Pamm forex definition

What is a PAMM Account?

The ability to earn with the help of experienced traders without trading yourself!

The PAMM Accounts service puts investors and traders together, allowing investors to earn on Forex without trading on their own and managers to receive additional income.

through efficient management of investor funds.

To invest funds just choose a PAMM Account or a ready-to-use PAMM Portfolio (a collection of several.

PAMM Accounts together) with the help of our ratings.

Why hundreds of thousands of traders have chosen PAMM Accounts.

The PAMM Account is a unique service developed by Alpari, which has gained worldwide popularity.

We came up with and created the concept of PAMM Accounts.

paid to investors in 2015.

the service's trading turnover.

and over 650 investment accounts.

by investor's throughout the world.

How to earn using Alpari PAMM Accounts and Portfolios?

For investors.

If you don't have enough knowledge to trade on the Forex market, or if you don't have enough time for it, choose a PAMM Account or a ready-to-use PAMM Portfolio and invest your funds. Your potential profit is unrestricted and you can withdraw your funds at any time.

For managers.

If you are an experienced and successfull Forex trader it's time to try your hand at managing a PAMM Account. Trade and earn a compensation from your investors for your profitable trading.

Новогодняя оферта 10 проц.

Вместе к богатству.

Новогодняя оферта 10 проц.

Вместе к богатству.

How to invest in a PAMM Account.

Register for myAlpari and make a deposit to your transitory account using one of the many ways available. Select a PAMM Account from the rating. Invest funds by transferring them from your transitory to your investment account which will be automatically created in the selected PAMM Account.

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PAMM Definitions.

Portfolio Asset Management Mechanism.

FXTM Portfolio Management Department.

FXTM PAMM Program.

The program that is created and completely controlled by the FXTM PMD, which allocates investor funds in accordance with investment objectives, risks and profile.

FXTM PAMM Account.

All clients wishing to invest in the FXTM PMD should open a new account where all of their investments will take place.

FXTM PAMM Portfolio.

This is the portfolio that the FXTM PMD will create based on different metrics such as return, volatility, max drawdown, deviation and Sharpe ratio, among others.

PAMM Investor.

This applies to clients who are interested in participating in the FXTM PAMM Program. In order to participate they must first take the suitability test; the FXTM PMD will then analyze the results and decide which investments are most suitable.

Strategy Providers.

Skillful traders that have a proven track record and choose to share their successful strategies with the FXTM PMD.

Suitability Test.

In order for the FXTM PMD to make appropriate investments for PMD clients, we must obtain the necessary information with regards to their investment objectives, financial situation and knowledge and experience.

The actual percentage rate (positive or negative) of an investment during a specific period. [End Strategy Value/Begin Strategy Value -1] * 100 = Return (%)

Sharpe Ratio.

Illustrates how good the return of a strategy was for the risk taken. The higher the Sharpe ratio, the better the return for the same level of risk.

Volatility.

The average of all the daily returns (positive & negative) for a specific period of time. The lower the volatility, the more conservative the strategy.

Standard Deviation.

A statistical measurement that enlightens historical volatility. A more volatile strategy will have a higher standard deviation.

Maximum Drawdown.

The maximum % of loss a portfolio would have lost by investing in a strategy. It is calculated as the difference between the maximum and minimum point for the strategy for a specific period. Maximum drawdown helps to determine a strategy’s financial risk.

Open Account.

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FXTM Invest.

Forex PAMM Program.

Trade with FXTM.

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FXTM brand is authorized and regulated in various jurisdictions.

ForexTime Limited (forextime/eu) is regulated by the Cyprus Securities and Exchange Commission with CIF license number 185/12, licensed by the Financial Services Board (FSB) of South Africa, with FSP No. 46614. The company is also registered with the Financial Conduct Authority of the UK with number 600475 and has an established branch in the UK.

FT Global Limited (forextime) is regulated by the International Financial Services Commission of Belize with License numbers IFSC/60/345/TS and IFSC/60/345/APM.

Risk Warning: Trading Forex and CFDs involves significant risk and can result in the loss of your invested capital. You should not invest more than you can afford to lose and should ensure that you fully understand the risks involved. Trading leveraged products may not be suitable for all investors. Before trading, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary. It is the responsibility of the Client to ascertain whether he/she is permitted to use the services of the FXTM brand based on the legal requirements in his/her country of residence. Please read FXTM’s full Risk Disclosure.

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How Forex PAMM Accounts Work.

Interested in trading foreign currency exchange markets but don't have the time or know-how to trade forex? Forex PAMM accounts may be a good choice for you. (Related reading: Introduction to Currency Trading)

Percentage allocation management module, also known as percentage allocation money management or PAMM, is a form of pooled money forex trading. An investor gets to allocate his or her money in desired proportion to the qualified trader(s)/money manager(s) of his or her choice. These traders/managers may manage multiple forex trading accounts using their own capital and such pooled moneys, with an aim to generate profits.

