DIVERSIFICATION IN TRADING|PART 3:SIGNALS VS ACCOUNT MANAGEMENT

18 set 2020

PART ABOUT ACCOUNT MANAGEMENT!


Now, about The account management. Well, as the name suggests, the professional trader of your choice makes trades for you, using your money.

There are different ways how this service can be implemented:
Either you open a brokers account in your own name and give the trader access codes.Or you wire your money to a specific management account. Etc..

It all depends on the trader, the country he is in, and yours and his personal preferences.

In the account management, you typically pay a % of profit, + a small monthly fee sometimes, that does not depend on the trading results, but the latter is very rare, as the account management is considered a high risk investment, and it is not a hedge-fund to change a recurring fee…

Also, You typically need a certain minimum sum to be eligible for being a client of an account manager.

The reasons for managing other peoples money instead of just trading your own, are in some way the same as for selling the signal service.
You risk someone-else’s money and still get paid. This helps overcome the fear of entering the trade with risking 50k USD of your own, while in reality, it can be much more, when entering a trade while managing multiple accounts.

However, with account management your income still depends on you making a profit, and even though you are certain that the year as a whole will be profitable, you might have 1 or 2 bad months. This explains why a trader offers both a signal service and money management, even though he usually makes much more from the management than from the signals. Signal fee gets paid no matter what. So it is the most stable source of income for the trader, even though not the biggest one.

Choosing between a signal service and account management is not a trivial task. It depends on the account size, the management fee VS the signals fee, your country of residence and the reason for purchasing the service.
If you want to get trading tips while deciding whether to enter the trade or not yourself- signals are for you!
But if you have a million dollar account, then it is better to go with the management, as even though it will be more expensive, that gives you peace of mind, as the trader will be there in emergencies that might happen.
Some traders only offer one of the two services.

Overall, the choice between the two is personal and one needs to weigh all the pros and cons of the particular provider on his own.

So how to choose a signal or management provider? What to expect? How big should my account be? What is the industry standard?

All that in the next article!

Parts 1&2 in the links below!!