PAMM-system on Forex: the economic behavior of investors

At the moment, interest rates on ruble and foreign currency deposits in banks are inferior to the real one InflationIn other words, depositors, at best, will only be able to save their money. At the same time, investing through trust management in the banking sector is limited by high initial fees. And investments in real estate, in addition to no less high entry threshold, also have certain risks. Against this background, one of the most affordable ways to place free cash for profit are the following instruments of trust management on the FOREX marketwhich includes PAMM system.

PAMM as an alternative to bank deposits

PAMM system (от английского Percent Allocation Management Module — управление процентным соотношением) предназначена для гарантирования договоренного распределения прибыли между Инвестором и Управляющим. Система ПАММ-счетов распространена, в основном, на международном валютном FOREX market. The Broker providing this service is the responsible guarantor of the agreement.

PAMM system — довольно распространена в развитых странах, где уровень финансового регулирования, компетентность управляющих, и доверие инвесторов, значительно выше.

Преследуя цель полностью соответствовать высокому уровню международной компании, RVD Markets Limited регулярно проводит научные исследования, целью которых является выявление и анализ факторов, способствующих оптимизации предоставляемых услуг. В частности — в сфере поведения инвесторов. В последнем изыскании основное внимание было уделено анализу, выявлении основных связей и доминирующих тенденций поведения инвесторов после потери части вложенных средств (просадки). Для этого были рассмотрены результаты работы ряда ПАММ счетов компании с целью описания особенностей экономического поведения инвесторов.

Initial parameters of PAMM study

The problem of human behavior in the economic environment has been traditionally dealt with by economic science. It is centered on the model of economic man, a kind of an agent of an ideal market, acting on the basis of internal rationality. Most modern scientists describe the process of development of economic sciences as an interrelation with psychology, which considers the problems of behavior from its own perspective, which in turn is necessary for a comprehensive and deeper study of models of human economic behavior.

Studying the peculiarities of investors' economic behavior is the key to understanding the events taking place in the financial markets. After all, the incentives for certain actions are formed under the influence of a complex of external and internal factors, such as personal physiological and psychological needs, knowledge, experience acquired in the past, the influence of socio-economic conditions, which are determinants of human behavior in the modern socio-economic environment.

Within the framework of the research experts were also interested in the peculiarities of such factor as drawdown and behavioral characteristics of investors in the situation of its occurrence.

Drawdown (DrawDown) — это потери или убытки по депозиту, открытому для ведения торговой деятельности на биржах. Чаще всего величину просадки оценивают в процентах от начальной или максимально достигнутой суммы – 100% просадка — это полная потеря денежных средств на счете.

We will understand under drawdown the partial loss of funds by investors in a PAMM account. 149 people participated in it. Gender distribution of the sample: 64% men (94 people) 36% women (54 people). Socio-economic characteristics such as age, gender, current balance, and investor behavior after drawdown (contract renewal, partial withdrawal and full withdrawal) were also taken into account.

The subjects were distributed according to their current balance at the time of drawdown (see Figure 1)

Investors' actions after the drawdown are shown in Figure 2.

The diagram shows that the majority of investors (126 people) renewed the contract, thus continuing their participation in PAMM account despite the drawdown.

Psychological component of investing

Gender of the investor

In order to identify socio-psychological factors determining investors' behavior as a result of drawdown, the statistical method of classification tree was used (see Fig. 3). Initially, age, gender, current balance, and investor behavior after drawdown were considered as factors. As a result of the calculation, it was found that the significant factor is floor.

According to the classification tree, female investors made prolongation of the contract after drawdown in number of 51 persons, which is 94.4% of the total number of women in PAMM account. In comparison with men, who have prolonged the contract in the number of 75 people, which is 79.8% of the total number of men, we can say that women are more predisposed to continue working, as well as their desire for long-term cooperation, despite the risk of losses. This is also evidenced by the data on partial withdrawal, which is completely absent in women and 5.3% in men (5 out of 94).

Current balance and age of the investor

In addition, statistical processing of such indicators as current balance and age of investors. Так как распределение количественной переменной текущий баланс значимо отличается от нормального закона, для выявления взаимосвязи между возрастом и текущим балансом был вычислен коэффициент ранговой корреляции Спирмена rs = — 0,253; p = 0,002. Отрицательный коэффициент корреляции указывает, что чем моложе инвестор, тем выше сумма депозита.

In this regard, we can conclude that the economic behavior of investors largely depends on age. Thus, young people choose a more risky style of behavior, hoping for a higher income, we can say that they have a stronger manifestation of such a character trait as a propensity to risk.

Risk appetite can be described as a psychological property of a personality, which causes preferential reactions of a person in activity and behavior. It is a tendency to act randomly in the hope of a happy outcome, to act under conditions of uncertainty or possible danger. Subjects characterized by a high propensity to risk, prefer a dangerous variant of action to a safe one. At the same time, risk appetite expresses a person's willingness to choose situations of uncertainty, thereby exposing themselves to danger and experiencing thrills.

In turn, more mature Investors prefer a steady incomeand are more conservative in this regard, favoring lower risks.

It can also be added that if a young investor can still recover lost deposits, then for an elderly investor, such an opportunity may no longer exist, and the loss of capital can be a heavy blow.

Summing up the research conducted by RVD MarketsLimited, it is possible to allocate a number of important moments in the organization of work of PAMM-accounts.

• First of all, it is necessary to take into account the gender and age characteristics of investors. The results show that women are more predisposed to long-term investment, where there is an element of risk in the form of partial loss of funds.
• It is worth noting the age characteristics of young investors, as they have shown themselves to be more risk averse. These results are relevant both for investors themselves and for investment services companies and will help the latter to improve their performance.

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$