To demonstrate PAMM accounts further, let’s look at an example:

The participants in the PAMM Account setup:

forex broker/ forex brokerage firm trader(s)/ money manager(s) investor(s)

The investors (say Peter, Paul, and Phil) are interested in reaping profits from forex trading, but they either don't have time to devote to trading activities or don’t have sufficient knowledge to trade forex. Enter the professional money managers (Marcus and Mathew), who have expertise in trading and managing other people’s money (like a mutual fund manager), along with their individual trading capital. The forex trading firm signs up Marcus and Mathew as money managers for managing other investors’ money. The investors (Peter, Paul and Phil) also signup with Limited Power of Attorney (LPOA). The crux of the signed agreement is that investors agree to take the risk for the forex trades, by giving their capital to their chosen money manager who will use the pooled money to trade forex per his trading style and strategy. It also states how much the money (or percentage) the manager will charge as his take for offering this service.

For simplicity of example, let’s assume that all three investors chose Marcus to manage their share of money for forex trading and Marcus charges 10% of the profit. Here is what the share from each investor and the manager's own trading capital in the total pool looks like:

In terms of percentage contribution to the total pooled PAMM fund of $ 15,000, each investor has the following share:

Paul = $4,000 / $15,000 = 26.67% and similarly,

(The sum total of all shares in the pool always remains 1 or 100%.)

Suppose one trading term passes (e. g., a month) and Marcus manages to make a cool 30% profit on his pool, which now stands at $19,500 ($15,000 + 30% profit or $4,500).

He takes away his 10% charge on profit or $450. The remaining profit of $4,050 is distributed to all investors based on what percent they each have in the total pool:

Paul = $4,050 * 26.67% = $1,080.

Peter =$4,050 * 23.33% = $945.

Phil = $4,050 * 16.67% = $675.

Marcus = $4,050 * 33.33% = $1,350.

Assume that because of the first term stellar performance of 30% returns, all three investors decide to continue with Marcus for another term. Paul and Peter stay invested with their (original + returns) amount, while Phil cashes out the profit, leaving only his original investment of $2,500. Peter also refers a friend, Pike, to join the pool, and Pike brings $2,625. Another new investor, Pam, signs up and selects Marcus to manage her $1,000. The total trading pool for Marcus is now = $22,000.

Percentage share for each investor:

Paul = $5,080/22,000 = 23.09%

Marcus manages a 15% return during this term (15% * $22,000 = $3,300) and takes his 10% ($330). The remaining profit of $2,970 will be available to individual investors per their respective share:

Paul = 23.09% * $2,970 = $685.80.

Total pooled money in the fund = $24,970.

Next, let's assume all the investors continue with the above investments for another month with Marcus, who unfortunately loses 20%. This means no 10% profit share for Marcus and each investor will see their share of the pooled investment drop by 20%, bringing the pooled money down $4994 to $19,976.

Paul = $5,765.8 - 20% = $4,612.64.

Total pooled PAMM fund for Marcus = $19,976.

At the end of each term, investor has the choice to continue with the money manager, switch to another money manager partially or fully, or cash out the capital.

The role of forex broker is to:

Provide a secure, reliable platform that allows money managers and investors to interact. Facilitate the trading activities of money managers within the realms of allowed regulations. Facilitate the account keeping, deposits, withdrawal, and related activities. Apart from a usual trading business platform, allow transparent review, feedback, rating, and related mechanisms for investors and money managers to select and interact with each other.

How do investors’ select money managers?

Brokerage firms offer numerous way for investors to make an informed choice, including detailed CVs, qualifications, past performances in terms of returns, amount of money managed, numbers of associated investors, positive/negative reviews, etc. about their traders/ money managers. In addition, there are outside rating systems. Here is a screenshot from Alpari's PAMM account rating system:

Here are a few things to bear in mind:

Usually, the investors have no choice of forex trading assets, except for those offered by the money manager. They carry the risk of losing their capital due to trading activities of money managers, but also enjoy the potential of returns if the manager performs well.

Have access to the money only in their pool. They cannot pull money from investor’s trading accounts. For example, Paul may have a total of $9,000 in his forex trading account, but since he has allocated only $4,000 to Marcus, Marcus cannot trade beyond that $4,000. Can set a minimum and a maximum amount criteria for investors. Can accept or deny new investors as they wish.

PAMM accounts are a simple hassle-free method for individuals to pick and choose their money managers for forex trading. With these accounts, investors benefit from profits with minimal involvement. However, PAMM accounts also carry the risks of capital loss, based on a money manager's performance. After understanding their desired profit potential and risk aversion, individuals should perform due diligence in selecting a PAMM account broker and money manager.

What is PAMM?

Introduction.

A Percentage Allocation Money Management (PAMM) account is an investment program in which an investor gives over the trading rights of his investment to a skilled trader for the purpose of growing the account and providing returns on investment. Profits accruing from this trading activity are split between the investor and the trader/account manager.

