5 mins read
PAMM Account in Forex is one of the types of asset management in the financial markets, which is ideal for those who wish to get passive income from trading. Professional chief traders who are trading on the financial markets can help to multiply your fortune by managing investment funds.
The principle of the PAMM accounts is as follows:
- The trader has his funds in the PAMM account.
- The investor adds funds from his account to the account of the chief trader.
- A trader does not have access to the investor funds and he has only the right to trade in the forex market.
- When trading on the PAMM account there is the proportional attraction of funds from all accounts, and thus proportional to the distribution of profits. For example, if your account balance is $ 5,000, of which $ 1,000 is individual trader funds and the rest of – the 2 investment accounts are $ 2,000. Let's say a trader enters into a transaction of 0.1 lot. In this case, the volume of transactions for the investment accounts will be 0.2 lots for each. Therefore, when receiving a total profit of $ 100, the proportional distribution will be $ 20 – the trader's profit and $ 40 for each of the investors.
Trust services are not free of course. Various PAMM accounts may involve a commission of 25-40% of the profit, which is fair enough, taking into consideration that the trader's work is very difficult and stressful. To make the right choice, the user should visit the section «Compare Forex Brokers» and choose a broker based on their criteria.
Based on the example above, where each investor received $ 40, we can assume that the trader's commission income is 25%. Therefore, from each investor trader will receive a $ 10 commission (25% of $ 40), and the investors will receive $ 30 as net profit.
PAMM Forex is usually offered either by PAMM Forex brokers, traders, or private control. In the case of investment in accounts, one should be prepared for a greater amount of investment, rather than investing in the private control of the trader. However, it should be understood that the investment sites with PAMM Forex brokers are more reliable than cooperation with the private trader, as in the case of a dispute, the investor can get a qualified answer. Furthermore, the reliability of trust management directly depends on the reliability of the broker. Therefore, you should carefully choose a Forex broker to cooperate, with after analyzing all the conditions and reading the section «How to choose a Forex Broker?».
Cooperation with the private manager trader has both its pros and cons. The key point is to understand that in most cases you invest money in a stranger, and all of the risks are borne by you. There is no guarantee that even when drawing up the contract between the trader and the investor will not be fraud or banal loss of deposit as a result of failed trading. This is why most PAMM account investors use this system for hedging instead of investing all their capital in it, or for an amateur trader who hasn't yet mastered a trading strategy.
The main task of the investor is to dispose of his investment funds properly. To do this, listen to the following guidelines on selecting a PAMM account.
- Do not rely on traders who offer tremendous profits in their PAMM accounts. If you see in the description of the account the profitability of 50-100% per month, then remember that the normal profitability on the forex is the result of about 5-15% per month. Inflated profitability may indicate too aggressively a trader's trading, increasing trading risks. It is also possible that the trader has multiple accounts or accounts that have existed for not more than a few months. To make the right choice you should use the information from the section «Best banks offering Forex trading». Here you can find the list of banks that offer Forex trading.
- You should choose the oldest PAMM account. Typically, in a specified account his age is in days. The older an investment account, the more statistics you can collect on the trader's trade. For example, the maximum drawdown of the deposit shall not exceed 30%. This evidence suggests that the trader can operate in difficult market conditions and align the deposit even after the loss-making period.
- Before you invest in the PAMM account you should be familiar with the strategy of managing traders. If you are interested in getting quick high profits at huge risk, then you will approach with an aggressive trader, as a rule, short-term strategy. Often these traders used the strategy of "martingale", which, though able to bring big profits, carries a risk of rapid loss of the entire deposit. Conversely, if you do not chase great profit and are willing to lower profitability at moderate risks, then a trader with a long-term strategy will be efficient for you.
- It is desirable to establish personal contact with the managing trader and discuss all the details of the investment. Choose the trader the same as the employee. The level of risk and other trading conditions should be identified and specified before the start of investing in the PAMM account.
- Keep in mind that traders must not have access to your private data, such as passwords for access to funds. Never provide traders with information that can benefit fraudsters to display your funds. The section «Most popular Forex ECN brokers» will help you choose the right broker.
Alright, what have we learned so far:
