PAMM account: what is it and how to invest

Today we would like to talk about what a PAMM account is, how it works and what benefits a user can get. I hope that the information provided below will be useful for beginners mastering the field of investment and its possibilities.

What is a PAMM account and how does it work in practice?

In the field of the foreign exchange investment market, the concept of "PAMM-account" appeared relatively recently. In fact, this abbreviation is borrowed from English - Percent Allocation Management Module, which in abbreviated form is PAMM. And it translates as: percentage distribution control module.

Simply put, a PAMM account is a type of trust management of financial investments. I understand that for many readers this wording did not explain much either. Therefore, I will try to explain what a PAMM account is humanly, in the form of a primitive business plan model:

• The investor wants to earn money, but does not want to bother himself much.
• He is looking for “like-minded people” who together form a “common pool”, where funds are invested.
• The management of the amount of funds received, all participants in the process, trust a person who is more knowledgeable and experienced in this matter.
• After a series of transactions, the manager returns to investors their deposits with the profits, part of which he keeps for himself. This share is called a commission percentage, the amount of which is stipulated in the agreement before the start of "cooperation".

Main components of a PAMM account

PAMM is a cumulative trading account, formed from several key participants:

1. PAMM platform. Its role can be played by a DC (dealing center) or a brokerage firm, whose task is to: provide access to trading manipulations on the Forex market, subject to the functioning of PAMM accounts, or automate settlement transactions between participants.
2. Manager (aka trader). They can be both a separate private person and a person of legal status. I mean, the company. This participant, like the others, invests his money in a common PAMM account.
3. Investors. They are ordinary people who have invested their money in the PAMM-account of a trusted manager, and who want to receive income from part of his profit in accordance with the size of the investment shares.

Analyzing the above, the conclusion suggests itself that each member of this structure pursues its own interests. But the manager deservedly gets a large part of the "pie". Plus, he gets the opportunity not only to earn extra money on commissions, but also to "cut" the volume of trading risks by increasing the size of the trading deposit. Accordingly, the more potential investors will be involved in the process, the higher the probability of success in conducting trading processes.

But there is also a fat plus for investors - when during the reporting period (specified by the agreement) a “drawdown” (loss) occurs, the receipt of commissions is suspended until the manager brings the deposits of depositors to the initial level.

Now is the time to consider how PAMM accounts work.

What is the basis of the work of the PAMM account

In order for you, my dear readers, to better understand how a PAMM account works, I will try to give the most intelligible example. Imagine the following task:

There is a manager's capital in the amount of $6000. Investor "A" and Investor "B" decided to join him, bringing contributions in the amount of $2000 and $4000 respectively. The total amount that goes into the trader's management is $12.

A pre-signed agreement (correctly called an offer) states that income should be distributed in a ratio of 70:30, of which 70% is the investor's profit, and the remaining 30% is the manager's well-deserved earnings.

I propose to consider two options for solving this problem:

1. Successful outcome of the case.

Let's say for the "taken" period, the total profit was 10%, due to which the size of the total capital increased to $13. In this case it turns out that:

• Investor "A" increased the deposit by $200, which in the end amounted to $2200. However, the terms of the contract indicate that his part of the income is only 70%, that is, $ 140, and the remaining 30% ($ 60) is the income of the manager. Thus, Investor “A” should have $2140 on his account.
• Investor B increased his capital from $4000 to $400, for a total of $4400. Of this amount, the system will debit $120 in favor of the trader, after which $4280 will remain on the investor's account.
• The manager's income was $600. But considering that he got another 60 and 120 dollars as a bonus, the total amount of profit will be equal to $6780.

2. Unsuccessful outcome of the case.

"Damage" was 10%. Accordingly, the deposit lost $120 and now its size is at the level of $10800.

• Investor "A" lost $200 and was left with a balance of $1800.
• Investor B, having lost $400, received only $3600.
• The manager went bankrupt for $600 and now his account is $5400. From this moment, until the trader restores the balances of depositors to the volume indicated at the beginning of the reporting period, it will be impossible for him to receive commissions.

Therefore, the manager's interest in profitability is obvious. Investors take virtually no risk.

How to invest in PAMM accounts?

It is probably impossible to give an unambiguous answer to the question of how invest in PAMM accounts, because everything here depends on a number of factors and nuances. However, my personal experience, as well as the experience of communicating with experienced investors, can now come in handy. I will try to give advice to beginners on how to invest in PAMM accounts and not burn out in the end:

1. First of all, you need to choose a manager and evaluate his strategy, which he used for at least six months.
2. You need to pay attention to criteria such as:

• income level per month. Optimally, it should be from 10 to 20%;
• The number of successful transactions should exceed the number of unsuccessful ones by at least one and a half times;
• The drawdown limit can be no more than 5% of the total balance of the PAMM account;
• The manager's capital must equal at least 10% of the investor's capital;
• A trader should not be risky. For example, the presence of more than 1 open lot on an order for $10 should alert;
• Try to choose as "Managers" the owners of real accounts who have been working for them for at least 12 months;
• It is better to invest for a period of six months or more;
• When choosing a PAMM site, check its reliability and credibility (we will post a rating of the best ones soon).

In an attempt to learn more about how to invest in PAMM accounts, the reviews of already experienced participants should not go unnoticed by you. Carefully study the information, analyze and draw conclusions. This will save your nerves and money!

We summarize

Summing up, I would like to note that, in general, PAMM accounts are equally beneficial for both beginners in the Forex market and experienced traders. The former still do not know how to build their own strategies, while the latter reduce the risks of unsuccessful trading operations. Therefore, investments in PAMM can be ranked among the safest and most profitable types of financial investments.

That's all we have! In the future, we will collect a rating of the best brokers. Subscribe to our Telegram channel so as not to miss this news.

Thank you all for your attention! Liked the article? Share it with your friends on social media. networks. This will help us become the best. Good luck to you!

Best Regards, Money Hunters