PAMM Forex Managed Accounts Service
PAMM stands for Percentage Allocation Money Management (PAMM). PAMM is the new way of managing several traders' funds out of a single account, with the trading and management of the account done by a skilled trader.
The whole essence of PAMM is:
a) Assist those who do not have the time or know-how to trade to make profits from the forex market.
b) Use the the collective financial muscle of many to achieve what would naturally be unachievable by one person.
So the PAMM account has advantages for the contributors to the accounts as well as the account manager.
How the PAMM Account Works
Under the PAMM account arrangement, the account is setup by the account manager/trader with an initial seed capital known as the Manager's Capital. The account manager is not allowed to deplete this capital under the rules guiding the operations of a PAMM account. The account manager now trades the account for a period of three months, or for a period that shows would-be investors that a measure of consistency over time exists and that trade results are not just one-off results.
Once a trading history has been established, the account manager can then call for investors to contribute to the PAMM account, using any method of advertising that will draw the clients to the service.
Once two or three investors have come in (they should not too many), the equity contribution of each investor, including the account manager, is determined on a percentage basis. At the end of the trading cycle agreed on by the contributors to the PAMM account, any profits made are split among the contributors to the accounts. However, the investors would have to split their profits with the account manager as compensation for his/her services.
Rules Regarding PAMM Accounts
The following rules govern the operation of PAMM accounts and they have been created to protect the integrity of the managed account service.
a) The account manager is expected to provide the initial seed capital for the commencement of the PAMM account. This is to ensure that he has absolute commitment to the account and carries out a responsible management of the account.
b) The account manager is not expected to withdraw from his Manager's Capital. He can however withdraw any traded profits.
c) Profits are expected to be shared only when the trading cycle has been completed, and these are shared according to each trader's equity.
d) The PAMM account manager is required to be transparent at all times.
e) In some jurisdictions, PAMM account managers require some form of licensing.
Example of the PAMM Account Setup Process
In this example, we use a trader named Simon, and three investors named Sam, Zahir and Jade to represent investors who have come into the PAMM account as a result of their confidence in the ability of Simon to produce profits for them using his trading prowess as shown by the initial results.
Simon starts the PAMM account with $5,000 in Manager's Capital, and at the end of three months, has grown the account by 50% to $7,500. Impressed by his results, the three investors bring in $5,000 each. The account equity will stand at $20,000, as the profits brought in by Simon initially are discounted (since he is allowed to withdraw this amount).
After the trading cycle, the account has been grown by 40% to $28,000. The profit from this trade activity is $8,000, which is shared among the four investors, including Simon. Each investor will get 25% of the profits or $2,000 each. For his services, Simon charges all traders 30% of their profits. So at the end of the day, Simon will walk away with an additional $1,800 ($600 per trader in payments), making a total earning of $3,800. The other three investors will walk away with $1,400 each.
This arrangement works out well for everyone because Simon makes extra money for his pains, and the three investors can afford to sit back and watch their money grow without lifting a finger.
This is the benefit of a PAMM account. So instead of subscribing to just any account management service where you have very little commitment from the service provider, put your money in a PAMM account lodged with a reputable broker instead.