If you don’t want to trade yourself but want to be part of forex trading, then there is a solution for you, a managed account.
A forex managed account is like a “sit back and relax” investing opportunity. An experienced trader will trade on your behalf, and you will eat the fruit of his hard work by funding a certain amount.
In the forex, there are two types of managed accounts; MAM and PAMM.
You should be wondering what the hell are these?
Fear not as in this guide, we are going to talk about MAM and PAMM and how you can organize your trading through them. So, read till the end.
PAMM or Percentage Allocation Management Module account is a mechanism for equal participation in investment and the distribution of profits and losses between all participants in a managed account, which are investors and a trader managing this account.
How PAMM works?
To give you an illustration of how PAMM works here’s is an example.
Imagine a forex trader who earns 10% profit per month and has a capital of $1,000. Therefore, his gain in the first month will be about $100.
A trader decides to increase working capital and profit margin, and by opening a PAMM, he can attract investors. Three investors (let’s call them Alex, Marie, and Hunnum) decided to invest their capital in this PAMM account, Alex $6,000, Marie $2,000, and Hunnum $1,000, respectively.
Their capital is combined on the PAMM account with the capital of the trader ($1,000) and the total amount at the disposal of the trader is already $1,000 + $6,000 + $2,000 + $1,000 = $10,000. Therefore, the profit for the first month will not be $100, but $1 000.
So, the trader and investors will receive a profit equal to 10% of the deposit, and it is distributed among them proportionally: the trader gets $100, Alex $600, Marie $200, and Hunnum $100. The trader also gets 50% (or whatever is set by the trader) from the earnings of his investors. This is automatically credited to the trader’s account.
In case of a loss, a trader won’t get anything from this.
The results of trading, accruing profits by investors, and rewards to the trader occur at the end of the period called the trading period. The procedure itself is called a rollover.
And that’s how the PAMM account works.
Now let’s move to the MAM account.
MAM (Multi Account Manager) is an analog of PAMM accounts. It is an investment opportunity suitable for significant investments and allowing the trader to open transactions on the accounts of connected investors in the selected proportion.
In a MAM account, the trader can directly manage several sub-accounts at once. The number of connected accounts is not limited, but they must correspond to the trader’s threshold, so an investor with a small amount will not be able to join the MAM provider.
Transactions on a MAM account are opened based on the total amount, but the size of an open order, profit or loss will be distributed among investors’ funds in proportion to their investment.
Orders are executed at the same price for all investors.
Before investing in any of these accounts, try to learn all about these accounts.