What are PAMM accounts?
A PAMM account is a collective investment formula that offers significant advantages to investors who are less knowledgeable about financial markets or who simply prefer to take advantage of other traders’ experience for profit.
There are three key players in PAMM accounts (also known as PAMM managed accounts):
- PAMM Account Manager: This is an expert trader with years of experience in the market, who creates a trading account, deposits a certain capital and offers to manage all operations based on his knowledge and his own strategies investment.
- Investors: A number of individual investors are associated with the PAMM account created by the manager and deposit the capital they deem appropriate in order to obtain benefits from the operations carried out by the PAMM account manager.
- Broker: The broker is responsible for supervising the operations, reporting the results to investors and distributing the profits proportionally among investors according to the capital they have deposited.
PAMM refers to “Percentage Allocation Management Module” because each investor represents a percentage of the total capital with which the PAMM account manager can perform operations and therefore, the results of such operations will be distributed evenly by the Broker based on that percentage of participation.
As an investor you do not need to have extensive knowledge, or make any trading decisions or make trades for yourself. You simply have to contribute the capital you deem appropriate to one or more PAMM accounts, so you can diversify the risk and take advantage of the knowledge and strategies of other traders with more experience that will perform all operations. Your work as an investor focuses on selecting PAMM accounts that can generate a greater benefit according to your risk profile and decide which capital to use and how to diversify your investments. You can always know the evolution of the results and decide if you want to increase or withdraw your capital.
Depending on each broker there may be certain particular conditions but usually there are usually no restrictions to withdraw money or to contribute more capital because the broker keeps an updated record of each investor and the percentages of participation are adjusted to the capital invested in each moment.
For the manager there are also important advantages as he can focus on the trading operation and invest with a capital much higher than the one that contributes. All the calculations, the ups and downs of investors and the distribution of the results obtained are made by the broker.
Keep in mind that the choice of the manager and the amount of capital to be invested are the most important decisions that you will have to take since the gains or losses obtained by the manager will be evenly distributed among all the investors according to the capital contributed. A good choice of one or more PAMM accounts can give you many more benefits than you could get for yourself with just your capital.
Advantages of PAMM accounts
PAMM accounts or PAMM managed accounts have the following main advantages for investing: