PAMM portfolios - a financial instrument with risk diversification

When investing in financial assets, the return will directly depend on the level of risk that the investor assumes. Naturally, the biggest losses can be incurred when trading high-yield assets. Managers of PAMM-accounts show investors a ready-made method of placing free funds, which brings tangible practical results and is more stable. One of the options of the optimal solution is a ready-made portfolio of PAMM-accounts.

Options of PAMM-portfolio formation

If we look at portfolios PAMM accounts as a financial instrument, then they can be categorized as a strategic method of generating investment returns. A ready-made portfolio can be formed in two ways:

• Providing PAMM-investment services by a broker.
• By the investor himself, who has already developed the skill of PAMM-investing.

When forming PAMM-portfolios, experts representing the broker analyze the activity of the most successful PAMM-managers, selecting them and making ready-made PAMM-portfolios on the basis of selection. Depending on the selection criteria, portfolios with different degrees of risk are obtained.

If the majority of PAMM-administrators included in the portfolio adhere to an aggressive trading style, it is natural that such a PAMM-portfolio will have an increased degree of risk. And vice versa, managers with a conservative approach to trading will make a PAMM-portfolio with a low level of risk. Besides, aggressive and conservative managers can be combined within one portfolio. In this case, the profitability and risk level of such PAMM-portfolio will depend on the balance between "aggressors" and "conservatives". It should be noted that such PAMM-portfolios are the most popular among investors.

Revenue principle

The principle of receiving income when using PAMM portfolios is a positive difference between the total profit and total loss of all managers included in the portfolio. That is, if a part of managers finished the reporting period with a loss, the principle of receiving income assumes that the profit received by another part of managers will cover this loss. Hence we can conclude that PAMM-portfolio is a financial instrument with maximally balanced diversification of risks.

Specificity of the currency market implies the existence of PAMM-indexes and PAMM-funds, which are varieties of PAMM-portfolios. The essence of these varieties is the same, but the differences consist in different conditions for investing.

One of the main criteria for effective investment in PAMM is the choice of broker. ForTrader.org magazine offers you real investor feedback about available PAMM-platforms, which will help a novice investor to make an optimal choice, taking advantage of other people's "trial and error". 

With the practical experience of investing in PAMM accounts you can read in this article:
Investing in PAMM accounts in practice: creating a portfolio on 500$