What is a Forex investment trust? Benefits and limitations should be clearly understood

Forex investment trust is a fairly popular form of investment, especially favored by new traders who do not have much time to analyze the market. However, Forex investment trust also comes with many risks that investors should be aware of. Let’s explore this topic with Trader Forex in today’s article.

General information about Forex investment trust

What is a Forex investment trust?

A Forex investment trust, or Forex entrusted investment, is an activity carried out by organizations or individuals and applies to most industries. In this arrangement, the entity providing the investment fund is called the investment trustee, which includes companies and individuals who entrust their funds to the investment trust recipient. The investment trust recipients may include financial enterprises, banks, investment funds, fund management companies, and others who invest with a specific amount of capital. The primary objective of this activity is to generate profits.

Forex investment trust is a form of investment where traders allocate a portion of their funds to an entity, which can be an organization or an individual. This entity then uses the funds to trade in the foreign exchange market and pays interest to the trader based on the outcome of the trading sessions. Additionally, a small commission is deducted. Alternatively, the entity may offer a fixed return, such as 50% per year or even 100% per year.

Benefits and Limitations of Forex investment trust

Benefits

• The biggest advantage of Forex investment trust is that it allows traders to free up their time for other activities. Once traders entrust their funds, the trustee takes care of market analysis, order execution, and trade exits. This is particularly useful when a solid Forex trading system is in place.
• Traders do not need in-depth knowledge of Forex since the trustee handles all trading operations. For those with little experience in Forex, this is a convenient way to generate income from the market.
• Emotional stress and psychological struggles are significantly reduced, as traders are not directly involved in market fluctuations. This is particularly beneficial for traders who are easily influenced by emotions and market volatility.
• Ultimately, traders can earn profits from this investment method without needing to trade themselves.

Limitations

• The biggest risk in Forex investment trust is choosing a reliable and reputable trustee to avoid scams and fraud. Many trust funds appear credible by building relationships with traders’ close contacts, making it easier for traders to invest without much caution.
• Only traders themselves truly value the money they invest, not the trustees managing the funds.
• Entrusting funds to a third party means traders become dependent on them and lose the opportunity to learn how to trade independently.
• If a trader wishes to withdraw funds before the maturity date, the trustee may impose penalties. Additionally, other fees may apply, either as a fixed amount or a percentage of the profit.
• Many Forex investment trusts involve groups of acquaintances or pre-established relationships. While this may seem safer, if conflicts arise during the investment process, resolving them can be difficult since there may be no legal framework to protect the trader’s capital and returns.

The reality of forex investment trusts in Vietnam

The Forex investment trust model began to gain widespread popularity in Vietnam around 2013. This was a time of economic hardship, with low bank interest rates (below 6-month term deposits at 7% per year) and a lack of attractive investment channels, creating an opportunity for this profit-generating model to grow. Employees working for companies that offer Forex investment trust services use various methods to reach potential clients, including text messages, phone calls, and emails.

At this point, many people receive messages from employees of major financial investment companies. These companies continuously launch new Forex investment trust plans, enticing traders to invest their capital with promises of exceptionally high returns. Advertisements and promotions for this investment method are also actively shared by brokers on various forums.

Compared to traditional savings accounts, the interest rate for this type of investment is five times higher—approximately 36% per year. Employees reassure traders, making them hesitate between choosing investment trust, direct trading, or simply saving their money. If traders have doubts about these high returns, consultants will quickly ease their concerns by claiming that the company is a leading financial institution, primarily operating in real estate and Forex trading.

Currently, Forex investment trust is not legally recognized in Vietnam. This means that by participating in this investment model, you are agreeing to take full responsibility for both potential gains and losses.

Moreover, Forex trading in international markets carries additional risks in Vietnam. International transactions require proper banking procedures, and funds must be transferred through authorized banking channels to be legally processed. If you transfer money through unauthorized methods, you may immediately be found in violation of Forex transaction regulations.

Furthermore, Vietnam currently only recognizes commercial banks, financial leasing companies, investment funds, financial enterprises, securities companies, fund management firms, and securities investment enterprises as legitimate financial institutions. These entities are legally permitted to receive investment trust funds from individuals and businesses. Therefore, any company that does not meet these conditions or is not structured under one of these models but still accepts Forex investment trust funds is considered to be violating the law.

As these activities become more widespread, the risks for investors and the overall financial system will increase, potentially leading to serious consequences for economic security and social stability. Therefore, anyone considering participating in such Forex investment trust funds should be extremely cautious and thoroughly evaluate their decisions.

