A lot of investors (traders) needlessly shouldn't have wrecked their accounts if only they knew a better option of Forex Trading. Forex PAMM account provides the best medium for investors (traders) who do not have the requisite knowledge to trade Forex. This articles presents 5 reasons why PAMM account is the most preferable investment option in Forex Trading. A good thing about Forex Trading is the variety of investment options and instruments, an investor (trader) can invest in. Some of the major instruments are precious metals, commodities (CFDs), stocks, and of course currencies. In each of these instruments there are various options or ways an investor (trader) can invest and make profits from them. One of the options is PAMM Account.
Not all traders are experts, and not all experts are traders. Most often we see investors trying seriously hard to break even in Forex. While many get frustrated in endless search for the perfect robots and trading systems, others end up in the whirlpool of consistent failures. It might be surprising that quiet a few number of investors (traders) are aware of the PAMM option of Forex Trading, which is unknowingly one of the easiest ways and maybe safest way of investing in Forex. Probably why many traders ignore this option is because of a wrong notion and misunderstanding of how the PAMM concept works.
What is a PAMM Account
A PAMM otherwise known as a percent allocation management module is a special application that allows investors (traders) to invest their funds into a pool of funds being managed by a trader (money manager) who has been given a limited power of attorney to trade with the funds. A profit/loss or dividend ratio formular is applied to the pool of funds for the investors (traders) depending on the size of the deposit each investor brings into the managed account. It is very important to note that in most cases the trader who manages the account also has his/her fund in the pool of funds. This reduces the risks of recklessness or irresponsibility on the part of the trader since his/her funds is also at stake.
Virtually all Brokers have a PAMM account option as part of their investment options for investors. See our comparison table for Broker PAMM accounts.
Before we see reasons why it's a preferable option for investors (traders) let's see how it works.
For example lets say the following investors (traders) who are not too good at Forex trading decides to invest their funds into an account being managed by a trader who makes over 50% profit monthly.
John invests the sum of $250,000.00, Shane invests the sum of $50,000.00, Adams invests the sum of €55,000 and Chinedu invests the sum of £100,000.00. Due to the varied sums of deposits the ratio (profit/loss) is allocated according to size: John 22.5%, Shane 18.2%, Adams 20.3% & Chinedu 25.5%, while the remaining percentage (13.50%) goes to the trader managing the account. The sum total of the ratios must add up to 100%. In order to get a balanced ratio calculation, all deposits are converted to USD equivalent at the prevailing market rate.
If the money manager makes a profit of $120,000.00 then the percentage ratio (profit/loss) is applied in order to allocate the profits to each investor. John therefore gets $27,000.00, Shane gets $21,840.00, Adams get $24,360.00, Chinedu gets $30,600.00 while the money manager gets $16,200.00
Whatever amount of volume order placed by the manager of the account, the PAMM module automatically uses the percentage (ratio) to allocate the profit and loss on each investor's portfolio holding funds in the managed account. A commission fee is given to the money manager before the profits will be divided to the respective investors in line with the ratio (sharing) formula.
Virtually all Brokers have a PAMM account option as part of their investment options for investors. See our comparison table for Broker PAMM accounts.
Before we see reasons why it's a preferable option for investors (traders) let's see how it works.
For example lets say the following investors (traders) who are not too good at Forex trading decides to invest their funds into an account being managed by a trader who makes over 50% profit monthly.
John invests the sum of $250,000.00, Shane invests the sum of $50,000.00, Adams invests the sum of €55,000 and Chinedu invests the sum of £100,000.00. Due to the varied sums of deposits the ratio (profit/loss) is allocated according to size: John 22.5%, Shane 18.2%, Adams 20.3% & Chinedu 25.5%, while the remaining percentage (13.50%) goes to the trader managing the account. The sum total of the ratios must add up to 100%. In order to get a balanced ratio calculation, all deposits are converted to USD equivalent at the prevailing market rate.
If the money manager makes a profit of $120,000.00 then the percentage ratio (profit/loss) is applied in order to allocate the profits to each investor. John therefore gets $27,000.00, Shane gets $21,840.00, Adams get $24,360.00, Chinedu gets $30,600.00 while the money manager gets $16,200.00
Whatever amount of volume order placed by the manager of the account, the PAMM module automatically uses the percentage (ratio) to allocate the profit and loss on each investor's portfolio holding funds in the managed account. A commission fee is given to the money manager before the profits will be divided to the respective investors in line with the ratio (sharing) formula.
5 Reasons Why PAMM Account Is Most Preferred
- Little or Zero Involvement
One of the great benefits of PAMM account is that the investor (trader) does not need to do anything other than invest the fund and make withdrawals. The money manager takes care of the trading activities. This is beneficial for traders who have little knowledge in Forex but wants to invest in it. - Ability to Select From a Pool of Top Winning Traders
Most Brokers do publish a table of ranked money managers where investors can easily choose which money manager to invest their funds with. Some Brokers like HotForex allow selection of multiple fund managers. - Flexibility of Withdrawals & Minimum Deposits
An investor is not tied to durational contracts, although it makes sense to allow a full calendar month for easy operational purpose on the side of the fund manager. The benefit here is that you are free to pull out as you desire but after all necessary fees have been paid. Deposits are also becoming minimal and friendlier. See our Broker PAMM comparison chart. - Controlled Risk & Security
Investors are allowed to set risk levels (i.e. the acceptable level of loss that can be lost from your investment account). Also some Brokers like HotForex require fund managers to include their funds in the pool of funds being managed by them in order to ensure responsibility and security of investors funds. In addition to this, the fund manager is restricted from withdrawing funds from the managed account. In reality he/she has no access to the funds in the managed account. - Real Time Reporting
You can get real-time reports of the performance of your account depending on the features of your Broker you may be able to get alerts on phone and emails.
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