What is a PAMM account? Everything you need to know about it
If you are looking to invest in the forex market, but you do not have enough knowledge and information about how to operate in this market, or you are looking to earn money in this way and make profitable transactions, but you are not confident enough in your strategies and do not have enough time to do this, a PAMM account could be what you probably need. Do you know what a PAMM account is? Join Zend Traders to learn about this type of account and important points about it.
What is PAMM account in Forex?
If we want to give a definition of PAMM account, we can say that the term PAMM stands for Percentage Allocation Management Module and it is a trading platform that simultaneously monitors an unlimited number of managed accounts in forex and operates in this way. At the same time as forex traders create trading options, this platform copies their trades and distributes a certain amount of trades to the trader’s account based on the allocated percentage.
In other words, this software provides conditions for customers to be able to connect their account in forex to the account of one or more other traders in forex and copy their transactions directly to their account.
The important thing about the PAMM account is that the more profitable a Forex trader has an account, the more other traders are willing to connect their account to his account through the PAMM platform and in exchange for the profit he gets, give him a percentage of it.
What are the advantages and disadvantages of a PAMM account?
In order to familiarize yourself more with this type of account in the forex market, it is good to familiarize yourself with its advantages and disadvantages.
Advantages of PAMM account
Since the PAMM broker acts as an independent guarantor so that the obligations of the PAMM manager and the investor are properly fulfilled, the PAMM account enjoys the following advantages:
-Through a PAM account, a broker can manage other people’s capital through one platform. This software does all the calculations and has not considered any limit for the number of customers.
-A profitable trader can receive profits from both the manager and his investors.
-The trader (PAMM manager) may not take profit from investors; although traders’ funds are managed by the PAMM manager, the PAMM manager does not have direct access to the account of those brokers.
-Investing in Pam account is easy. A trader can deposit capital to his account once and then divide it among several PAMM managers.
-Since the main trader or the manager of PAMM, any unaccountable action he does will also put his capital at risk, this ensures for other traders that the manager of PAMM is doing his job correctly.
Disadvantages of PAMM account
Along with all the advantages of the PAMM account, this type of account also has some disadvantages, which are:
-If a broker does not allow the managing trader to set a maximum loss limit for the PAMM account, investors will also suffer.
-In general, the system of PAMM accounts is closed in nature, and often, investors cannot study the trading strategy of the PAMM manager in detail.
-And one of the most obvious defects of the PAMM account is that all traders of a PAMM account must belong to a Forex broker.
Now that you are familiar with the PAMM account, its advantages and disadvantages, you may ask how to choose a PAMM manager? We have answered this question in the next section.
How to choose a PAMM manager?
To choose a PAMM manager, you need to consider a number of factors. The factors for choosing a PAMM account manager are:
The length of time that has passed since the creation of the PAMM account
This is one of the most important criteria for selecting a PAMM manager. First of all, you should check and see how long it has been since the opening of the PAMM account, and this will remove the trader’s luck factor in successful transactions and you will ensure the correctness of his performance. So it is recommended not to choose PAMM accounts under 6 months.
The maximum drawdown
After you have filtered the PAMM account based on its age, another factor to consider is the maximum drawdown that the trader has experienced over the course of his career. This figure determines the amount of risk that the trader has faced in his investments.
You should consider the measure of potential profitability after filtering PAMM accounts based on their age and maximum loss. Choosing accounts based on their profitability depends on the individual approach of the investor. Accounts whose ratio of the maximum decrease in profit (loss) to its profit is not more than 1:3 show the best performance of the trader.
The current value or Equity of the PAMM manager
When choosing a PAMM account, you should pay attention to the value of the PAMM manager. Obviously, the higher the equity value, the more risk the PAMM capital manager takes during trading.
The value should be considered together with the total balance of the PAMM account (investors’ value + PAMM manager’s fee). In this case, it is better if the value of the PAMM manager does not reach less than 10% of the total balance.
Equity of investors
The more funds under management, the higher the level of investor confidence.
How does a PAMM account work?
In general, three factors are involved in investing using a PAMM account:
-The broker company that owns the trading platform.
-A trader or PAMM account manager who is responsible for allocating funds to trades.
-An investor who allocates his money to a trader in the hope of profiting from the trader’s activities.
Traders in a PAMM account are called account managers, and investors are called followers because they follow the trading strategy of the PAMM manager.
In fact, PAM account manager has limited power of attorney and can make decisions and act on behalf of his followers as far as is allowed.
A trader or PAMM account manager can manage an unlimited number of followers’ accounts at the same time.
It is worth noting that the trader or PAMM account manager, in this case, also trades his own capital and remains a member of the brokerage company.
We said earlier that PAMM is a trading platform to enter the forex market, for people who either don’t have enough time to manage their transactions, or don’t have enough knowledge and information.
In fact, this platform is a sign of the introduction of technology in the world of forex trading, and by creating a PAMM account by one of the experienced forex traders as an account manager, other traders can connect to the manager and copy his trading process exactly.
In fact, PAMM account managers know the transaction process better than others and are more proficient in their work; for this reason, other traders choose a PAMM account and connect to it by considering some factors mentioned in this article.
At the end, we also note that the best broker for PAMM account is Hot Forex broker. This is because its conditions are more flexible for both the investor and the PAMM account manager.
The use of this technology is done through a regulated brokerage firm. So PAMM account is safe and can be trusted and this method is a sure way to earn profit with the help of an experienced trader and other investors through a central brokerage system.