Ultimately, Forex investment trust is considered a highly risky form of investment. Numerous cases, such as the well-known BBG, HGI, Khải Thái, and IMMS firms in Vietnam, serve as cautionary tales. To this day, no investors have successfully recovered the vast sums of money they entrusted to these companies, with total losses amounting to hundreds of billions of VND.

Things to consider before joining a Forex investment trust

When participating in a Forex investment trust project, traders should focus not on potential profits but on the safety of their entrusted funds. It is natural for individuals and organizations to seek returns on their accumulated capital through managed investment trusts. However, many traders are easily lured in by trading accounts promising high profitability.

In reality, some trading accounts may increase tenfold within a single month, making the opportunity appear simple and attractive. However, traders should question such results and approach them with skepticism. Those who achieve such high profits often take on substantial risks. While their accounts may show impressive gains, if their capital chart fluctuates erratically—with daily gains and losses of up to 90%—traders should reconsider their investment choices.

Although their profits may be high, they often engage in frequent trading with large volumes. In the event of unpredictable market fluctuations, the likelihood of their account being completely wiped out is very high.

Therefore, traders need to understand the following when choosing a Forex investment trust:

• Stay rational and set realistic expectations for both profit and risk. Never focus solely on potential gains without considering the associated risks.
• Do not blindly trust the unrealistic promises of investment trust organizations. Instead, research their trading history, including trading frequency, win/loss ratios, and risk-to-reward ratios. This will help you better understand their trading strategies.

Understanding the Forex investment trust process

When a trader entrusts funds to an investment trust company, they are essentially purchasing shares in that company. At this point, the funds from multiple traders and investors are pooled together and used to acquire assets, stocks, or currencies. The process generally follows these steps:

• The trader buys shares in an investment trust company.
• The funds from traders and other shareholders are combined into a collective investment pool, known as a fund.
• This fund is then used to purchase assets, foreign currencies, or stocks based on the trust investor’s risk tolerance and investment agreement.
• The value of these assets fluctuates constantly, being bought and sold at different times.
• The trader can sell their shares at market prices, either making a profit, breaking even, or incurring a loss compared to their initial investment.
• Compared to directly investing in forex or stocks, forex investment trusts may seem more reasonable since a trader’s funds are diversified across multiple investment channels and businesses. While this reduces the risk of capital loss, it also comes with its own limitations, as funds may be spread too thin across numerous investment portfolios.

Who is responsible for managing the fund?

The fund manager holds primary responsibility for the daily management of the entrusted investment fund. This individual decides which assets to invest in, when to buy or sell, and is accountable for any increases or decreases in the fund’s value resulting from their investment decisions.

A Forex investment trust enterprise operates under a management board responsible for developing a comprehensive investment strategy for the entire company and determining who will oversee the fund’s activities. Fund managers must adhere strictly to the established strategy. Specifically, an investment strategy outlines how fund managers should invest, which asset channels to focus on, the acceptable risk ratio, and the company’s long-term investment direction.

How much can a trader earn from Forex investment trusts?

Theoretically, there is no limit to the amount a trader can earn through Forex investment trusts. However, in reality, two key factors influence these profits:

• Investment Performance: The success of assets and stocks the fund invests in. A traditional investment trust diversifies its capital across specific asset groups, meaning their values may fluctuate significantly in the short term.
• Supply and Demand: Investment trusts usually have a fixed number of shares on the market, meaning supply and demand can affect the value of underlying assets and stock prices.

How much does it cost to join a Forex investment trust?

• Management Fees: Fees charged by fund managers for trust fund management services.
• Annual Fees: Yearly charges, including fund investment fees, typically ranging from 0.5% to 1%.
• Performance Fees: Some Forex investment trusts charge performance fees if they surpass a specific benchmark. For example, if the fund’s value doubles, additional costs may apply, while no fees are charged if performance does not reach the set target.

The fees and costs vary depending on the Forex investment trust enterprise. Additionally, fee structures differ based on whether a trader invests monthly, commits long-term, or makes a one-time deposit. Therefore, traders should carefully review these details before making a final investment decision.

Overall, Forex investment trusts have become popular in Vietnam but remain unregulated by law. As a result, if you decide to participate in this investment method, it is crucial to carefully select a reputable and high-quality trust enterprise to safeguard your assets. With today’s article from Trader Forex, you now have a more detailed understanding of this Forex investment approach. We wish you success in finding a reliable investment trust!