Important Note: Forex Pamm is not currently offered at Trading Point.
The Percent Allocation Management widely known as Forex PAMM across the online trading community is a forex managed account method supported by a specific software which has become popular amongst the online trading community. The actual forex PAMM method is widely known to be used at MT4 brokers although it is used also by brokers which may use in house developed or other platforms besides the MT4.
It is well mentioned that Forex PAMM is commonly confused by traders to be specifically an actual software program where in reality it is a managed account enabling process which is supported by a software program and not a software program itself.
The PAMM accounts solution allows the trader on one trading platform to manage simultaneously unlimited quantity of managed accounts which occur a profit or a loss depending on the ratio of the volume of funds allocated in the actual managed account against the actual volume of the master account and the trades it performs.
In order to understand forex PAMM you should first of all understand that using PAMM means that in reality we need a master trader which substantially manages the master account and 2 we need one or more traders which will assign their trading accounts to the master user to handle their accounts for them.
Better said account holders using PAMM will agree that their accounts and the predefined amount of funds in their account will trade in the markets in the same pattern with the actual master account which a Forex PAMM user will assign as his manager or “benchmark”.
A manager, master account holder or even better master trader are assigned as money managers through a limited power of attorney in which the “managed account holder” assigns the master holder to trade his account through PAMM.
In order for you to understand the usage of forex PAMM you can visualize a scenario in which the master trader engages in a trade and all the accounts managed from the actual master follow the same trades all with one click.
Even more simple said the manager will not trade each account separately but will make one trading decision which will affect all following account at once and will allocate profits or losses to each account based on the funds traded in each trade execution.
Through forex PAMM managed account holders have the opportunity to monitor their account and moreover monitor trades executed by the master account holder which in reality affect interconnected accounts in real time. In this way the managed account holder may wish to interrupt the continuation of the agreement by revoking the power of attorney granted to the master trader at any given time.
Trader’s activity results (trades, profit and loss) are allocated between managed accounts according to the ratio as explained above. In this example we will assume that there are 3 managed accounts under one trader’s management:
Depending on funded volumes various ratios apply for managed account (for calculation of ratio amounts are converted in USD equivalent based on market rate).
Example: If the trader/money manager takes the decision to buy 10 units of EURUSD, PAMM will be in charge of allocating the order between managed accounts according to its actual ratio. Each and every managed account which is handled by the manager will occur its own part of position and will correspond to its portion of profit & loss.
In a current example the first managed account will get position LONG 930.000 EUR/USD, the second – LONG 4.950.000 EUR/USD and the third – LONG 4.120.000 EUR/USD. Resulting profit & loss will be automatically calculated for each account depending on market prices.
In difference to funds or pooled investments Forex PAMM allows investors (managed account holders) to withdraw at any time and therefore capitalize on their gains or minimize their losses which have occurred from the trading decisions of the Master account holder which their accounts follow.
To better understand this you should first understand that in a pooled investment or collective investment when you invest money you are in reality buying a percentage of the actual entity (company) making the investment or trading decisions therefore meaning you are buying your share or cut of the pie of his gains or his losses which evolve from his decisions.
However you should understand that a pooled investment might be simultaneously diversifying in multiple markets which may include buying bonds, shares, property or opening positions in the forex market therefore meaning that your actual assessment of profit or loss is not something that can be calculated on the spot.
Unlike the forex market, stock markets, real estate markets or bond markets or any other market in which the actual pooled investment is poring money in cannot have the ability to compete the dynamic character of the foreign exchange marketplace where more than $3 trillion is traded over the counter day by day; therefore meaning that in most cases as an investor or a shareholder of a pooled investment you will not be permitted to withdraw your share at any given time as bonds, property or stocks cannot be transferred to raw cash on the spot.