Starting a Forex Fund
While Forex brokers, money managers, and liquidity providers are under heavy regulatory pressure in recent years, the number of Forex funds around the world is constantly growing as a result of an expanding demand for passive-Forex investing services.
Setting-Up the Forex Fund -location
A Forex fund can be established in many countries around the globe, without even having to visit them. You can easily start a Forex fund in the US, in Europe, or even in offshore countries. The United States provides a huge pool of potential investors and a straightforward legal framework for building your Forex Fund, nevertheless, a specialized legal advisor is always needed. As concerns offshore funds, the British Virgin Islands may be the best choice. Note that offshore countries offer tax advantages, however, they are not the best choice for small-sized funds.
Legal Requirements and Time
The best way to start a Forex fund is by using two separate business entities:
□ A limited partnership for the Forex fund itself
□ A separate limited partnership that manages the funds
Starting a forex Fund requires a legal advisor who is experienced in preparing the needed documents. In the US, the required documents include:
- the PPM (private placement memorandum)
- fund's limited partnership agreement
- the subscription agreement
Other legal documents may include:
- Anti-Money Laundering
- Disaster/Data Loss policy
Furthermore, there is a requirement for:
- bank account
- brokerage account
- Investor Pitch Deck (a presentation that provides an overview of the fund’s structure and other information)
Setting up a Forex fund in a Western country typically needs between 2 and 4 weeks, however, setting up an offshore Forex fund, can prove faster.
How it is Managed
- The Forex fund is managed by a CPO (commodity pool operator)
- Individual accounts are managed by a CTA (commodity trading adviser)
The typical management fees for Forex fund management involve a standard annual percentage fee or a performance fee. More specifically:
- an annual fee of 1% to 2% of the total assets under management, or
- a performance fee of 15-30% of annual net gains
- alternatively, a combination of both
Note that the performance fee is calculated on a cumulative basis for a certain period. That means that the performance fee will not be paid until the losses for the same period are fully recouped.
Advertising the Forex Fund
In the US, a Forex fund can only be advertised if it is listed on a recognized securities exchange. However, in the case of a simple managed-account service, the money manager can advertise his account services.
□ Starting a Forex Hedge Fund