With the growing popularity of forex trading, more and more people are globally engaging in trading this market, with the aim of profit generation. If we go back to about a decade from today, forex trading was not considered everyone's cup of tea due to the technicalities and complex features of its working. It required a number of years to gain expertise for properly understanding its nature and peculiarities that made it quite difficult for new traders and enthusiasts to profitably join the forex trading industry.
This issue was resolved with the onset of PAMM account brokers that offer managed accounts, which have played a vital role in assisting a trader to effectively strategize and move ahead in the field of forex trading without prior experience or expertise. These managed accounts consist of two of the most basic and widely used accounts, the PAMM and the MAM accounts. Managed accounts like PAMM and MAM are basically used by traders who are less experienced, lack technical know-how or simply do not have enough time to trade themselves. PAMM and MAM accounts are quite similar in approach but their minute differences make them unique in their own way.
PAMM is an acronym for ‘Percentage Allocation Management Module’ or ‘Percentage Allocation Money Management’. These are a type of managed accounts in which investors allow the PAMM account brokers to allocate their funds with a money manager who is responsible for managing the accounts of various other traders as well. In simple words, a PAMM account enables an investor to earn considerable amounts of profits from fluctuations occurring in the forex trading market without requiring their own participation. PAMM accounts are a great way of simultaneously utilizing the funds and segregating risks across other investors. The managers of a PAMM account are known as fund managers.
Members in a PAMM Account Setup
A PAMM account system is a three way alliance in which all the three members have a similar stake.
- An investor who gives the money.
- A PAMM account broker who assists transactions and offers an account.
- A PAMM manager or fund manager who executes trades.
Working of a PAMM account
Now we already know that there are three stakeholders involved in the setup and working of a PAMM account. The PAMM account broker offers a platform that acts as a liaison between investors and fund managers. For the best PAMM investment, investors should understand the working of the PAMM accounts and pick a preferred fund manager to whom they wish to allocate their funds by considering a number of factors such as history of performance and the commissions charged.
A fund manager can only trade on behalf of its client and has access to only those funds that are allocated by the investor. There is generally no limit on the number of clients who wish to join a PAMM account but there is however only one master account or PAMM account manager.
Essential Features of the Best PAMM Account Brokers
The main objective of a PAMM account broker is to provide a platform for the interaction between various investors and fund managers. There are several essential features of the best PAMM account brokers:
- A PAMM account broker should be capable of providing a platform that is secure, reliable, and should enable investors to review trading strategies, experiences, history of performance, percentage of commissions charged etc.
- All mandatory licensing and regulatory documents should be checked and verified thoroughly before opting for a PAMM account broker.
- Brokers who are capable of processing withdrawals and deposits with immediate effect should be selected.
Benefits of Using a PAMM Account
- There is a presence of numerous experienced and well versed traders in a PAMM account system. Therefore, a novice trader who has little to no knowledge of the forex trading market has a lot of good options in terms of fund managers to choose from.
- The fund manager can only trade on behalf of an investor and does not have a direct access to funds other than the one’s allocated specifically.
- There is no limitation on joining a PAMM account system as multiple accounts can be easily managed by one master account in a single click.
- A manager's own capital is at risk if he takes any unwanted or unethical action on an investors trading account, therefore, a PAMM account is one of the safest types of managed account.
Drawbacks of Using a PAMM Account
- Investors can lose all their money if the PAMM account broker does not allow the money manager to set a maximum loss limit.
- There is no guarantee that an investor will definitely earn profits as it solely depends on the strategies laid down by the account manager.
- It is difficult to analyze the trading strategies of a PAMM account manager, as a PAMM account is closed in nature.
MAM is an acronym for multi account management in forex trading and is a type of managed account that allows more experienced and expert investors to handle, operate and manage a number of other trading accounts. A MAM account system enables the investors to allocate their funds with professional traders who then trade on their behalf. A MAM account system provides more flexibility to fund managers as it allows them to gain complete access to the investors account without requiring any login permission or fund withdrawal permissions.
A MAM account system replicates the trading strategies laid down by the fund manager across the pool of funds from several traders depending on the risk appetite and preference set by the trading manager.
How to Open a MAM Account?
- Select a Broker: The initial step involves picking a MAM account broker who is affiliated by a regulated authority and who obtains the required mandatory licensing and documents.
- Register for a Trading Account: A trader needs to submit required documents for opening a trading account with a preferred broker.
- Choosing a Fund Manager: A fund manager who has maintained a clean record over the years should be chosen for ensuring credibility.
- Setting up a Requirement: A trader can easily customize a MAM account if he wants the fund manager to get an idea of his trading needs, strategies and risk appetite.
Benefits of Using a MAM Account
- New traders can benefit a lot by using the services of a MAM account as it enables them to trade as low as 0.01 lots.
- Multiple accounts in a MAM account system can be easily managed by one single click from the master account.
- There are no limitations on the number of trading accounts and the amount of deposits on a MAM account system.
- Traders are capable of managing and handling diverse allocation of funds including lots, percentage,equity and balance.
Some Drawbacks of using a MAM account
- Continuous use of MAM accounts make a new trader completely dependent on the money manager for trading purposes and hampers learning.
- Accessing funds and making early withdrawals is restricted on a MAM account system, depending on the platform used.
There are thousands of PAMM and MAM account brokers and platforms available online. Which one shall you choose for the most benefit depends on a number of factors including licensing and regulations, fees and commissions charged, percentage of profit, efficient and available customer support etc. All these factors must be kept in mind before choosing the PAMM and MAM account brokers for maximzing profits.
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