What is Percent Allocation Management Module (PAMM)?
Percent Allocation Management Module (PAMM) is a type of managed account that distributes gains, losses, and fees to each investor’s accounts. As the name suggests, the amount of the distribution is based on each client’s allocation percentage. That being said, the investor’s portfolio is highly dependent on the size and performance of the trade.
Basically, the clients’ managed accounts are all connected to the money manager’s main account and all trades made by the money manager are shown proportionally in the clients’ accounts. In other words, the main account’s balance represents the total sum of all clients’ deposits. But for safety reasons, the client’s deposits remain in their own trading account.
The money manager won’t have access to these accounts and therefore won’t be able to make withdrawals. However, the fees for the managers will be withdrawn automatically from clients’ accounts once the trade is finished. In some PAMM accounts, the manager is even required to participate in the trade as well. The manager’s income will also be allocated according to the ratio of the trade.
Advantages of Percent Allocation Management Module (PAMM)
What are the benefits?
- Firstly, they benefit from the trading expertise of successful managers
- Secondly, they can withdraw from the PAMM at any time if they are unsatisfied with how the account manager is performing.
- Thirdly, they can diversify their investments across multiple PAMMs, reducing risk.
- Finally, they are also protected from fraud because of the automatic funds distribution mechanism.
Main features of PAMM Forex Accounts
- Any trader can invest in a PAMM account (in this case he is called an investor). Also, any trader can open a PAMM account himself so that others can invest in it (in this case he is called the manager)
- Any number of traders can invest in one PAMM account, but there can be no more than one manager. A key restriction is that the manager cannot transfer money from the PAMM account to his own account.
- The manager does not interact at all with the PAMM account outside of target transactions. It means that he invests in orders from his own account, and investors’ funds are proportionally added to his rate.
- Under the PAMM approach, the manager risks his own funds first, thereby motivating him to make more prudent trading decisions at reasonable rates because it is directly beneficial to the manager that his trading decisions are successful.
- For investors, this method greatly simplifies Forex trading because apart from depositing the cash, nothing is required from them. All decisions are made by the manager, but everyone is equally at risk.
- If the order is successful, investors take their winnings minus the percentage that is charged in favor of the manager for his services. Thus, all participants in the PAMM account profit.