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Risk Warning: Your capital is at risk. Statistically, only 11-25% of traders gain profit when trading Forex and CFDs. The remaining 74-89% of customers lose their investment. Invest in capital that is willing to expose such risks.

What is PAMM Account in Forex?

Author: Patrick Dresdner
Patrick Dresdner
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PAMM Account in Forex is one of the types of asset management in the financial markets, which is ideal for those who wish to get passive income from trading. Professional chief traders who are trading on the financial markets, can help to multiply your fortune by managing investment funds.

The principle of the PAMM-accounts as follows:

  • The trader has his own funds on the PAMM-account.
  • Investor adds funds from his account to the account of the chief trader.
  • A trader does not have access to the investor funds and he has only the right to trade in the forex market.
  • When trading on the PAMM-account there is proportional attraction of funds from all accounts, and thus proportional to the distribution of profits. For example, if your account balance is $ 5,000, of which $ 1,000 is individual trader funds, and the rest - 2 investment accounts are $ 2,000. Let's say a trader enters into a transaction  of 0.1 lot. In this case, the volume of transactions for the investment accounts will be 0.2 lots for each. Therefore, when receiving a total profit of $ 100, the proportional distribution will be: $ 20 - the trader profit and $ 40 for each of the investors.

Trust services are not free of course. Various PAMM accounts may involve a commission of 25-40% of the profit, which is fair enough, taking into consideration that the trader's work is very difficult and stressful. To make the right choice, user should visit the section «Compare Forex brokers» and choose a broker based on your own criteria.

Based on the example above, where each investor received $ 40, we can assume that the trader commission income is 25%. Therefore, from each investor trader will receive $ 10 commission (25% of $ 40), and the investors will receive $ 30 as net profit.

PAMM Forex usually offered either by PAMM Forex brokers, traders or private control. In the case of investment in accounts, one should be prepared for a greater amount of investment, rather than by investing in the private control of the trader. However, it should be understood that the investment sites with PAMM Forex brokers are more reliable than cooperation with the private trader, as in the case of a dispute, the investor can get a qualified answer. Furthermore, the reliability of trust management directly depends on the reliability of the broker. Therefore, you should carefully choose Forex broker to cooperate, after analyzing all the conditions and read the section «How to choose a Forex Broker?».

Cooperation with the private manager trader has both its pros and cons. The key point is to understand that in most cases you invest money in a stranger, and all of the risks borne by you. In fact, there is no guarantee that even when drawing up the contract between the trader and the investor will not be a fraud or banal loss of deposit as a result of failed trading. This is why most PAMM account investors use this system for hedging instead of investing all their capital in it, or for an amateur trader who hasn't still mastered a trading strategy.

The main task of the investor is to dispose his investment funds properly. To do this, listen to the following guidelines on selecting a PAMM account.

  • Do not rely on traders who offer tremendous profits in their PAMM-accounts. If you see in the description of the account the profitability of 50-100% per month, then remember that the normal profitability on the forex is the result about 5-15% per month. Inflated profitability may indicate too aggressive trader's trading, increasing trading risks. It is also possible that the trader has multiple accounts or account exists  not more than a few months. To make the right choice you should use the information from the section «Best banks offering Forex trading». Here you can find the list of banks which offer Forex trading.
  • You should choose the oldest PAMM-account. Typically, in a specified account his age in days. The older an investment account, the more statistics you can collect on the trader's trade. For example, the maximum drawdown of the deposit shall not exceed 30%. This evidence suggests that the trader is able to operate in difficult market conditions and align the deposit even after the loss-making period.
  • Before you invest in the PAMM-account you should be familiar with the strategy of managing trader. If you are interested in getting a quick high profits at huge risk, then you will approach with an aggressive trader, as a rule, short-term strategy. Often these traders used the strategy of "martingale", which, though able to bring big profits, but carries a risk of rapid loss of the entire deposit. Conversely, if you do not chase for great profit and are willing to lower profitability at moderate risks, then a trader with long-term strategy will be efficient for you.
  • It is desirable to establish personal contact with the managing trader and discuss all the details of the investment. Choose the trader the same as the employee. The level of risk and other trading conditions should be clearly identified and specified before the start of investing in the PAMM-account.
  • Keep in mind that trader must not have access to your private data, such as password for access to funds. Never provide traders with information that can benefit fraudsters to display your funds. The section  «Most popular Forex ECN brokers» will help you choose the right broker.

Alright, what have we learned so far:

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Risk Warning: Your capital is at risk. Statistically, only 11-25% of traders gain profit when trading Forex and CFDs. The remaining 74-89% of customers lose their investment. Invest in capital that is willing to expose such risks.