PAMM accounts: an overview of the fund management mechanism
A PAMM account is a money management mechanism where the withdrawal or transfer process belongs exclusively to the investor. The manager makes transactions through his account, and the results are copied to the PAMM account. This type of account operation reduces risks for the investor and prevents fraud by the manager.
PAMM managers are high-performing traders. To attract clients, the trader provides information about his trading account. In the course of work, information about transactions on investors’ PAMM accounts is copied. To assess the trader’s professionalism, it is necessary to pay attention to the results of trades and the characteristics of his trading strategy. Thus, the terms of cooperation, the deposit amount and the manager’s remuneration, the contract duration, etc., are determined. The trader often receives a percentage of the profit rather than a fixed amount.
The manager executes all trades in his account, and the results are reflected in the PAMM account with a proportional change. For example, if the trader’s balance is US$1,000 and the investor’s is US$100, then trades will be copied to PAMM in 10 times less volume than they come to the manager’s account.
Features of the account management mechanism
Over time, this mechanism has been simplified, and now the trader opens a PAMM and funds it with his own money. After signing the offer, investors join the cooperation and deposit a certain amount of money into the already-created account. In this case, the income distribution process among all participants becomes more complicated, but a broker handles these issues.
This money management mechanism benefits all participants, but most of all, the trader.
A PAMM account is a convenient way to profit with minimal effort. The trader’s personal interest in the success of the trades plays an important role, as his income depends on it. This ensures a professional approach and the fulfilment of contractual obligations. In addition, the manager cannot manage investors’ funds, which reduces the risk of losing money through illegal schemes. In this case, the guarantor is the broker, who controls the trader’s activities.
The investor, on the other hand, can increase or decrease his funds at any time and thus regulate his profits. The best solution for the investor is to use several PAMM accounts, which increases security and reduces the risk of losing money through diversification. However, it is essential to carefully examine the cooperation agreement in order to avoid a situation where the balance of the investor’s account cannot exceed a certain amount or the cooperation period is minimal. Such moments limit the investor’s income and do not reveal the full potential of the PAMM mechanism.