Those who choose to invest are usually investors who are not very experienced, or who probably have a day job or are engaged in other activities that do not give them enough time to trade the financial markets. Trading is an engaging activity and if a trader does not have the time to give it the attention it deserves, the account will suffer.

How it Works?

In order to achieve a greater sense of commitment and responsibility over the account from the account manager, the account manager is required to make a cash contribution to the PAMM account he will be managing. The manager handles all trading activity and receives a percentage of profits as compensation.

The account manager sets up a PAMM account with a forex broker that offers PAMM facilities. This is a public investment and is referred to as the Manager’s Capital. The account manager will then trade this account for some time in order to create a trading history that could be used as his track record. To illustrate these steps, let us take the example of a manager that we shall call John Doe, who starts a PAMM account with $500.

Once the account manager has generated a trading history and is listed in the PAMM rankings, he then makes a public proposal where he requests for investors to join his PAMM account, and states the compensation he is to be paid by investors. When investors join, the account grows and the manager can now commence the full PAMM trading. So let us take for example that John Doe has grown the $500 account to $1,000, and this positive result attracts two more investors, Greta who bring in $2,000 respectively. The account size is now $3,000.

Withdrawal cycles are predetermined, and the settlement dates determined. Once the settlement date is reached and profits have been made, the profits are shared according to the percentage equity investment each investor brought to the table. The manager is then compensated according to the agreed profit sharing formula. The account manager can also withdraw profits accruing from his own equity, but he is not allowed to deplete his manager’s capital. So if our manager John Doe achieves a 33% return on this account, he has made $1000 profit and the account is now $4,000. The profits will be shared in the ratio of 66:33 (Greta; John Doe). So Greta gets $666.66 and John gets $333.33. If the agreed compensation to John Doe is 20%, then Greta will pay John Doe $133.33. So in addition to his own profit from the trade of $333.33, John Doe will receive a total of $466.66.

Here is great illustrations how profit is calculated on PAMM accounts:

The Idea behind PAMM.

The basic concept of PAMM is to minimize the risk for investors in forex. Some traders can make poor decisions because of their lack of knowledge and experience. Instead of risking their hard-earned money, they can delegate the trading to a manager who only charges a nominal fee for his/her services. The trader gets to enjoy the profits from his/her managed account, which is why PAMM has become a popular option over the years.

Opening a PAMM Account.

As mentioned above, investors have to sign up with a broker who offers managed accounts’ services. The process is quite simple and you can find the details online here. The investors have the option of keeping an eye on their investment and how their manager is handling the trades. Investors have the right to back out at any given time.

Benefits of PAMM Accounts.

The beauty of the PAMM account is that it offers a win-win scenario for both the account manager and the investor(s). The trader has the opportunity to tap into the trading skill of the manager without having to devote time and energy he may not have to the trading activity, and the account manager has the opportunity to compound profits both from using larger volumes on an increased account size as well as from the compensations that he receives from the investors of the PAMM account.

The major benefit for the account manager is that he/she earns a percentage of the profit earned on the investments. If the manager has any investment of his/her own, the profits could multiply. PAMM accounts are completely secure and the investors’ money is protected. The manager does not have the authority to withdraw even a single dollar from his/her clients’ accounts. The risk is minimized when multiple investors put in their money into the same trading account. The profits are shared proportionally but this ensures that none of the investors have to endure a major loss. The investors can add to their investments or withdraw the entire amount at any time they want to. As they are able to see the transactions being made, they have an idea of whether there is a risk of loss looming.

Now what should be the investing mindset of those who participate in PAMM accounts? Some PAMM account managers are more aggressive in terms of bringing in returns than others. Aggressive trading goes along with greater risk. There are larger drawdowns and greater potential for loss with aggressive trading techniques. It is preferable to invest smaller amounts of money with more aggressive PAMM account managers and to invest larger amounts of money with more conservative traders. This will help the investor to spread his risk more equitably.

How many PAMM account managers can a trader use? There is no limit to the number of PAMM accounts an investor can register in. It all depends on how much the trader has at his disposal and the returns he seeks to achieve.

For a PAMM account to appear in the public ratings, it must meet the following conditions:

The account should be registered. The account manager should be verified. The Manager’s Capital must be at least 100 USD.

What should potential investors be looking at when viewing the public ratings of a PAMM Account? Some of the criteria are as follows:

1-Month Return 3-Month Return 6-Month Return 1-Year Return Account Equity Drawdown percentage Manager’s Capital Popularity.

What if a trader wants to pull out of a PAMM account before the next settlement date? The trader can do so, but will have to settle his obligations to the account manager.

About Author.

I am a forex analyst, trader and writer. I have had a career writing articles for websites and journals, starting in the travel sector and then in Forex. I use a combination of technical and fundamental analysis in my forecasting. When I joined Forex4you in 2010 I thought it was a great opportunity to work as an analyst for an international broker. I provide technical forecasts with clear entry points and targets as well as articles on fundamental and trading themes. Good luck and happy trading!