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Introduction to PAMM Accounts

intro pamm acs1Are you an exemplarily profitable and consistent Forex trader without enough trading capital to rake in enough income? Or are you interested in making passive income in the Forex market but without enough skills to trade yourself? If so, PAMM Accounts are for you.

The Percentage Allocation Management Module or Percentage Allocation Money Management; often just referred to as PAMM by players in the Forex industry allows traders to manage multiple client accounts held in the same Forex brokerage firm.

To understand PAMM accounts better, let us look at the players involved;

The PAMM Account manager; this is a trader who opens an account with a particular Forex broker offering the PAMM system. The account manager has to deposit a specified initial trading capital usually known as the manager’s capital. If the PAMM account manager can trade profitably; interested investors can allocate more funds to his/her PAMM account allowing him/her to trade a larger pool of funds.

The PAMM Investor is more interested in earning passive income by allocating their funds to a profitable PAMM account manager hence replicating the trading performance of that particular account manager.

The PAMM account manager manages investors’ accounts by limited power of attorney, meaning only their orders and positions can be copied to the investors’ accounts i.e. they cannot make any withdrawals or deposits on behalf of the investors. The PAMM account manager also chooses a percentage of performance fees on profits to charge for making trading decisions on behalf of the PAMM investors.

Let us look at a PAMM system example using Alpari’s broker PAMM system.

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In the above example; the PAMM account manager opens a PAMM account with $300 as the manager’s capital. Three PAMM investors choose to invest $100, $60 and $40 each which amounts to a total PAMM account capital of $500 (60% as account manager’s capital, and 20%, 12%, and 8% for the investors).

If the PAMM account manager makes a profit of 200% in that particular month, the total PAMM account portfolio will have grown to $1500. The $1000 in profits will be distributed to the four account contributors in the ratio of their contribution as follows;

PAMM account manager; 60% of $1000 = $600
Investor 1; 20% of $1000 = $200
Investor 2; 12% of $1000 = $120
Investor 3: 8% of $1000 = $80

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The PAMM account investors have to pay the account manager the specified performance fees as remuneration for trading on their behalf. In the above example; if the manager set a performance fee of 20% on profit; his/her fees will be deducted from the investors’ profits as shown below

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Apart from Alpari, multiple Forex brokers offer the PAMM system creating applications to allow professional Forex traders access a larger pool of capital from potential investors. Most of them will provide well detailed ratings of PAMM account managers with different performance statistics to allow the investors to choose their preferred PAMM account. Some of the most popular criteria used to choose profitable and stable PAMM accounts include the age of the account, manager’s capital amount, return on investment, drawdown and the performance fee.

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Advantages of the PAMM account system to managers;

  • Profitable Forex traders are able to earn extra income apart from their own capital trading profit by getting access to a larger pool of capital from investors.
  • The PAMM account manager’s trading strategy is protected since it is not shared directly with the investors; only the orders and positions are replicated in the investors’ accounts.
  • The manager does not have to do tedious tasks like reconciliation or calculating individual lot sizes to be placed in the investors’ accounts. The PAMM account system automates all these processes and leaves the manager with only the task of executing their trading strategy.
  • The PAMM account manager is able to select the percentage of performance fees to charge for their trading services depending on the investors’ deposit amounts.
  • The PAMM account system deducts the manager’s performance fee automatically from the investors’ profits hence the PAMM manager is assured of getting paid.

Advantages of the PAMM account system to investors;

  • Investors who have no time or willingness to learn to trade in the Forex market on their own are able to make online passive income by investing with profitable PAMM account managers.
  • PAMM account systems have managers’ performance analytics enabling the investors to wisely choose PAMM managers suitable for their investments.
  • PAMM accounts are safe as the managers only have LPOA (Limited Power of Attorney) over the investors’ accounts and hence cannot withdraw from the investors’ accounts.
  • PAMM investors can invest their funds with a portfolio of profitable PAMM managers as the PAMM systems allows them to allocate their funds to more than one PAMM manager.
  • No downloads are necessary for the PAMM investor as investing can be done directly from the brokers online PAMM portals. Download of trading platforms such as Metatrader 4 or other trading copiers is not necessary.

Cons of the PAMM system;

  • Investor funds have to be held with the same broker as that of the selected PAMM account manager. An investor cannot have funds in one brokerage firm and invest with PAMM managers from different brokers.
  • Brokers without a maximum loss limit feature on their PAMM systems leave investors vulnerable to huge drawdowns or total account capital loss in case the PAMM manager has a poor trading period or makes mistakes.
  • The investor’s cannot learn the trading strategies used by their PAMM managers as this is not disclosed as only trades and orders are replicated in their accounts.

Know the Difference;

MAM account system; MAM (Multi Account Manager) allows investors to replicate the performance of account managers just like the PAMM system, however, the trading risk (lot size) and leverage can be adjusted for each investor account. For instance; aggressive investors who want to take higher risks with their funds can have large positions sizes allocated to their accounts compared to conservative investors.

Copy Trading; while investors’ funds are managed by the PAMM manager in the PAMM system, the investor has full control of their funds in copy trading and only trading signals from the trader are replicated in their accounts. In copy trading, the investors are able to intervene and close opened orders as well as unsubscribe from replicating the traders signals at any time.

Conclusion;

While PAMM accounts offer investors an opportunity to make passive income from the Forex market with little involvent; they should do a thorough initial evaluation of PAMM account statistics before choosing PAMM managers to invest with. On the other hand, skilled and profitable Forex trader should utilize the hassle-free opportunity provided by PAMM system to make extra income.

Read 1015 times Last modified on Tuesday, 05 February 2019 21:59

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