The coming of the internet revolutionized the foreign exchange market. Now, anyone with an internet connection can access the vast market with a capital outlay of as little as $10. However, investors with such small capital outlay cannot diversify their forex portfolio as they would wish. Therefore, forex investment funds exist to afford diversification.
What are forex investment funds?
Just take your mind away from forex for a moment and think about mutual funds. Mutual funds are an investment vehicle where investors pool their money with which they buy stocks and other securities. Usually, a professional fund manager makes all the investment decisions. The fund manager has the support of high-skilled researchers to ensure the only the best decisions are made.
In like manner, forex investment funds are types of managed accounts that entail pooling of funds into a single account. Usually, a group of professional traders may be the ones in charge. Also, some brokers offer such accounts. Here, a dedicated money manager makes the trades and monitors the account. Similarly, the professional money manager has a team of researchers, market analysts, and forecasters who help to refine trading decisions. Also, the money manager uses forex expert advisors to scour the market for trading signals.
The objectives of a forex investment fund include increasing the chances of traders to earn income from the market. Others are ensuring a disciplined approach to forex trading and earning the investors’ passive income. Also, professional money managers monitor the accounts 24/7 to utilize all trading opportunities that may arise. Further, instead of getting irregular returns, investors who have shares in the fund earn a certain percentage of return depending on the share of the investment in the fund.
Similar to mutual funds and others, forex investment funds are affected by several factors. These factors determine the current operation and future returns of the fund. Also, the factors define the trends that define forex investment funds.
Some of the key trends include:
Perception by the market
The latest statistics show that about 7 million traders are using online forex accounts. Two decades ago, this number was no more than 2 million. The popularity of online trading is that one can easily leverage algorithmic FX trading systems to make money. Besides, there are thousands of FX expert advisors to make trading easier and more profitable. These features, to some extent, have helped to fuel the popularity of forex funds. It is because fund managers can give good returns and consistency.
However, there is a downside to this story. A good number of forex investment funds have turned up to be Ponzi schemes designed to defraud unsuspecting investors. Resultantly, perception toward the funds and the forex products that they claim to offer access to is not good. Going forward, the more the sector cleans its name, the more clients businesses will acquire.
Particularly, forex investment funds (FIFs) will have to distinguish themselves from high-yield investment projects (HYIPs). It means more funds will be required to state rates of return that are reasonable and attainable. As a result, they will be able to gain the trust of the millions of traders, hence changing the perception.
Increasing instability in the global economy
Global crises are on the rise, and the global economy is taking a hit. For instance, the tensions in the Middle East are unceasing, and now, the coronavirus is ravaging the Far East. In Europe, the ECB is still combatting extremely low-interest rates and low inflation, to mention but a few. Consequently, the global stock markets are losing momentum as investors pull out to hedge their bets elsewhere. Interestingly, money is coming into the forex market.
Indeed, FIFs are staring at a possible windfall of clients on the horizon. As such, the entities need to perfect their act to guarantee returns. For example, the FIFs will need to deploy the best forex indicators for automated trading to increase trading opportunities.
Demands for higher returns
The forex market is evolving, and information about currencies is more readily available to traders. Further, more traders are learning techniques like automated forex trading, meaning their ability to high net returns is stronger. Consequently, traders that sign up with the FIFs are likely to raise the levels of returns that they expect. Therefore, the onus is on the FIFs to show potential investors that they can beat the market consistently.
Forex investment funds may be a new phenomenon by the concept that is already familiar to many investors. However, the FIFs have greatly suffered a bad reputation in the past because of a few bad actors. It, however, is about to change as more entities spring up to offer reasonable and achievable returns. Further, the rising global economic instability could send more investors into the forex market. Lastly, traders are getting smarter, and it is up to the FIFs to match their higher expectations in terms of returns.