Trading in financial markets, especially risky, and volatile markets like forex, can generate huge revenues. Despite of the riskiness, investing in forex is incredibly appealing as the capital is always striving for maximum profits. However, not everyone has the natural ability to learn how to trade in these markets. In order to posses this capability, you have to spend a lot of time and money learning. It is not only about studying the theoretical part, you should also practice it. The experience of the trader is often the experience of losing money and making conclusions based on this. So, here comes a great solution for those who cannot develop these skills. It is about PAMM (Percent Allocation Management Module) accounts. This universal tool allows anyone with a certain investment capital to trust the funds to an experienced trader.
Investing in the PAMM accounts on the forex markets refers to the transfer of the funds from the investor in the hands of the manager, who knows how to rule these. The manager is the trader, who has a great experience and trades like using his own funds. Usually, the trader takes a fairly high commission for conducting the transactions. The investor receives 40 % - 50 % of the profits achieved by the trader on the market.
The mechanism of the PAMM accounts is very simple. The trader does not have the right to withdraw money from a trusted account and does not make specific manipulations on the investors account. He just makes transactions that are automatically duplicated in the accounts under the management. In this manner, the investors’ accounts are fully protected from misappropriation.
The main advantage that appeals you to invest in PAMM accounts is trading on financial markets without any special training and knowledge in this field. However, investing in PAMM accounts on forex has also a significant drawback – the distribution of losses. When the trader makes a really good deal, he will take almost half of the income to itself, as a reward. But when the transaction is unsuccessful and ended with a loss, all 100 % of the loss will be paid by the investor.
How was the situation without PAMM accounts?
When the forex market evolved without PAMM accounts, the traders offered their wealth management services to potential investors. The scheme was very simple. The trader finds the investor, describes him the advantages of earning on forex market and if the last one agrees to invest, the account is opened on the investor’s name. Further control of managing the account is transferred to the trader. It seems everything is fair, one will invest the other will trade, so the profits are shared. But, unfortunately, the process put in practice, hides some disadvantages, and here are some of them:
-One investor – one account. The trader could not physically manage a large number of accounts.
-The investor agreed, as a rule, to deal only with well known traders, with good reputation, the success of which often was confirmed by ‘fake’ reports.
-As the traders were doing transactions on the accounts of the investors, the last ones could cease to pay the fees at some moment. Many investors have failed to fulfill the obligations.
-The popular traders, with good reputation, could take control of two accounts of different investors and open opposite positions, merging one of the accounts. As you can understand, the profit in the second account was 100 %.
So the PAMM system came as a replacement of the individual wealth management that has already been compromised by a number of drawbacks. The positive changes had an influence on both investors and managers. Here are some of them:
-Simultaneous wealth management of unlimited investors on one single trading account.
-The opportunity to analyze the yield curve during the existence of the PAMM account, which can be done before investing.
-The trade is conducted on the trader’s account. The remuneration of the trader is paid automatically.
-The possibility to trade the yield curve of PAMM accounts. The old fashioned traders recommend investing in PAMM accounts on loss systems, to increase the return on investment. For this, accounts with a lifetime of more than 6 months are eligible and there should be no signs of Martingale.
How to choose PAMM for investing?
First of all, you should note the experience of the trader. Successful people are trading for years. If you like some PAMM accounts with lifetime of about 3 months, don’t hurry, just look a little bit and analyze. If the trader is educated, he won’t disappear anywhere. And if he merges, you can thank in your mind that you have not invested.
-Look at the amount of subsidence. If a trader pulls 90% and then miraculously recovers funds and continues to get profits, it is not recommended to invest in it. Recovering 90% is a matter of luck, which is not eternal.
-The amount of the trader’s capital. However, this is not a categorical point. You can keep this in your mind, but don’t pay a special attention to it. If a trader has opened a PAMM account with a huge capital of its own, it does not always mean that he is experiences. Nobody knows how he got his money. Maybe he has no experience in trading at all?
It is also worth to mention that there are more types of PAMM accounts, and you should select based on your behavior and temperament. If you are hazardous and a gambler, then the aggressive account type would be suitable for you. There are also the conservative PAMM fund and the stable PAMM fund, which are appropriate for those who drink sedatives right after insignificant losses.
The PAMM system comes with great benefits for both investors and traders, and you can take the advantage by investing your money in a PAMM account, or by attracting the investors to invest their capital.
