Offshore Managed Forex Investments, Good or Bad?
Forex trading has become a trend that has taken the alternative investment markets by storm. At one point 20 years ago, managed forex was a small investment niche which very few succeeded in. Today, just two decades later, it has become the most widely traded investment market in the world.
Due to the growing access to information, there are now thousands of wealthy investors looking for managed FX. Though this is great for the markets, the problem is, most investors go into managed forex investments before they should, making critical mistakes along the way. In this article, we will cover one of the most common mistakes, investing with a offshore forex trader.
Despite its monumental growth in recent years, forex is still widely unregulated. To add to this problem, most investors don’t know about forex licensing, so they don’t understand what to look for. In addition, most investors have no idea how to evaluate a managed forex investment, whether it’s domestic or offshore. Facts such as these have lead to a market with high demand and plenty undereducated investors. In response to this ripe environment, private forex traders and offshore FX companies flooded the market to meet the demand, aiming for “HIGH YIELDS”, while claiming “low risk”. As you’d expect, this recent movement in private forex has lead to stories of great success and immense disaster.
Since many investors have had trouble with offshore forex investments, we’ve provided some key tips to protect you. Take a look below, and soak up the knowledge!
Tips for Offshore Managed Forex Investments
1. Be Very Cautious with Private FX Traders: Private managed forex traders are already risky to invest with, but if they’re also offshore, you have a recipe for disaster. Even if they are not in the USA, ask them for some sort of license or certification in their country. Remember, all traders must be held accountable in some manner, no matter what the situation.
2. FX Accounts Must Always be Transparent: If you are sending money to an offshore forex broker, make sure the account is held ONLY in your name. Also, make sure you have access to your account at all times. Sending money directly to a “forex trader” will reduce the transparency of the account, and in many cases, you can be scammed out of your investment.
3. Always Withdraw the Initial Principal: Once your account doubles, ALWAYS withdraw the amount you initially invested. If everything runs smoothly and the funds return to your account, you have just eliminated your risk, and have likely found a good managed forex investment.
4. Make Sure there are References: Though I am not a stickler about references, I feel they are a MUST for any offshore forex investment. If you’re investing with a offshore forex trader based upon their word, you may just deserve to lose your money. In all honesty, if the trader is unlicensed, can’t show proof, and resides in another continent, you have very little chance to succeed.
5. Keep in Touch with Other FX Investors: If you’re lucky enough to have references, or you know others investing with the same FX trader, keep in touch with them. It is always good to compare notes, and make sure there are no inconsistencies that have popped up.
6. Define Accountability and Contract Obligations: Before investing with any offshore forex trader, you must always feel comfortable with the contract. If the contract presented to you is bare, as most are, make sure you can define accountability. Also, make sure there are various obligations the trader must fulfill. If they aren’t included, this can be accomplished by adding addendums to the contract. By doing so, you may have the opportunity for recourse if something unsavory was to occur.
7. FX Trader Must Guarantee Max Drawdown: If you’re working with a licensed forex investment, HUGE drawdowns can usually be avoided, but with offshore forex investments this is usually not the case. When you first speak with an offshore forex trader, you should address their stop loss strategy, and ask them to guarantee a max drawdown limit (i.e. Max % of account value at risk). If they are unwilling to add this agreement to the contract, it may not be a good idea to proceed. Unfortunately, we’ve heard stories from several managed forex investors who were raking in the profit, to see it ALL disappear overnight.
8. Conduct thorough Due Diligence on the FX Trader: If you are investing with an offshore forex trader, it’s more important than ever to complete a background check. The problem is, if the trader lives in another country, how do you find the proper channels to do so? In all reality, most of the time you can’t access the information you need on offshore FX traders, which is another reason we feel it’s risky.
9. Never Pay Attention to Hypothetical Track Records: Offshore managed forex traders are HIGHLY UNLIKELY to have their yields audited by credible third parties. With this in mind, you should NEVER make decisions based upon their history of yields. Though the numbers may look great, there is no way to truly know if the yields are real or hypothetical.
10. Never Send the Money Directly to a FX Trader: There’s rarely a reason to send money directly to forex traders, offshore or not. Forex investments will always have a clearing house / FX broker which holds the funds of the investors. Though you CAN lose your account on a bad forex trade, it’s better than having someone run away with your cash.
Just like any other alternative investment, taking the risky route can pay off, but it rarely does. With offshore managed forex investments, you can easily find the opportunity of a lifetime to see it all implode overnight! Personally, I don’t like to invest with a forex trader without a track record and licensing history. In most offshore forex investments, this is exactly what you’re left with. No matter how good the trader sounds, you should never invest based upon someone’s “word”.
Though this article is merely our opinion, PLEASE be careful when working with offshore managed forex investments. We’ve received plenty of phone calls from investors who got burned in offshore forex, and most never saw it coming. Since this has become such a consistent story, we felt it was critical to reinforce the seriousness of this issue one final time before ending this article.
If you have any insight or questions, as always, feel free to post below. We truly appreciate any new input, and thank you once again for a few minutes out of your day.
InsideTrade LLC Staff
Phone: (949) 444-2111