You don’t always have to be a successful trader to succeed at Forex if you can identify a professional willing to trade for you. The appeal of this approach is obvious for those who want forex exposure and lack the time, will, or ability to do it themselves. As with anything else that requires skill and experience, most people will get much better results by hiring a professional.
What is PAMM
The forex managed account brings investors and traders together, allowing investors to earn on the Forex market without trading on their own and managers to receive additional income through efficiently managing investor funds.
The whole trick is in knowing how to locate a trustworthy, competent, and cost-effective professional. As with packaged auto-trading systems, the quality of the forex managers product offered varies dramatically. The big problems with picking professional forex managers are:
There is a lack of reliable information about a given professional’s performance.
Most people don’t have the expertise or time to evaluate a professional using whatever information is available.
The one huge lesson you’ll learn from sitting through so many unconvincing, amateurish presentations from reputable institutions seeking to manage funds under your control is this: if these clowns are getting people’s money despite their weak presentations, ﬂimsy qualiﬁcations and/or short track records, then there must be vast herds of investors who seek professional assistance yet don’t know how to pick the winners. If you’re one of them, that’s ﬁne. We all have to start somewhere. Just use common sense and do your homework. If that’s beyond your resources, seek the advice of someone both trustworthy and qualiﬁed who can refer you to trustworthy forex professionals, or at least guide your decision making the process and feed you the right questions to be asking.
Forex PAMM Account - How Does It Work
The best forex managed account called PAMM Account is a service of collective investing in Forex market. The forex PAMM account accumulates a certain pool of traders (PAMM Traders) with certain experience, developed trading skills, and most importantly, good profits. Another group of PAMM account participants is PAMM Investors who invest their money in PAMM Traders, receiving parts of the profit proportional to their investment.
PAMM Account Definition
PAMM stands for Percent Allocation Money Management or Percent Allocation Module and has 3 major benefits:
The manager is to invest his own money into a PAMM Account.
A manager can not access investors’ funds; however, the predefined fees that are earned by account manager are automatically withdrawn from investors’ accounts.
Profit or loss are divided among PAMM participants (investors) on a proportional basis.
PAMM Account Participants
Forex Broker: Assist the process with a cutting-edge investment solution software, acts as a regulatory party, holds the money of managers and investors on segregated accounts, and monitor the observance of the offer conditions.
Investor(s): Individuals who do not want or are not able to trade on Forex, stocks, commodities or cryptocurrencies by themselves. Therefore they invest money in a PAMM or MAM account, i.e. entrust the manager to trade for them or to replicate the performance in their trading account.
Trader(s)/ Money Manager(s): Skilled traders who attract investors in order to trade on them and get some percentage of investors’ profit as well. They describe terms and conditions - success fee and investment period - the offer.
Step 1: Experienced trader 1 opens a PAMM-account, deposits it and becomes its manager. He invests his own $5.000, publishes the offer and waits for investors. Investors 2, 3 and 4 learn the trading history and money manager’s offer and consider them to be a lucrative investment.
Investor 2 deposits into the PAMM-account $1.000, investor 3 - $10.000 and 4 - $50.000. The total investment amount is $66.000 now.
Step 2 - Manager trades with the invested money for that long as indicated in the offer. For example for 2 months. He manages to gain 40% of the amount of initial investment or $26.400. The total amount is $92.400 now.
Let’s see how this profit is divided among investors:
- Investor 1 (Account Manager): $2.000
- Investor 2: $400
- Investor 3: $4.000$
- Investor 4: $20.000
Step 3 - Investors pay manager the definite percentage of the profit. It is stipulated by the offer. For example, 20%.
Let’s look what each party gets after expiration of the investment period:
- Manager 1: $5.000 + $2.000 + $80 + $800 + $4.000 = $11.880
- Investor 2: $1.000 + $400 - $80 = $1.320
- Investor 3: $10.000 + $4.000 - $800 = $13.200
- Investor 4: $50.000 + $20.000 - $4.000 = $66.000
How to locate a Forex PAMM Manager
Here are some pointers.
Unless you’ve got some very sharp and trustworthy advisors who can steer you to someone proven, and are among the high-net-worth types they seek, skip down to the next section on social trading for what may be the best way to ﬁnd competent pros to follow. For those who do go the forex PAMM account route, keep the following in mind.
Realistic risk/reward: As with any business or investment proposal, apply the smell test. Anyone offering above-market returns without higher risk is most likely misleading you. If the reward-risk ratio seems unrealistically high, then move on to someone else.
Registered and regulated: As the past years have demonstrated, oversight and enforcement even in well-regulated markets are not always reliable, though it’s still a mark of some legitimacy if the advisor is registered with some ofﬁcial licensing broker that in theory imposes some standards, oversight, and accountability. If nothing else, it’s a sign of greater seriousness on the part of the management and gives you an address for complaints and possible redress of damages or improprieties.
Seek references: Even if you don’t have a trusted referral source, search online for references and credentials of the advisor. The greater the number of years and money invested in the business and its reputation, the more the advisor has to lose.
PAMM vs Social Trading
If you ﬁnd this search process intimidating or lack a trusted advisor, there’s a new alternative to traditional forex PAMM accounts with some advantages that may be better suited for some investors—forex social trading.
As we’ll discuss in the article about social trading, the list of advantages includes:
Much better transparency: They provide rankings and extensive performance, risk, and trade style information on which to base your selection, and you can then monitor our chosen trader’s performance in real time.
Lower entry costs: You may start with a smaller initial investment and have a proven expert trading for you.
Ability to easily switch to different expert traders: You have a variety to choose from and can easily move funds between them.
Active Trading for Passive Investors: Using the social trading’s software, you link your account to your chosen expert traders, and the software automatically matches that trader’s every trade. See the next article for further details on social trading and another innovation in forex for a smarter, simpler way to trading success — forex robots.