Managed accounts or PAMM are something that many traders are familiar with when it comes to Forex trading. Binary options managed accounts are a new concepts that is causing major problems for the binary options industry.
The way managed accounts are suppose to work is that the investor chooses which manager / trader they want to manage their account. Their account is then linked to the managers account so that trades are in essence mirrored at the same percentage allocation.
The concept sounds great, but that is where the problems start. Investors mistakenly believe that their money is being managed in the same way a mutual fund is managed. They believe the person making the trading decisions is a Harvard graduate, who is licensed to manage money. The reality is; most Forex managed account managers are simply traders with a decent track record.
Some rouge binary option brokers have started offering managed accounts for binary options trading.
There are many problems with this;
- Mutual funds that are regulated, are not allowed to trade regular options for their fund.
- Hedge Funds are allowed to trade options, but they can only trade for “high net worth” investors who can afford to lose everything.
- Who is the person managing the account. Some “senior analyst” who you spoke with on Skype?
- The broker makes money when you lose, so where is their incentive for you to make money?
Japanese licensed binary option broker must report every month the percentage of accounts that lost money. As of June 2015, 79% of trader accounts lost money. So before you believe some slick salesman on the phone, just know that the odds are stacked against you.
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Automated Managed Accounts
The solution that many traders hear about are the automated trading robots with acts like a managed account. The investor just deposits their money and the system runs by itself.
The majority of these trading robots are heavily marketed online via pitch videos with fake testimonials by hired actors about the systems ability to make millions of dollars while you sleep. Although black box trading does exist on the institutional level of banks and hedge funds, these products are not available to regular retail investors.
You can read this article which highlights some of the best and most popular trading robots.
What we look for in a binary options robot, is the ability they give you to control what the software trades. You should be able to decide which broker to use, which signal source to use, which assets it trades, and how much to risk.
In summary, if your broker is asking you to deposit more money, and they will give you a managed account, just say no, and withdraw your money!
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