How Much Could I Earn Running a Forex Fund?
Most forex funds are quite small. Many who start forex funds also keep their “day jobs”. Whatever the size, one real advantage to starting a fund is that the fund manager can legally accept compensation for his services. This compensation may provide a good supplement to the manager’s other income or it may allow him to manage the fund on a full-time basis.
The compensation for a fund manager usually consists of a management fee and a performance allocation, which is a share of the profits. A management fee of 1% and a performance allocation (or performance fee) of 20% is well within global industry standards. Of course, the fund manager also receives the profits on the money he himself has invested in the fund.
Assume the following:
• Management has US$1 million under management in his forex fund;
• A 1% management fee;
• A 20% performance allocation;
• The fund began operating on Jan 1; and
• Fund has returned 15% YTD.
The forex trader (now forex fund manager) would have gross income of US$40,000 resulting from a US$10,000 management fee (US$1 million x 1% = US$10,000) and a US$30,000 performance allocation (US$1 million x 15% return = US$150,000 x 20% = US$30,000). Using the same assumptions, a fund manager with US$3 million under management would earn US$120,000 and a fund manager would earn US$400,000 with US$10 million under management.
Prospective investors in the fund like to see that fund manager has invested his own capital in the fund. Assuming that the fund manager has indeed invested a significant portion of his own cash in the fund (and since the fund manager will not charge fees on his own investment in the fund), he earns an additional money from the 15% return on his investment.