Partner Article

Reasons for Trading through PAMM Accounts

The term ‘PAMM Account’ might not sound familiar to most. It can be said that PAMM is a way to trade. It so happens, that a forex trader opens an account with a certain amount of initial trade capital (popularly known, in this case, as manager’s capital) and works it in the market. When the account starts to become profitable in its performance, he invites investment for that account from other people who are interested to rake in profits in the FX market. Conditions and promises are attached to the advertisement - for e.g., regarding the provisions of dividend division between manager and participants. The management of the account is done mainly through or by the manager, on behalf of the manager and the investors.

In response, the investors decide to place their money in particular accounts, and the profits or losses are ultimately shared out at the end of each trading period between the manager and all the other investors. Here the forex broker acts as the administrator of the distributor of funds, acting both as a regulator and a type of escrow.

The Advantages of PAMM Accounts

For Managers:

In case of successful traders, the advantages of PAMM accounts don’t require a separate mention. The account provides them with the opportunity to act as an account manager, who rakes profits not only off their own money but also off of the trades they execute on behalf of all their investors. They also enjoy the rights to set their own conditions since they are given a certain degree of control over the conditions of trade, e.g., how the profits are distributed and the duration of the trading period. And since the funds are distributed in an automatic manner, this also prevents any risk for the account manager that might arise from any fraud committed on behalf of any investor. Fraud is something that strips people of all trust in mankind and makes them jittery of placing their faith where trading is concerned. So it’s very important that measures be taken to maintain some amount of ethics in all kinds of trade. And a PAMM account’s rules are designed to conform to those fraud-preventive standards.

For Investors: Contributing to a PAMM account has multiple advantages for an investor as well. Firstly, they benefit a lot from the trading expertise of veteran, successful managers. Secondly, they are able to withdraw from the PAMM at any time they wish, if they are dissatisfied with the performance of the account manager. On the third point, they are able to diversify their investments across multiple PAMMs, which reduce risk by a huge portion. Hence, a PAMM account can act as a good tool for hedging and portfolio diversification purposes (much in the manner of exercising the vanilla option). And finally, it also enables them to be protected from fraud because of the automatic funds distribution mechanism. As the system is automated, no human would be able to tamper with it without being discovered; and hence, the funds would be dispensed to the rightful recipients.

So, all the advantages of trading in PAMM are outlined above. It’s quite easy to see why this concept attracts so many to it.

This was posted in Bdaily's Members' News section by Jack Smith .