Beginners Guide to Forex Funds

Beginners Guide to Forex Funds

by Jon Provencher

A commonly asked question from investors is What is a Forex Fund?

A Forex Fund works exactly the same way as a mutual (managed) fund. Mutual Funds started up after the crash of 1929. The rationale behind a mutual fund is if people combine their money, they can buy more shares to obtain greater diversification, thereby reducing their risk and exposure to another crash. Forex Funds are newer appearing after the crash of 2000.

When you invest in a Fund you receive shares or units. As the fund earns profits the value of the fund goes up, increasing the value per unit. The Forex Fund manager takes the combined funds and decides when to make trades on the forex market on behalf of their individual investors.

Forex Fund's allow investors with limited knowledge of trading forex or limited time to take advantage of trading the worlds largest market. Investors should choose an appropriate Forex Fund by thinking about their risk tolerance and investment objectives. They should also consider the historical performance of the Forex Fund and the qualifications of the funds manager.

A benefit of investing in a Forex Fund is that the Fund will be managed by a professional, who has access to detailed economic data, knowledge of how world events will impact forex trades and experience trading the forex market. Another advantage is the money management of the fund will be handled by a professional. The money manager will decide what size trades to make to achieve maximum returns for the fund while limiting risk and will also decide a sensible system for compounding.

A Forex Fund has the advantage of enabling investors with limited funds to get started in the forex market. A lot of new traders money get wiped out due to taking risks that are not appropriate for their account balance.

The biggest advantage of investing in a Forex Fund is the time you will save. Obtaining enough knowledge of the forex market to be comfortable trading it with real money often takes years. A Forex Fund enables you to benefit from the time already spent by other professionals studying, while your time can be better used elsewhere.

As the forex market is a 24 hour market, often the trading hours will not be convenient and you could be stuck at your computer in the middle of the night. When your money is invested in a Forex Fund you can check how your investment is performing at a time convenient to you.

Trading forex can also be an emotional rollercoaster, enormous highs when things are going well and enormous lows when it isn't going well, this can have a enormous effect on you and your family. Investing in a Forex Fund can remove a large part of the emotion involved in forex trading.

I hope this article has helped answer your question: What is a Forex Fund? IBlogForex.com contains many other articles on trading forex you may find useful.