What is a PAMM Account?
PAMM stands for “Percent Allocation Management Module.” It is a software application generally used for pairing client funds with a special discretionary account service offered by foreign exchange brokers. The results of the manager’s trading activities – including profits, losses, and trades – are allocated to the central asset accounts according to the ratio of investments in an account. Since foreign exchange trading and other types of arbitrage trades generate profits within very narrow margins, this type of management allows more foreign exchange to be traded while generally spreading the risk among investors.
How can users benefit from using PAMM accounts?
By using the PAMM account as a means of pooling funds for trading, the account manager can trade with larger volumes and thus has the chance of higher returns. Investors deposit money into the manager’s account, and the manager’s positive trading results are reflected in the PAMM account’s valuation, which in turn serves as an advertisement for the PAMM account. The manager trades and makes profits in the process, attracting further investment, so that a larger amount of funds is traded on behalf of investors.
The participants in the PAMM account structure are: the broker providing the service, the traders (or money managers), and the investors. So, investors who want to profit from trading, but lack the time or skills to do so, do not need to trade themselves, but only invest money in PAMM accounts. PAMM accounts thus mean that funds are entrusted to managers. The managers are experienced and professional traders who manage other people’s money in addition to their own capital.
The agreement between the manager and the investors is set out in the manager’s proposal and is the basis for the investors’ agreement to take a risk by providing their money to selected managers who will dispose of the funds according to their own skills and strategy. In addition, the agreement specifies the amount of remuneration for the service provided by the manager. This can be a certain amount of money or a percentage.
The work with the account begins with its opening, and the initial investment is the administrator’s capital: a non-withdrawable amount that secures the administrator’s interest in the account. The administrator may not withdraw this capital, as it serves as a guarantee to potential investors that the account will be managed responsibly. Administrators advertise the operation of the account by offering certain terms and conditions and stating the profits earned. The brokers advertise the account with reviews on their websites, but do not bear any responsibility for losses or profits, as they are not involved in the trading activities.
Profits are then divided between the administrator and investors at the end of each trading period. At the same time, the broker can distribute funds and act as a regulator if the administrators act unfairly.
PAMM accounts offer a number of benefits to both managers and investors. If you are a successful trader acting as a manager, you will receive not only a profit from your own funds, but also a percentage of the investors’ profit, and you can set this amount in the manager’s proposal. The managers define the conditions, the degree of control over the trading conditions, the trading period and the way of profit distribution. These are the conditions that investors must agree to.
For investors, the advantages are no less. The first advantage is the professionalism of effective managers in trading. Also, there is a possibility to withdraw money from the PAMM accounts at any time if the investor is dissatisfied with the results and trading style of the manager. To reduce the risk, the investor can spread his investments over several accounts.
How to determine if investing in a PAMM account is worthwhile
Interest in investing is growing, and people are acquiring more and more knowledge about professional trading. However, their experience is not enough to make the investments themselves. Therefore, PAMM accounts are very popular. The choice of the trader is the most important point, because the manager is the person to whom you entrust the management of your capital.
There is some significant PAMM Account data that should be paid attention to when choosing the manager to manage your funds.
The first thing to analyze is the account opening date. From the graphs you can appreciate the length of the trader’s work on the account, the account balance, the general growth, the consistency and their experience.
Operating income is the second important point for inexperienced investors. The success rate of traders is an extremely temporary attribute, i.e. if the profit was 200% last month, it may be only 20% or less this month. Here you should evaluate consistency over different time periods. Another factor you should keep in mind is the first value, as it is easy to manipulate.
Another thing is manager remuneration. The most skilled traders can increase or multiply the minimal capital investment.
Pay attention to the aggressiveness trading which is the amount of risk managers take. Take a look at the number of deals and the amount of trading per day.
The deposit amount is the money amount under risk; it is the maximum trader deposit percentage used for trading. If trader’s deposit is 50% or above, it generally means they are a high risk trader.
Recovery factor highlights a trader’s ability to restore losses after fall and overcome the tension and potential fiasco. It is indicator of trader’s success rate.
Manager’s own capital. The trader with the big personal account is considered to be careful and responsible as he risks his own money as well.
The total equity of all accounts indicates the level of funds being managed and this gives reason to trust such trader.
The type of investment needs to be studied carefully. There can be two types: short-term and long-term investment. Long-term investment or scalping investment comes more recommended. It takes more time but can give a good potential profit.
Keep in mind all of these points when making your choice for an appropriate PAMM Account. Sometimes some websites show the lists of the best and selected PAMM traders. Don’t rush when choosing PAMM Account; instead weigh up all the data. Choose the trader who works in a stable and profitable fashion.