PAMM account. An alternative method of earning for lazy traders, investors.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    Best Options Broker 2020!
    Great Choice For Beginners!
    Free Trading Education!
    Free Demo Account 1000$!
    Get Your Sign-Up Bonus Now!

  • BINOMO
    BINOMO

    Only For Experienced Traders!

How Forex PAMM Accounts Work

Interested in trading foreign currency exchange markets but don’t have the time or know-how to trade forex? Forex PAMM accounts may be a good choice for you. (Related reading: Introduction to Currency Trading)

What Is a PAMM Account?

Percentage allocation management module, also known as percentage allocation money management or PAMM, is a form of pooled money forex trading. An investor gets to allocate his or her money in desired proportion to the qualified trader(s)/money manager(s) of his or her choice. These traders/managers may manage multiple forex trading accounts using their own capital and such pooled moneys, with an aim to generate profits.

To demonstrate PAMM accounts further, let’s look at an example:

The participants in the PAMM Account setup:

  • forex broker/ forex brokerage firm
  • trader(s)/ money manager(s)
  • investor(s)

The investors (say Peter, Paul, and Phil) are interested in reaping profits from forex trading, but they either don’t have time to devote to trading activities or don’t have sufficient knowledge to trade forex. Enter the professional money managers (Marcus and Mathew), who have expertise in trading and managing other people’s money (like a mutual fund manager), along with their individual trading capital. The forex trading firm signs up Marcus and Mathew as money managers for managing other investors’ money. The investors (Peter, Paul and Phil) also signup with Limited Power of Attorney (LPOA). The crux of the signed agreement is that investors agree to take the risk for the forex trades, by giving their capital to their chosen money manager who will use the pooled money to trade forex per his trading style and strategy. It also states how much the money (or percentage) the manager will charge as his take for offering this service.

For simplicity of example, let’s assume that all three investors chose Marcus to manage their share of money for forex trading and Marcus charges 10% of the profit.

In terms of percentage contribution to the total pooled PAMM fund of $ 15,000, each investor has the following share:

Paul = $4,000 / $15,000 = 26.67% and similarly,

What is a PAMM Account in Forex?

You will see that some Forex / CFD brokerages, usually the larger ones, offer a “PAMM Account”. What is this type of account? Simply put, “PAMM” stands for “percentage allocation management module” or “percentage allocation money management”. In other words, a PAMM account is basically a managed account where one trader trades on behalf of others through his or her account. PAMM accounts work by the Forex / CFD brokerage using a software application which allows the brokerage’s clients the ability to assign part or all their account to management by a particular trader. The managing trader then trades his own money but piggybacked onto that is the money of other clients, who each receive a percentage share of the profits or losses made by the trader into their own accounts.

Example Illustration

Let’s imagine that you are a retail trader with your own account and other traders with the same broker ask you to manage their accounts. Let’s say that you have $10,000 of your own capital and that Trader B gives you $40,000 to manage and Trader C gives you $50,000 to manage. You are now trading a total of $100,000 with your percentage allocation being 10%. Trader B’s allocation will be 40% and Trader C will be allocated 50% in line with the percentage contributed to the total fund by each trader. You put in an order to buy 1 full lot of EUR/USD. Your broker will allocate the order between the parties for this trade as follows: 0.1 lot to you, 0.4 lots to Trader B, and 0.5 lots to Trader C.

Advantages of PAMM Account

A PAMM account allows a trader to manage other people’s money with ease, just by trading normally through his existing platform. The PAMM software makes all the required calculations. There is effectively no limit to the number of “clients” the holder of a PAMM account can manage money for. The account manager can profit from their own trading and take a percentage of the profits from the money he or she manages as well. When the trading goes well and is profitable, it is a win-win all round.

One special advantage that a PAMM account has for the investor is that the investor knows that the trader is risking their own funds, and has “skin in the game”, which would tend to increase confidence that the trader will be working in the style they truly believe in, to the very best of their ability.

PAMM accounts are policed by the broker, and investors have peace of mind as they know that the money manager has no power to access the actual funds contributed as a withdrawal from the brokerage. Contrast this with a situation where the investor must write a check and hand it over to a money manager, and you’ll instantly see a big advantage of a PAMM account.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    Best Options Broker 2020!
    Great Choice For Beginners!
    Free Trading Education!
    Free Demo Account 1000$!
    Get Your Sign-Up Bonus Now!

  • BINOMO
    BINOMO

    Only For Experienced Traders!

Disadvantages of PAMM Account

The most obvious disadvantage of the PAMM account is that all the parties involved must be clients of the same Forex / CFD brokerage. Most of the larger brokerages offer PAMM accounts, but there are other solutions available in the market which achieve the same result but can bridge between different brokerages and trading platforms, such as copy trading software, or other brands which offer PAMM-style set-ups but which have bridges so can connect to accounts at most brokerages. However, there is often in practice a small but real technical advantage to having all the parties working through the same brokerage and platform, reducing the risk of latency problems or communication errors.

How Does it Work?

Many brokerages offering PAMM accounts maintain a detailed list of their PAMM money managers so that investors can do some research and decide who they want to manage their funds. The lists usually include details of each trader’s historical performances and more information about who they are and what their trading philosophy is. The broker provides a Limited Power of Attorney (LPOA) document which both parties sign which gives the money manager the right to manage the investor’s money under agreed terms and conditions: the investors may of course terminate it at any time and have control of the trading of their funds transferred back to them. Monitoring, review, record keeping, etc. is all facilitated by the brokerage offering the PAMM account.

Can I Open a PAMM Account or Invest in One?

The short answer is “yes” – if you already have a Forex / CFD broker which you are happy with, just ask them if they offer PAMM accounts. If they don’t, or if you are thinking of looking for a new broker anyway, here is a brief list below of some of the top Forex / CFD brokers which offer PAMM accounts:

Adam Lemon

Adam Lemon began his role at DailyForex in 2020 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
Learn more from Adam in his free lessons at FX Academy

How can I attract investors for my PAMM account? I’m a Forex trader looking for investors.

a l d Vfw kNjk b e y HEHK avGB A OF r FE b FSj i nnCyL n SHQ o bjJI x x

Trading history will often not be sufficient for investors. Live trading history is important because only a live account can really show how you are able to handle live trading. So you should choose a broker with MT4 platform which can be verified by third party like Myfxbook or FXSTAT. Verifying your live trading history is the first step to get investors. They will be able to find your trading system based on your trading statistics.

When you begin to get noticed by interested investors, you will need your online presentation. What I mean is you need a good looking website for investors to get familiar with your trading system. So make sure that your website is created professionally and looks good.

Finally marketing is another important point. I use Forex Directory for a long time which works best for me. I found them by chance through Facebook about 2 years ago. They offer banner ads, text ads and picture ads and for every listed business link you can get a large ad campaign for various social networks, too which you don’t find anyhere else.

Best Binary Options Brokers 2020:
  • BINARIUM
    BINARIUM

    Best Options Broker 2020!
    Great Choice For Beginners!
    Free Trading Education!
    Free Demo Account 1000$!
    Get Your Sign-Up Bonus Now!

  • BINOMO
    BINOMO

    Only For Experienced Traders!

Like this post? Please share to your friends:
Binary Options Trading Library
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: