How it works. The term PAMM (percentage distribution module) was introduced several years ago by one of the leading brokers who were able to technically organize a trading investment system. And now this name is used for PAMM accounts everywhere.
PAMM-account is an investment service that allows an investor to transfer money to a managing trader, earning on passive investment. The principle of operation of the PAMM account is as follows:
- The manager opens an appropriate account (if the service is provided by the broker) and invests some amount of his money. To attract investors, in any case, he will need to show some sort of trading history, therefore investing his money to the managers is mandatory.
- The investor reviews the performance of managers and makes a decision on investing. Each has its own evaluation criteria: someone is attracted by stable equity (deposit curve), someone with moderate risk statistics, someone, on the contrary, big and fast profits. You can distribute your money among several managers. Technically, money is not transferred to the manager’s account, the investor “connects” to his account, opening up access to his money.
- The manager conducts trade, the profit is distributed between the manager and investors in accordance with the amount of money contributed.
Investment conditions are established by the manager and are recorded in the offer. The main points of the offer: the minimum investment amount, the trading period, the terms of the manager’s remuneration, the penalty (penalty) for early termination of the offer (if provided), the manager’s responsibility, the frequency of reporting to the investor. With regard to forfeit, there are many nuances. Despite the fact that it is not so easy to instantly withdraw money from a PAMM account, there is no penalty for early withdrawal. More details should be clarified with a broker.
From theory to practice. Technically, there’s nothing complicated: you need to open an account with a broker who offers PAMM-accounts service, select traders, after reading the offer, and press the treasured button “Invest”. And then follow the movement of the accounts and actions of the trader. Well, if the possibility of early withdrawal of money is provided.
Profit-sharing is as follows. Suppose that a trader received $1,000 in management. The United States also earned 10% in a month, that is, $100. The USA. The offer provides for the commission of the managing trader of 35%, therefore, the earnings of the investor who invested 1000 dollars. will be 65% or 65 dollars.
Pros. Not all traders have the time or desire for individual trading. Many brokers position PAMM accounts as passive earnings for those who do not understand deeply in trading. I do not agree with this, because without knowing it is impossible to evaluate the manager’s strategy and risks. Therefore, the only plus is the opportunity to earn money, essentially doing nothing. For a PAMM-account manager, it is an opportunity to work with big capital, earning a commission.
- In case of loss, the managing trader is not responsible. Understanding that he will not be anything for the loss of other people’s money, he may be less responsible for trading.
- The risk of fraud remains. For example, a trading story will turn out to be fake (an investor password does not always save) or even the rating of managers is “fake”. There are many such stories.
- There are problems with the early withdrawal of investments.
The model of PAMM accounts is criticized precisely because it has overgrown with many fraudsters, while brokers do not take any actions to check the adequacy of managers, so the cup of my personal passions is inclined to the service of copying transactions, which I described above.