Forex investments PAMM and MAM for Beginners
- Choosing PAMM and MAM for investment, you can count on profit and delegation of responsibilities to managers.
Many people think about trading. It is an excellent option for making money. The main plus is that you do not have to do it personally. You can conclude a contract with the manager, and give your money to management. For this, you can use PAMM and MAM accounts. How to choose the most profitable option for a beginner? Let’s get it right.
What is PAMM?
A PAMM account is one of the forms of combined currency accounts that allows an investor to allocate his money from the main trading account to the qualified trader/manager. These traders/managers can accumulate on their account the funds of any number of investors, as well as their own money, using this capital to trade on the currency exchange.
If you try to explain in simple words, then a PAMM account is an open account of a trader, which is filled with investor funds and controlled by a broker.
PAMM accounts have a single manager (trader) who trades on the currency exchange with their own money and investor funds. The main feature of such a trading account is that the trader manages the total cash, and the accounting system automatically distributes profit or loss between all participants in proportion to the size of the investment.
What is a money manager?
PAMM accounts have a single manager (trader) who trades on the currency exchange with their own money and investor funds. The main feature of such a statement is that the trader manages the total cash, and the accounting system automatically distributes profit or loss between all participants in proportion to the size of the investment. In simple words, a PAMM account is a particular account of a trader in which investors can invest.
Profit is divided proportionally to deposits, like mutual funds, but a small percentage taken away from benefit - the commission of the trader. To understand what a PAMM account is and how it works, consider examples and details. It trades on the currency exchange and has its profitability statistics. If the profitability level you like, you can invest money. Each trader has his conditions - an offer, according to which there are conditions for the distribution of profit, most often managers take 20-50% of the profit.
The more money invested in the manager, the more money he will receive from the benefit; therefore, some fraudulent operation on the part of the manager cannot use in the PAMM account. In essence, both parties are equally interested in making a profit and successful work. An unlimited number of people can simultaneously invest in a PAMM account, and benefits will automatically distribute by the amount of each investor’s contribution.
What is MAM?
The abbreviation “MAM” stands for Multi-Account Manager. The main feature of this technology is that the manager, through his trading terminal, can simultaneously manage many other accounts entrusted to him. For each, depending on the size of the deposit, he can set their lot sizes. The account management mechanism built into the Meta Trader trading terminal.
This mechanism is convenient for both managers and investors. The manager gets the opportunity to instantly open transactions on hundreds, or even thousands of client accounts. Investors are in complete control of their funds and, at any time, can take control of the trading account in their own hands. It is also worth noting that the manager does not have access to clients’ money - that is, he cannot withdraw them, transfer them to another account, etc.
Given all the advantages of this option, it is not surprising that MAM accounts are becoming more and more popular.
Benefits of using PAMM
PAMM accounts are beneficial for everyone. A skilled trader can make a lot more profit than managing his own money alone. The investor gets the opportunity to enter the highly profitable Forex market with no experience at all and with minimal investment.
Work with PAMM accounts is transparent. Brokers provide accurate trader ratings, acting as an independent monitoring service. Therefore, if desired, the investor can find out the whole “ins and outs” of each manager.
- Effortless start. Registering with a broker and choosing a PAMM manager takes just a few minutes.
- The flexibility of investment management. Each PAMM account manager can set their requirements for the movement of resources. For example, some allow their investors to freely withdraw their deposit and interest after the conclusion of the transaction.
- Equal responsibility. The manager risks not only the money of investors but also his capital. Investors can learn the volume of this capital from the rating provided by the broker.
- Risk diversification. An investor can diversify risks by freely distributing capital between several accounts.
Benefits of Using MAM Accounts
Special software conducts trading and manages the funds of the MAM system. It allows the manager to see all investor accounts and perform trading operations, the available aggregate funds, or to distribute them among different types of trading directions. But at the same time, any transaction opened by the manager automatically breaks off on each Slave account in proportion to the investor’s contribution to the overall balance of the MAM system.
If the investor does not agree to such simple copying of transactions, then, upon prior agreement with the manager, individual settings can be set on his slave account. For example, an investor may limit the maximum lot size for transactions in a group of metals or another trading instrument. Another variety of special conditions may be setting the maximum loss in absolute units or as a percentage of the size of the account. In this sense, the investor has more opportunities in terms of risk management in his trading account, given to the MAM structure.
How do investors’ select money managers?
To simplify the process of choosing a PAMM manager, the broker provides access to a particular rating. It contains a variety of information about the managers who are currently working. They arranged in the form of a table in which the leading indicators of each of the participants compared.
It is not difficult for an experienced investor to distinguish a promising account from a trash account. For beginners, in order not to make blunders at the very start, it is advisable to pay attention to the following nuances:
- The story of the manager. The best way to evaluate the profitability and risks of a manager is to analyze trading history. A standard rating of accounts will provide all the necessary data for analysis. The average profit for a month, quarter, half a year, and a year will tell about the dynamics of profitability. A flat line without sharp peaks may indicate that the trader has a working trading strategy and skillfully uses it.
- Capitalization. Total capitalization is another crucial detail that you should pay attention to before investing in a PAMM account. In this case, the number of deposits of all investors implied. The bigger it is the better. A fat deposit indicates investor confidence and a manager’s high motivation.
- The offer. When choosing an account, it is essential to study the conditions of the offer carefully. It contains a list of terms that govern the relationship between investors and the manager. It’s the period through which the investor will be able to withdraw profit or his contribution.
The main difference between the MAM system and the PAMM system increased reliability and investment protection since there is a strict system of regulation and contractual relations. MAM does not have the manager’s anonymity that is present in PAMM - in this system, there is a severe condition that requires the disclosure of complete information about yourself. Those, the manager will not be able to open a MAM account if it does not pass complete verification and, at the same time, does not provide all this data to investors! And since all developed countries have relatively strict legal standards in this regard, raising funds from investors is possible only using MAM technology.