The desire to manage their assets efficiently and to earn serious money makes many people pay attention to Forex. However, independent trading (when the trader does not have necessary knowledge and experience) may not yield the desired results. That is why investments in PAMM (Percent Allocation Management Modules) are so popular.
What is a PAMM account?
The system of PAMM (Percent Allocation Management Module) accounts emerged out of the necessity to unite the experience of successful traders with the funds of the investors, eager to use their money efficiently. A PAMM is a trading account for investor funds. The account is managed by a trader, who is authorized only for trading, while the investors preserve full rights for their assets. In case of successful trading the manager receives a certain percentage of the profit. This scheme of mutually profitable cooperation is widespread nowadays, and PAMM accounts, managed by experienced traders, sometimes accumulate several million dollars.
Advantages of PAMM accounts
Investment on Forex via a PAMM features a number of advantages over other ways of investment, such as:
- an opportunity to get better return than investing into gold or bank deposits;
- safety and transparency of investments – the managing trader is interested in the success of their trading as they get a percentage of their profit; investors can assess the results any time by the trading statistics;
- an opportunity to diversify the risks – an investor can allocate their money between different traders, as well as different broker companies, providing PAMM services.
- an investor may have no specific knowledge and experience of trading on Forex; it is enough to choose the right manager from the rating based on the statistics of their trading;
- availability of investing thanks to a low investment threshold: startup capital on PAMM accounts is around 100 USD.
Nowadays there are 2 main schemes of investing into PAMM: replenishing the manager’s account or the investor’s own account, bound to the managed one. The conditions of investment should better be secured by a bilateral agreement between the investor and the manager or decided upon with the agent, i.e. the broker company. There are also services of financial risks insurance available; use of them would be wise in case of investments into accounts, managed by aggressive traders.
One important factor of investment safety is the choice of a trustworthy manager. Before entrusting their money to a trader, an investor should evaluate the trader’s ability to manage funds and minimize risks. This choice should be made with maximum responsibility.
Criteria for choosing a PAMM account
First thing to evaluate is the time of its existence: it should be no less than 6 months. It is hard to evaluate the trader’s results on a shorter period due to a lack of trading history. It is best to choose the accounts existing for longer than a year.
The next thing to consider is the return of the account and its drawdown. More than 10% of monthly profit is a very good trading indicator, while moderate drawdowns, that are less than 20% of the deposit and are quickly covered by the trader, signify professional and prudent trading. In practice, the lower drawdowns are, the lower but stabler the profit is – such is the conservative way of trading. Conversely, aggressively managed accounts show deep drawdowns below 30% and high return; however, it would be unwise to invest more than 10% of one’s capital into such accounts.
What also requires evaluation is the share of the manager’s capital, as well as the size of the minimal investment. If the trader has a microscopic sum on their account, it suggests either their lack of confidence and experience or their catastrophic financial state. And the lower the investment threshold is, the acuter the manager’s need for attracting money.
Before making an investment into a PAMM an investor can also search for the chosen manager or broker company on Internet forums, ask them all pending questions and discuss their trading and managing funds. It will help figure out whether their trading is professional and whether they are ready for an open dialog with investors.
Summing up the above, we should say once again that all decisions are to be carefully weighted up; do not rush at making investments. In addition to the evaluation of an account, get acquainted with the conditions of its broker company; study all the information available, including feedback on the Internet. The longer the account has been existing, the more feedback you will find and the easier it will be to decide upon the feasibility and promise of investments into the chosen account.
The most productive investments into PAMM accounts are those taking into consideration the trading style of the manager, expected return and acceptable risks. These parameters, selected right, are half the battle. The investor only has to keep an eye on their finance and regulate the direction of investments, getting rid of ineffective managers and picking up PAMM accounts with the best characteristics. Upon allocating your funds the right way, you will be receiving stable passive income for a long time, without direct participation in trading.
May your investments yield profit!