Forex (or currency) funds have enjoyed a huge surge in popularity. From a forex trader's perspective, it's perfectly clear as to why forex funds are so popular: a skilled forex fund manager can rake in a substantial income and continue to trade his own cash. While starting and managing a forex fund isn't for the inexperienced forex trader, it's not as tough or complicated as it may seem. These funds woo investors who want to participate in the forex markets but who know that they do not have the time or expertise to trade their own accounts.

How Does a Forex Fund Work?

Although the name still sounds exotic to some, a forex fund in the US is typically a private investment partnership set up so as to allow it to remain exempt from the registration requirements federal and state law imposes on publicly-traded funds. When set up outside the US, a forex fund is usually set up as an exempt limited company in a low or zero tax country, such as the Cayman Islands. As a private fund, a forex fund cannot legally advertise either in the US or abroad and it can only accept investors "known" to the fund manager. However, a fund manager may have a website to advertise its advisory business in most cases and the fund manager may offer access to the forex fund's daily performance through a password-protected website. Many countries have rules similar to those of the US in this regard.