What Is a PAMM Account?
The percentage allocation management module is also called percentage allocation money management or PAMM. This is a form of pooled money forex trading where an investor is allowed to allocate his/her money in any preferable proportion to the qualified money manager or trader of his/her choice. The traders or managers can manage numerous forex trading accounts with their personal funds and the pooled money and generate profits in the process.
With the forex market worth trillions of dollars, there are numerous PAMM managers available. Hence, newbie traders and investors usually find it hard to locate the best forex PAMM managers in the industry.
Who is a forex PAMM manager?
A forex PAMM manager is a professional or expert trader that collects money from other traders and trades the forex market on their behalf. The investors use PAMM accounts on forex and brokerage platforms using a software app that allows the brokerage's clients the ability to assign all or part of their account to management by a trader. The PAMM manager trades the market using his own funds but piggybacks onto the money pooled from other clients. The clients receive a percentage of the share of the manager's profits or losses into their respective accounts.
Most brokerage platforms that offer PAMM accounts maintain a well-detailed list of the PAMM managers, allowing them to research them and choose the best manager to handle their funds. The PAMM manager list contains details of each manager's historical performances and more information on their personality and their trading philosophy. The forex broker provides a Limited Power of Attorney (LPOA) document. Both parties sign the document, indicating that the PAMM manager would manage the investor's funds under the agreed terms and conditions.
The investor has the option to terminate the agreement and regain control of the funds at any point in time. The brokerage platform takes charge of monitoring, reviewing, and keeping records of the PAMM account.
How to choose Professional forex PAMM Manager
There are certain features to consider when choosing a profitable forex PAMM manager. They include;
The best forex PAMM manager must have vast experience in the financial markets. The financial markets' knowledge allows him/her to predict the price movement of urgencies and understand the various situations that affect the market.
An experienced forex trader doesn't lose control even when the market goes against his wish. They have the experience to know when to enter a trade and when to exit. When finding the best PAMM manager, it is best to get a trader with 5-7 years of work experience. Try and find a PAMM manager with vast experience in the forex market as each financial market works differently.
Quality of the Trading system
Finding a forex PAMM manager for consistent returns is usually down to the quality of the trading system they implement. A trading system integrates indicators that show signals for entering and exiting the market. It also comes with money and risk management systems to help guide the manager.
An excellent PAMM manager needs to develop and test their trading system rather than rely on trading advisors. Usually, managers don't reveal their trading information. However, investors need to know certain things about the manager’s strategies, such as limit orders and stop losses, the indicators they use, the conditions for taking profit, and more. These would help you make better conclusions about their trading style and, ultimately, your investment.
As much as possible, avoid working with a manager who doesn't use stop losses and deploy multiple indicators. Trading without stop losses can lead to unjustified losses for the investor while using multiple indicators will overload the system to show the correct profitability level.
Parameters for taking profit and enduring risks
You can also determine how efficient your PAMM manager is by the level of profit they take. Newbie traders believe that the higher the profit level, the better. However, profit level depends on a few parameters such as;
- Average drawdown
- Maximum drawdown
- Profit for a certain period
- The average duration of a drawdown
With a duration drawdown, you can see how long an investment can remain unprofitable. The longer this period, the lower the profit. In some instances, the period of loss is 90% of the time, while the period of profit is only 10% of the time. A crucial rule to remember is always to evaluate the ratio of profit and risks considering all commissions.
Transparent in trading
You can only be confident in a PAMM manager if they are transparent with their trading process by providing the necessary information. An expert manager provides a lot of information to the investors, which helps attract more investors. Also, a confident manager wouldn't hesitate to trade with their own capital. A manager that trades with his/her own funds is a confident one, and you should consider that when choosing a PAMM manager.
Advantages of PAMM Account
- Allows a trader or manager to manage other people's funds with ease by trading on his existing platform.
- The PAMM software helps with the required calculations
- A PAMM manager can take on as many clients as he can manage
- The PAMM manager can profit from his investors' trades and keep a percentage of the profits from the money he/she manages.
- The investor knows that the PAMM manager is also risking his/her money in the trading process. It isn't only their money that is at stake. Hence, the PAMM manager has to put in the effort to ensure the trades are profitable.
- The brokers regulate the PAMM accounts. Hence, the investor is at peace knowing that the PAMM manager doesn't have the power to withdraw the real funds contributed from the brokerage platforms.
Disadvantages of PAMM Account
- The investor and trader have to be registered users of the same forex/CFD brokerage platforms.
- You only have access to the PAMM manager available on your brokerage platform. This means that your options for PAMM managers are limited.
Finding the best PAMM manager is a daunting task for most newbie investors and traders. However, by looking at the features explained in this article, you can quickly locate the best forex PAMM managers on a brokerage platform and enjoy their services.