If you’re out and about to give all you can in trading Forex, but you don’t have the know-how or the time to trade forex, then forex PAMM accounts may be a good choice for you.
We believe that the PAMM system is suitable enough for those who want to learn and earn. A PAMM account allows you to nourish your trading skills while getting the most bang for your buck.
What is a PAMM Account?
The percentage allocation management module, also referred to as PAMM or percentage allocation money management, is a form of mutual capital forex trading and is a great way to invest in the markets if you don’t have the time nor the confidence to trade by yourself.
This trading service is based on copy trading, enabling you and other traders to have a trading account linked to a” Master” account, which manages a series of trading accounts.
A PAMM account can gather the total sum of the deposits of all followers or customers and all trading positions performed by the Master account are equivalently reflected in the customer trading accounts, which means that every loss and profits will be proportionally distributed to the managed accounts or followers. Here’s a short example:
The contributors of the PAMM Account setup:
- Forex brokerage company or a forex broker
- Manager(s) / money trader(s)
The investors (say Eugene and Mark) are interested in obtaining profits from forex trading – but they either don’t have sufficient knowledge to trade forex or don’t have time to devote to trading activities. Meanwhile, the professional money managers (Mathew and John) have the necessary know-how in trading and managing other people’s capital (such as mutual fund managers), along with the individual trading fund. The forex trading agency signs up Mathew and John as money managers for managing other’s investor capital.
The investors Eugene and Mark also enter the game with an LPOA (Limited Power of Attorney). The gist of this agreement is that both Mark and Eugene accept the risk of the forex trades by sharing their capital with the assigned money manager, who will use the pooled capital to trade forex per his trading strategy and style. This also states the percentage the money manager will charge as his take for providing this service.
How Can New Traders Take Advantage of a PAMM System?
Given the current bank interest rates and other so-called financial instruments being quite low (take Europe), increasingly more investors are looking for a higher return on their investments.
However, making a steady profit on the markets isn’t as easy as it may sound. It’s quite a stressful activity, one that requires dedication, patience, commitment, and time to assess the market and properly integrate your strategies.
For that, most investors aren’t ready to trade the markets, yet they’re ready to use PAMM systems to gain access to the markets and generate income to reach their financial goals while educating themselves on how to become more profitable traders.
As such, PAMM systems are great for novice traders, as they connect knowledgeable and successful traders to those interested in the financial market, but are insecure about their investment ways.
What to look for in a broker offering PAMM services?
Searching for a PAMM trading foreign currency exchange broker because you don’t actually have the experience or fund to trade forex yourself but still make a profit? Then you should be wise, patient, and search diligently.
One of the most crucial aspect to take into account when deciding which PAMM services you will use is:
- The reliability of your PAMM brokers
- How detailed the statistics available to you are in selecting a Master account
- How easy it is for you to withdraw money
Consider a regulated and licensed broker
The best PAMM brokers are hard to find but not difficult. Since you’re going to trust your Broker with keeping your money safe, you will need to find an entity that you can fully trust. But how should you verify that trust?
A reliable Broker should be in good standing with their regulatory authority (CFTC, NFA in the US, and FCA in the UK). However, being regulated doesn’t necessarily mean that it is the best Broker in town, but at least it will give you some recourse if something goes wrong.
You may also need to check if any complaints have been filed against your Broker, and if so, how he managed the resolution of the issue.
Some other tips for your additional security are:
- Ensure your funds in the account are held on a Segregated basis -if so, your fund will be protected if your appointed Broker becomes insolvent.
- Check if the contract guarantees a detailed max draw-down in % for your account. This will protect you from losses or legally recoup those losses if your trader breaks the contract.
The Bottom Line
PAMM systems are the best way for you to take advantage of automatized loss/profit distribution according to the money manager trading strategies you want to follow. That only means that you will gain transparency and necessary know-how of the markets without any deep trading knowledge.
Using PAMM systems will also mean that your money can be professionally managed thanks to a reliable trading strategy with money management rules. Currently, you don’t need to lose your nights and come up with a new trading strategy, nor carry about how long it is going to take to develop a lucrative one.
According to the risk profile, all it takes is a Master account that seems advantageous enough for you, picking one that has a steady track-record that generates that spawn results over time. You can make the most out of your free time while your account generates money. Not only that but having your account in safer hands will allow you to better focus on learning how markets work, how to trade them, as well as how to grow your own strategy and trade the markets once you’re ready.