PAMM Managed Accounts Invasion of Forex Trading
Are you planning to get involved in the world of Forex trading?
If you are, you should know that trading Forex is a business that involves a high risk of losing money.
It requires traders to have the skills and the necessary experience in order to attain consistent profits.
In general, only a small percentage of traders can truly enjoy profitable results in Forex trading. Due to this, many investors are seeking for alternative options, such as a company or a broker that offers managed accounts services.
Managed accounts basically provide an opportunity for money managers and traders to meet up with investors in every part of the world and to offer their trading services to clients.
Through a managed account the money managers are managing and trading the accounts and portfolios on behalf of their clients usually in return for a percentage of the profits they generate (performance fee).
In theory, the investors in a managed account don’t need to understand, have skills or know anything about the Forex market. All that is needed is for them to fill out a few forms, deposit the money and let the money manager take care of their capital. But of course, basic knowledge about the forex market and a wise risk management are always useful for investors considering managed accounts.
There are different managed account platforms available these days, but amongst all, one managed account type seems to be the talk of the town.
Forex Percentage Allocation Management Module or PAMM accounts as they are popularly known have been garnering traders’ attention probably because of the fact that they come in the form of “pooled money Forex trading”.
This is when the investors have the chance of allocating their capital in the desired proportion to a qualified money manager or several money managers of their choice.
The money manager of a PAMM will be managing multiple Forex trading accounts by using his own capital and pooled money together and will aim to generate profits consistently over the long run.
The whole process is facilitated by an intermediary, such as a broker that will lay the groundwork for the PAMM process to go smoothly and will allow the money manager to conduct discretionary trading services for the client that could either take place via automated or manual trading.
How do PAMM accounts actually work?
- A manager creates a “manager type” PAMM account and starts trading with an initial capital that is known as the manager’s capital.
This is a requirement that PAMM account systems have to ensure that the manager knows what he is doing and will treat clients’ funds with care as if it were his own money.
In most cases, there is a minimum investment required that the manager needs to deposit if he wants to trade on behalf of other clients.
- The manager will design a proposal in which he lists the terms by which investors can join his PAMM account.
The lists will include details like the percentage amount or the fee that clients will pay to the manager as compensation for his trading services. The manager in most cases will also have a minimum deposit amount required for clients to join his account.
- The investors have the ability to choose among the different PAMM money managers that are usually listed on the broker’s website.
Most often the money managers will be listed by performance (either by return or by drawdown) and experience so that the investor can easily pick a good money manager who has shown results in the past and employs strategies that are in line with what the client is comfortable with.
- Once everything’s been set up, the money manager will continue to trade the PAMM account using both his personal capital and funds from his clients/investors.
- Once the money manager has earned some profits the amount of money within the PAMM account will increase and will be distributed between each of his clients based on the percentage amount of their initial investments.
- As the clients earn profits, they will pay the money manager his share of the profit or the fixed amount of compensation if that was the initial agreement.
Naturally, the higher the investments from the clients are the higher the compensations for the manager will be as well.
All in all, a PAMM account is a simple yet hassle-free method for investors to invest in Forex trading by selecting money managers to trade for them.
Investors are able to profit with minimal efforts in PAMM account in contrast to trading by themselves which requires a lot of knowledge and experience. Although it is generally a safer way of Forex trading, a PAMM investment still carries the risks of losing capital due to the performance of the manager.
All investors that are considering PAMM accounts are, therefore, advised to take their time and diligently select a broker and an account manager to minimize the risk of choosing an unprofessional to manage their investment.