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Paper trading is an educational tool that many platforms provide to traders in the form of a demo account. Demos provide the trader with the opportunity to trade in a real time environment but with no real exchange of money. Demo trades exist only on paper. Traders get an opportunity to familiarize themselves with the particular platform and test trading strategies without assuming any risks. These types or demo accounts are offered for free and serve as a sort of hands-on advertisement and trial test of the platform.
Micro Accounts
Some dealers allow traders open accounts as little as $100 deposit. As with paper trading, these small accounts are useful to the novice trader in testing trading strategies and skills.
MANAGED ACCOUNTS
In a managed account, investors allow a particular firm or individual to trade on their behalf. Managed accounts provide investors with a tool to invest in the Forex market without having to contribute any hands-on involvement. For retail investors in particular a managed account offers the benefit of knowledge, experience, and resources from an investment manager without the investment restrictions that accompany a hedge fund and other types of investment opportunities.
Investors have the responsibility of choosing an appropriate firm that will manage and trade in their best interest. An investor must sign a standard account opening document and other documents that give the manager what is called limited discretion to trade on behalf of an investor and withdraw predetermined fees from the account, but it does not give the account manager full discretion to control all the funds lei the account. Account managers trade through an FCM or bank but direct the client to open an account with the chosen firm. Managers may charge a fee not to exceed two percent. They may receive no more than a 20 percent return. Account managers arc also required to disclose any other compensation derived from managed accounts.
In the United States, managed accounts are nor required to be registered with the Securities and Exchange Commission (SEC). Further, if the account is used strictly in the Forex market, there is no requirement for the account manager to provide disclosure documents that include corporate or personal biographies, audited performances, trading strategies overview, risks and other information that would assist an investor in making an informed and educated decision. On the other hand, if an investment account were used to trade futures, the account manager would be required under CFTC and NFA guidelines to present potential investors with disclosure documents. CFTC and NFA guidelines would also require that the account manager be registered as a Commodity Pool Operator (CPO), commodity trading advisor (CTA), or a registered investment advisor (RIA) who has educational and filing requirements.
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