Managed Trading Accounts: The Pros and Cons

The more experience, research and strategic development that a trader has greatly increase his or her chance of success in any position. These obstacles are easily understood, yet often scare beginners away from the commitment. Is there any middle ground between a “set it and forget it” strategy and an “active management” strategy that eats up several hours of the day? How do beginning traders reconcile their time with their new hobby and its immense financial importance?

Managed Account Option

One method is to use a managed account option. Most brokers have managed accounts available, and are sure to employ several market professionals to assist in this function. Managed accounts are trading accounts that both the client and the broker have access to in a position-opening and closing capacity. What this means is that if you have a managed account, your broker is trading for you or alongside you. It may seem like a great idea to have a professional trade for you, but before giving someone access to your money you should take a long look at your preferences. How much free time do you have that you’d like to commit to the trading process? How much control do you want over this process? What do you believe is the best strategy for investing and how liquid do you want your money to be?

Know Your Portfolio

If you enjoy knowing what your portfolio is comprised of, if you have lots of free time to get experience trading, or if you believe the best strategy for your type of risk appetite and timeline is a buy and hold strategy, do not get a managed account. However, if you’re running low on time and believe that frequent babysitting and the opening or closing of positions based on trends is the way to earn, consider getting your account managed. So now you’ve chosen the latter option. You should have some concerns, and most of them will be about the person in front of your account screen far away. Before hiring a specific manager, brokers encourage you to speak at length with them to ensure your strategies match, or at least that your representative knows your preferences. If you are compulsive about knowing the contents of your portfolio and require your assets be liquid or otherwise easily accessible, inform your manager that longer positions shouldn’t be taken so that your actions don’t affect strategies for which you aren’t in the loop.

Keep Updated on a Regular Basis

Ensure your broker’s account managers update you regularly if that is something you require. It is possible to stay in the loop while enjoying a hands-off approach, and most are happy to provide this. The advantages of a managed account are many, with the most lauded boon being the experience of the asset manager over your own. You may have some experience, but likely not as much as someone in the industry whose job it is to trade. Additionally, even though your own experience may be sufficient, an emotional bias may cripple you into not executing positions you find out of fear, or lack of belief in your abilities. A personal manager has no such biases and is confident in their success, yet manages to remain focused and make good decisions within your boundaries. Most brokers have individual performance records of their managed account representatives, and can illustrate to potential clients that a specific broker matches their outlook and has made good decisions. One disadvantage of this approach is that past performance is not generally indicative of future results, they may be circumstantial or simply a snapshot of the last few years of the trader’s career in a market which may not be difficult to navigate.

Learn How To Trade

Additionally, a disadvantage of managed accounts is that the account holder does not teach him or herself to trade with confidence individually. Making less mistakes may be better for short term financial success, but mistakes are what teaches us the most efficiently. You may gain slightly more by having a professional trade for you, but many believe that the fees and lack of progress individually, leading to dependence on a manager, is not worth the potential profits. Generally, the choice is up to you. Whether or not a managed account makes sense is a complicated equation containing factors like age, risk appetite, thirst for knowledge, and available time. For each factor, an area in the center of the outlines is an appropriate place to consider a managed account. Also consider that within this middle ground is another, the ability to make a certain percentage of your account available to the manager, who cannot touch unspecified funds in the same portfolio.