This is a repost of our blog poll about fair money management fee in Forex.
Today, I would like to talk about a topic, which is of particular interest to many potential investors and account managers — what is the fair value for managing someone else’s funds in Forex? PAMM accounts are especially popular among Forex traders. According to our old poll, more than a half of this blog’s visitors deal with PAMM accounts either as traders or as investors. But PAMM accounts aren’t the only options when it comes to passive investment in Forex trading — there is copy trading, direct account management, signals, and so on. In any case, the question of the price of such services is equally important both to a customer and to a providing side.
Of course, many aspiring Forex traders or people who had bad experience with Forex trading account managers before, would probably claim that management service should be cheap because it is inherently risky and dangerous. But, for the sake of approaching the question of fair management fees based on performance alone, let’s assume that the potential investor trusts the account manager — e.g., they are childhood friends or that the manager is some other person the investor is confident in and respects.
Let’s suppose that this trader has your trust and is capable of making 20% a year with very low drawdown. To reduce transaction risks, you decide to work via a PAMM. What percentage of profit would you be comfortable giving away for this trader’s service?
On the one hand, you would still remain with quite a reasonable ROI even paying 50% of your profit to the trader. On the other hand, it is important to remember about the inherent risk, possible periods of drawdown, periods when capital cannot be withdrawn and is locked in the account, investment opportunities you would missing on, and so on. After all, 20% a year seems nice, but of course there are potentially better opportunities out there sometimes (for example, S&P500 was up 29% in 2019).
For reference, you can see how would the growth of your capital would differ when invested for 10 years with our imagined 20% profit trader with a set of distinct profit-based fees: 0%, 1%, 5%, 10%, 20%, and 50%. As you can see, the difference in total ROI becomes tremendous after 10 years of 50% profit fee ($10,000 grown to $61,917.36 vs. $25,937.42):
I personally, would have probably invested some of my funds with such a trader if the fees were under 10% of profit. Because, frankly, I aim to earn more with my own trading (as probably most experienced FX traders do). And what is your opinion on performance fees in Forex?
Today, I would like to talk about a topic, which is of particular interest to many potential investors and account managers — what is the fair value for managing someone else’s funds in Forex? PAMM accounts are especially popular among Forex traders. According to our old poll, more than a half of this blog’s visitors deal with PAMM accounts either as traders or as investors. But PAMM accounts aren’t the only options when it comes to passive investment in Forex trading — there is copy trading, direct account management, signals, and so on. In any case, the question of the price of such services is equally important both to a customer and to a providing side.
Of course, many aspiring Forex traders or people who had bad experience with Forex trading account managers before, would probably claim that management service should be cheap because it is inherently risky and dangerous. But, for the sake of approaching the question of fair management fees based on performance alone, let’s assume that the potential investor trusts the account manager — e.g., they are childhood friends or that the manager is some other person the investor is confident in and respects.
Let’s suppose that this trader has your trust and is capable of making 20% a year with very low drawdown. To reduce transaction risks, you decide to work via a PAMM. What percentage of profit would you be comfortable giving away for this trader’s service?
On the one hand, you would still remain with quite a reasonable ROI even paying 50% of your profit to the trader. On the other hand, it is important to remember about the inherent risk, possible periods of drawdown, periods when capital cannot be withdrawn and is locked in the account, investment opportunities you would missing on, and so on. After all, 20% a year seems nice, but of course there are potentially better opportunities out there sometimes (for example, S&P500 was up 29% in 2019).
For reference, you can see how would the growth of your capital would differ when invested for 10 years with our imagined 20% profit trader with a set of distinct profit-based fees: 0%, 1%, 5%, 10%, 20%, and 50%. As you can see, the difference in total ROI becomes tremendous after 10 years of 50% profit fee ($10,000 grown to $61,917.36 vs. $25,937.42):
I personally, would have probably invested some of my funds with such a trader if the fees were under 10% of profit. Because, frankly, I aim to earn more with my own trading (as probably most experienced FX traders do). And what is your opinion on performance fees in Forex?
