Before we can dive into how and why PAMM Accounts are advantageous to all involved, it is important to understand the fundamentals of how this system works. With that said, the day to day operation of such accounts involves three participants: the investor (or individual client), the trader (also known as Money Manager or PAMM Manager), and the actual brokerage firm that facilitates the trades (in this case LegacyFX.
What is a PAMM Account?
PAMM stands for Percentage Allocation Management Module. The managers who control PAMM accounts are experienced traders who have a long-standing track record in the online trading arena.
Similar to traditional mutual funds, an investor’s money in a PAMM Account will be merged together with other investors. This conglomeration of funds enables a money manager to buy and sell an extensive volume of assets, which increases the profitability of the account overall. However, one must note that the key difference between traditional mutual funds and PAMM Accounts is that the former typically involves a long-term buy and hold strategy.
Ultimately, investors are entitled to their share of the proceeds following any payment of fees for services endured.
The investor is an individual who deposits funds into the PAMM account for the purpose of garnering a profit passively.
Investors allocate their funds to an experienced trader, known as a Money Manager or PAMM Manager. Said trader is tasked with buying and selling financial instruments with the goal of garnering long-term profits for everyone involved, based on the funds deposited by multiple investors into the accounts that they control.
The Brokerage Firm
Online brokerage firms, like LegacyFX, provide money managers with PAMM trading services. This boils down to the actual trading platform and tools needed to perform the buy and sell options on forex, commodity, index, and stock trades.
So How are PAMM Accounts Beneficial?
PAMM accounts useful to those who have either little to no experience in trading or those who simply do not have the time to trade. This is because the money manager who controls the PAMM account, buys and sells assets on the investor’s behalf, allowing the investor to “actively trade” without lifting a finger.
Additionally, these accounts allow for greater transparency as many managers publish their results and ratings openly which investors can independently verify. This gives individual investors the ability to effectively choose which managers they wish to partner with based on their performance and conditions, allowing for greater personalization of their investments.
Finally, reputable brokerage firms will require that all parties involved sign some sort of contract or agreements. Such agreements seek to protect the investor’s capital with the manager, by limiting the types of actions the manager can take with the funds deposited into the PAMM accounts. Additionally, such agreements are phrased in a way to specifically define what the brokerage firm is offering in terms of their PAMM account system and services. Most importantly, such agreements usually stipulate that each investor takes full responsibility for any losses incurred.