minimum threshold is only a few dollars, so virtually everyone can become an investor.
At the same time, the income from such deposits is quite large. If the yield on bank deposits does not exceed 10-12% per year, the pseudo-DU can receive such amount in a month.
Despite the existing risks, trust management in Forex / CFD can bring a solid profit. If the investor complies with the rules of doing business, he will be provided with a passive stable income. The main thing is to try to learn how to properly allocate risks. Study the information, select partners competently, and you will certainly achieve success.