Understanding the PAMM Account in Forex Trading
PAMM is an abbreviation used for Percent allocation management module or simply percent allocation money management. A PAMM account in the forex market is primarily used by forex brokers to enable their clients to link money to a particular forex trader, who manages one or more accounts. In simple words, a PAMM account is a forex trading platform that supervises a large number of managed accounts in forex trade. When a trading option is created by a forex trader, the PAMM account platform replicates the trades of the forex trader and then distributes an unlimited quantity of managed accounts based on the allotted percentage.
A PAMM account in forex allows money to be put to use while simultaneously dividing the risk of a trader across various other investors. Forex traders in a PAMM account are known as fund managers and the investors are known as followers as they are following the trading strategy laid down by the PAMM manager.
There Are Usually Three Factors Involved in Using the PAMM Account
- The broker of the trading company who owns the PAMM account platform.
- A fund manager in charge of the allocation of funds to trades.
- An investor who distributes his funds to the trader, hoping to gain profits from the trader’s trading activity.
Benefits of Using a PAMM Account in Forex
- There is no set limit on the number of clients who wish to join a PAMM account platform as multiple accounts can be managed on this platform at once.
- Investing funds in the PAMM account is very easy as a trader only needs to deposit the preferred capital in his account once and then distribute it across other PAMM managers.
- The PAMM account is very secure to use as any unwanted action taken by the PAMM manager will also jeopardize his own capital. It ensures the traders that the fund manager is doing his job accurately.
Disadvantages Associated With a PAMM Account
- Investors are at a risk of suffering losses if the broker does not allow the PAMM account manager to set a maximum loss limit.
- The PAMM account system is closed in nature, therefore, it usually becomes impossible for the investors to study the trading strategies of the PAMM manager.
Understanding a MAM Account
MAM is an abbreviation for Multi account management in forex trades. In a MAM trading system, experienced investors manage and handle a number of trading accounts. A MAM account allows the traders to place their funds with experienced and professional investors who trade on their behalf. In a MAM account system, the fund managers have complete access to the accounts of the investors without needing permissions to log in or withdraw funds. The investor’s accounts are switched to read-only modes in order to avoid tampering with the trading strategy. Every trading strategy planned by the fund manager in a MAM account system is duplicated across the pool of funds from various traders depending on the preference and the level of risk decided by the trading manager.
Benefits of Using a MAM Account System
- The MAM system allows the management of multiple accounts in one single click
- A MAM Account system enables a trader to manage and handle multiple types of fund allocations including lot, balance, percentage and equity.
- A MAM account allows trade sizes starting from as low as 0.01 lots. This is very beneficial for novice traders who have just started their trading journey or are less familiar with it.
- There are hardly any limitations on the number of deposit quantities and the number of trading accounts in a MAM trading account system.
Disadvantages of Using a MAM Account
- Novice traders let experts and professional traders manage their funds on their behalf which in return shortens their learning capacity as they completely depend on the manager of the trading strategies.
- There are certain rules and regulations that follow the functioning of a MAM account, once a trader places the funds into a managed account, it becomes very difficult to access their funds and even make early withdrawals.
- Some percentage of penalty needs to be paid by the trader who wishes to make early withdrawals.
- A percentage fee is also deducted from the profits made by the managers trading strategies.
Understanding Social Trading
Social trading refers to a form of investment activity that enables traders to observe the trading strategies and trading behaviors of other experienced traders. The main objective of social trading is to follow the investment ideas and strategies put forward by other professionals using copy trading or mirror trading techniques. The technique of social trading requires little or no knowledge of the workings of the forex market. By copying the trading strategies of experienced traders, a novice trader or other professionals can gain an insight to a taken decision and as to why it was initiated in the first place. Social trading techniques are a great way to learn from well known and successful traders which in return helps in the maximization of profits and minimize losses to a great extent.
Benefits of Social Trading
- Social trading provides a platform for the less experienced traders to gain an insight to the expert strategies of other professionals which reduces the burden of researching and going through hefty market data for information.
- Social trading enables an individual investor to learn from the achievements and mistakes of other experienced traders. This enables them to strategize accordingly.
- Social trading techniques make it easier for novice and less experienced traders to earn even when they are still learning.
- The flow of information has no boundaries when it comes to social trading as an individual trader can access and learn from any professional, anywhere in the world.
Disadvantages of Social Trading
- The biggest disadvantage of social trading is that a trader is copying the strategies of others which might not always prove to be beneficial as not all experienced traders can always be certain and right about their trading decisions.
- Social trading techniques also hamper growth of a trader as an individual trader will always copy the strategies and not focus on learning and applying their own knowledge.
There are a number of methods and strategies that can be used for a better trade approach and management of risks. Choosing the right type of account will benefit a trader in reducing the probability of potential losses and ensure profit magnification.
PAMM and MAM account systems are almost similar in approach but still their minute differences make them very contrasting from one another. Both of these systems have a portfolio manager operating on behalf of fellow traders who allocate funds across various managed accounts. However, in a PAMM account system a trader does not have to pay any fee or percentage of derived profits as compared to a MAM account system.
Also a PAMM account system in forex trade enables a trading to earn profits from the very first day that does not happen in the case of a MAM account. A PAMM account system is more closed in nature which makes it difficult for traders to read a manager’s trading strategies accurately, this does not happen in case of a MAM account system as traders have access to trading information.
Social trading also differs from PAMM and MAM account systems in a lot of ways. In social trading a trader only copies the trade strategies laid down by expert traders and does not require a manager to manage the account for his trading activity. Social trading strategies are more flexible in nature as the trader has complete access to his funds. Most expert traders do not charge any fee for letting other traders copy their strategies and even when they do it is a very nominal amount.
The final decision to choose the trading strategy completely depends on the trader. While it is essential to choose a proper trading strategy it is also important for a trader to figure out his own motives and expectations from a particular trade. Choosing a reliable investment platform with advanced features and technology will ensure the success and continuity of desired trading processes.
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