Are you someone who is keen to make some profits with forex trading but reluctant to enter the market on your own? Have you wished there was an expert trader to assist while trading on your own or wondered if there was a way to earn from trading without playing an active role in the trading process? Or do you just want to maximise your profit potential and diversify to minimise the risk? If you answered yes to any of these questions, then investing in a Forex PAMM account could be the best course of action for you to explore the volatile currency market and make profits without much effort on your part.
In this article, you will get to know everything about the PAMM forex account, which you need to know to become a successful investor in the lucrative forex market.
What is a PAMM Forex Account?
PAMM is a popular abbreviation for the ‘Percentage Allocation Management Module’ or ‘Percentage Allocation Money Management’, where a professional trader manages the trading activities of multiple trading accounts of individuals who have invested in the fund manager’s trading system. These investors can either be total beginners keen to hire a seasoned trader to manage their funds or passive traders with some trading knowledge but cannot trade on their own due to time constraints or any other reason.
Either way, PAMM forex accounts have become an innovative trading solution for anyone wanting to get market exposure with minimal risk. Because the account managers of PAMM forex accounts are skilled traders with a profitable strategy and the risk of trading without much experience or know-how does get removed when you trust a top trader with the trading process. It is also a form of pooled money trading, but at the same time, PAMM forex accounts are safe as the fund manager can only initiate trades from their master account, and the usage of funds will be limited to trading purposes only.
The PAMM forex account solution relies heavily on technology as all the trade positions that the account manager will open on your trading account in real-time are based on the percentage of funds allocated in the trader’s system. The sharing of profits and losses is also done on a percentage basis, and you get to earn as per the proportion of funds invested for trading. Investing in a PAMM forex account is a lot different from any other traditional form of investing as you are not investing in any asset but in a strategy with profit potential employed by a top trader with skills.
What are the advantages and disadvantages of a PAMM forex account?
No trading solution or investment model can be 100% perfect, and PAMM forex account investment also has its pros and cons, which need to be considered for doing it right.
Let’s look at the advantages and disadvantages of a PAMM forex account from an investor’s perspective.
- Easier to Get Started – Obtaining market knowledge and acquiring trading skills takes a good amount of time for a beginner. Then, you have to find a suitable strategy and spend some more time on the demo account to get good at trading, and only then you get to a level where you earn profits from the volatile forex market. Many newbies get discouraged in the first phase itself due to the complexities of the actual trading process. But investing in a PAMM forex account is the easiest way to enter the market without much hassle.
- Competitive Edge- The forex market has a lot of competition going on, and there are millions of traders trying to make profits from market fluctuations. But the success rate of traders is considered to be very low against the total number of active traders. Becoming successful as a beginner will not be possible unless you find your competitive edge. The forex PAMM account managers already have a profitable trading system along with professional-level skills, and when you invest your funds with such traders, you also get a competitive edge in the forex world.
- Option for Diversification – PAMM accounts also give you an incredible option to diversify and mitigate the risk by allocating your funds to different fund managers. By doing so, you will not be dependent on the performance of a single strategy or trader but will be distributing the capital with multiple managers based on your risk tolerance and trading goals. Diversification allows you to maximise your profit potential while keeping the risk of loss to a minimum.
- Passive Income – Being an investor in a PAMM forex account is the best way to earn some passive income from trading. Self-trading takes a lot of time and effort as you have to keep learning and analysing the markets to place trades with perfection. But when you are an investor, the PAMM account manager will be doing all these on your behalf, and you can avail the benefits of trading by just paying a small fee for the account management service.
- Investors cannot enter or exit trades on their own.
- Profitability is not guaranteed even if past performance is considered.
How to Choose a PAMM Manager?
Choosing the best traders as your PAMM account managers is essential to ensure a good return on your investment. As we mentioned earlier, diversification is always recommended for a PAMM account investor. You need to ensure your funds or trading capital is properly allocated with the right people to manage them. Beginners will often be confused about the criteria for choosing the best PAMM account manager. In that case, you need to take note of the following points and use it as a checklist for making a wise choice about your PAMM account managers.
- Duration of Managing That PAMM Account
The first thing you must check for choosing your PAMM account manager is their experience in trading accounts. I suggest you look for managers who have been active on the chosen platform for over a year. This way, it is easier to check their track record of performance and selecting traders with experience is better than staying on the safer side.
The next thing to consider for choosing your PAMM account manager is the profitability of their strategy. You need to check how much return they earn for the pooled investment, and that way, you can assess the profit potential of the trading system and make a wise choice.
- The Maximum Drawdown
When we talk about profits, we also need to talk about the losses. Because even the most experienced and profitable trader is bound to encounter some losses once in a while. So, you need to check the maximum drawdown on their account and see if the trader will be a good match for your risk profile as an investor.
- The Current Value or Equity of the PAMM Manager
You also need to check the value or equity of the PAMM manager at the present moment and make sure it is equal to or higher than 10% of their total balance. The currency value of equity of the account manager actually tells you about the risk that they are taking for trading. Higher equity is interpreted as higher risk in PAMM accounts.
Along with the balance of the PAMM account as a whole, the value should be taken into account. This includes the fee charged by the PAMM manager for managing the funds along with investors’ funds. In this situation, it is preferable that the PAMM manager’s value not fall below 10% of the entire amount.
- Equity of Investors
You also need to consider the amount of funds invested by the clients of the account manager you are planning to choose. A PAMM manager performing well will surely have higher equity from investors, which can be a key metric for assessing their trustworthiness.
How Does a Pamm Account Work?
Working of a PAMM account is pretty simple, as the broker platform that you choose for investing in PAMM accounts will be in charge of connecting the multiple investor accounts with traders as well as distribution of profits/losses after the trading process. The account manager will also be trading with their own funds and taking trading decisions on behalf of all the investors who follow them or allocate funds with their system.
To sum it up, PAMM forex account investment can be a suitable alternative for anyone who wants to earn from the forex market with minimal effort and limited exposure to risk. Those who don’t have enough time to trade on their own can also consider PAMM account management services for maximising their profit potential with the help of professionals.