What are the PAMM Accounts?
In this section we will analyze an interesting topic that has become quite common in regard to the Forex market: PAMM managed accounts. This account is offered by the leading Forex brokers today and constitutes an alternative means by which any investor, even one that has little knowledge about financial markets, can invest in the Forex market and gets very interesting profits.
We can define the PAMM accounts ( Percentage Allocation Management Module) as trading accounts which are managed by expert traders with years of experience in the market, rather than the investors themselves. This means that all the work to analyze the market and open and close positions is performed by a professional trader who gets a percentage of the money earned from all the trades as a payment on their knowledge and trading management. In this case the investor does not have to do anything but open a PAMM account with a broker that offers the service, deposit funds, choose the trader who will manage their funds and trade with them and regularly monitor the performance of the trader who is managing the money. Thus investment in PAMM accounts is a relatively safe alternative because it take advantage of the knowledge of money managers with years of experience as a traders.The great advantage of PAMM managed accounts is that allow that even people without any knowledge about how to trade in the Forex market or other financial markets, to invest and exploit the enormous potential of the currency market for profit. PAMM accounts are also a good choice for experienced investors who wish to diversify their investments or to investors who have the knowledge but not the time to analyze and invest in the market all day.
With regard to the amount that the investor should invest in the PAMM account, it depends mainly of each broker, and in some cases the minimum is only $200 while in others it may be up to $10000. For this reason, each investor must find the option that best fits their budget. The brokers that offer the service of PAMM accounts are really an intermediary between investors and account money managers (professional traders) who offer their services for conducting transactions in financial markets. In this case, the earnings obtained from trades are divided by the investor and the manager in accordance with various percentages depending on the broker. The broker’s earnings comes from the spreads or any other type of commission the company charges for their services. To understand how this works we can observe the following image:
At this point it is necessary to explain that in reality the money managers do not trade each investor account separately (unless they manage just only one investor account). What really makes every professional manager is to merge into a single account (the PAMM account itself) the accounts of all investors who choose him to manage their funds and his own money, in this way the money management is simpler and the account manager has more flexibility to trade in the market. In summary, as mentioned above, the investors that open a PAMM account select a money manager to invest their money in the Forex market for them, meanwhile the manager brings together the funds of all customer accounts into one account that he use to perform the market trades according to his knowledge and best criteria.
This ensures that all gains and losses obtained by the manager are distributed equally among the investors according to the capital provided by each one at account opening.
Advantages of the PAMM Accounts
- For the investors, the PAMM accounts simplify the whole process of investment and minimizing risks. This is because the investors can take advantage of the knowledge and experience of succesful traders who have been trading in the market for years. Remember that the reality is that not everyone is able to invest in the market and profit, hence the main advantage of PAMM accounts is that allow to take advantage of the capabilities of those traders who can.
- In one sense, the PAMM accounts are a form of autotrading as these accounts allow any person to invest in the market without the need to perform a single trade. The investor only has to deposit funds and let the money manager to trade for him using these funds.
- Like any form of automated trading, PAMM accounts allow to exclude the human factor (psychology) from investors, the number one cause of failure when a trader invest in the market. In this way, the PAMM accounts reduces the chance of errors and increases the speed with which trades are performed as these accounts are managed by professional traders that are dedicated 24 hours a day, from Monday through Friday, to analyze the market and seek new opportunities.
- For managers, PAMM accounts gives the possibility of having access to a greater amount of capital, which increases the possibility of higher profits. This also allows the manager to have greater flexibility to trade in the market.
In general, the brokers that offer PAMM accounts for their clients offer the following conditions to managers:
- These brokers allow the manager to grasp and trade with much larger amounts of money that he would have by their own.
- The management platforms for PAMM accounts allow the manager to perform any amount of trades that he wants in any trading style and strategy. In fact, there are very few limitations on the amount and type of trades the manager can perform.
- Also these platforms give the manager the ability to see the performance of all their transactions in real time and the possibility to manage these positions.
- The payment of the earnings obtained by each investor with the PAMM account are automatically processed (the money is deposited directly into the account of the investor). For this reason the manager does not have to worry about doing this.
- The investor has the right to withdraw its investment in the PAMM when deemed necessary, unless there are a maturity agreement of investment between the two parties (An agreement which specifies that no money can be withdraw before a certain date ). Otherwise, the manager can not prevent any investors withdraw their capital.
Forex Brokers that offer PAMM Accounts
The following is a list of Forex brokers offer PAMM Accounts for their clients:
|Broker||Review PAMM Account||Broker Review|
|FXCC||FXCC MAM Accounts||Review|
|MFXBroker||MFX Broker PAMM||Review|