PAMM investments: where do investors start?
So, you have free funds for investment or the profitability of independent trading has ceased to suit you, and you decided to take advantage of the results of managing traders, investing in a PAMM account on . PAMM investments are a great solution, because the profitability of trust management can significantly exceed the interest from passive investments (for example, from a deposit in the bank) and give even more than 100% per annum, however, do not forget that the higher the income, the higher the risks.
Making a decision about investing in PAMM
Everything related to trading and speculation requires a considered and serious approach, because high profits can often turn into losses. No investor or manager is immune to this. Thinking about PAMM investments, it is important to understand all the nuances of working with this toolincluding knowing how to work PAMM accountsHow to choose the right manager and PAMM-platform, what trading parameters to pay attention to before and after the investment, and so on. All this will help you to be more confident in your decision when investing money. With this article ForTrader.org magazine begins a series of lectures on PAMM accounts, which will disclose all the necessary initial knowledge about this type of investment.
For those who do not understand what we are talking about, let us explain in a few words. PAMM-account comes from the English Percent Allocation Management Module, PAMM - percentage allocation management module. That is the type of account at the broker, which, with the help of a specially developed algorithm, simplifies the process of transferring the investment to the manager for transactions in the financial markets. Let's break down this process of working of the PAMM-accounts.
Algorithm of PAMM investments
For the investor PAMM-service looks simple enough:
- PAMM-platform. A sufficiently large number of brokers have PAMM serviceswhich provide a technical opportunity for the existence of investment accounts. As a rule, such services from the investor's side are designed as a list of managing traders with the parameters of their work, offering their services for trust management. The platform acts as a technical intermediary of these services, for which it takes (or does not take) a percentage of profit.
- PAMM account and manager's deposit. Then there is a managing trader, confident in his trading talents, who opens a PAMM-account. On it he initially places his own funds, on which later he will trade, taking his position in the rating of managers. The bigger the deposit, the more confident the trader in his abilities. The manager can open several PAMM-accounts simultaneously.
- Offer. In addition to the account, he creates an offer, in which he prescribes the conditions for the investment of future clients. Depending on the PAMM-platform, i.e. on the broker, where the account is placed, the offer includes: the minimum investment amount, the percentage of profit distribution between the investor and the manager, the approximate profitability of the strategy and its rules, recommendations from the manager, the maximum strategy drawdown, loss fixation levels, etc.
- Investments. After a PAMM Account has appeared in the rating, investors have the opportunity to connect to it. For this purpose opens and replenishes the account in the same company where there is a PAMM, and in a personal cabinet or through the rating of accounts the investor clicks the button "Invest" opposite to the PAMM interesting him. Depending on the broker and the site, the process is somewhat different, but eventually all or part of the funds in the investor's account goes under trust management.
- It must be said that technically the funds do not go anywherethey continue to be on the investor's account. However, all transactions of the manager by lot, calculated as a proportion of the investor's investment amount to the total amount of funds in the account, are copied to the invested amount. The manager sees his account replenished for all amounts invested, so he can increase the volume of transactions.
- Trading. Most often, only new open trades appear on the investor's account. This is important to understand when connecting to the account. If the strategy trader involves the use of lots or protective positions, it is better to wait for the completion of the current transaction cycle.
- Yield statistics. Further, after the connection of the account to the PAMM, the investor observes the trading process in his personal cabinet. Almost always he has access to all the statistics of the manager, but there are cases when the trader deliberately for his own reasons closes all open or all transactions from viewing.
- Profit and loss. Profits and losses are distributed between the trader and investors automatically, most often once a day at a time called rollover. Losses are allocated in proportion to investments, profits - according to the offer.
- Quit PAMM. To suspend investment and disconnect funds from the management of PAMM-account investor can most often at any time, but there are options and daily delay to the moment of rollover and even a week. In this case, all companies have different process and accrual of funds. It is important to carefully study the regulations of the PAMM-platform in relation to the withdrawal of funds, so as not to be surprised later.
To summarize the above structure, in a nutshell, it sounds like this: You give your money for management to a trader under the control of a PAMM-platform, and for the services rendered you pay a portion of the profits.
As we can see, PAMM investments - is a fairly simple thing to do. Every investor, even those with no experience in trading, can do it in a matter of minutes. However, for profitable investments, this is not enough, and answering the question in the title of the article, the magazine ForTrader.org recommends beginner investors to better understand the specifics of PAMM accounts before connecting to the manager. In the next articles of the series we will continue to talk about the principles of work with PAMM-accounts and consider their advantages and disadvantages.