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How to invest in the PAMM and what do you need to know about these accounts?
A competent combination of efforts of several businessmen on the way to a common goal can significantly increase their profits. Forex is not an exception. To make the best use of your resources, it is sometimes enough to open a PAMM-account and attract investors. However, it should be remembered that in this case common profits will be not only profits, but also losses. Joint investing on the Forex exchange has its risks and advantages, which you should know about before choosing a PAMM.
What is PAMM
The PAMM-account is a kind of managed account on the Forex. The essence of his work is that he is replenished by several investors. After the conclusion of transactions by a trader, the profit or loss from them is divided proportionally to the size of the deposits. The abbreviation "PAMM" stands for the term Percent Allocation Management Module.
Attachments in the PAMM
A great temptation may be to invest in PAMM-accounts of young traders. In an effort to create a reputation for themselves and attract as many investors as possible, they play more aggressively. New PAMM-accounts can make profit in the first month of their existence in 500% or more. However, this is the so-called PAMM-account promotion period, which has great risks.
An inexperienced PAMM-manager can have several accounts and some of them can be abandoned, trying to squeeze out fabulous profits from some one, in his opinion, promising. If this is your account, you're in luck. If not, you can incur losses and waste time. In this regard, it is reasonable to split your funds into several parts and invest in different PAMM-accounts.
It's best if their managers choose different trading strategies - then you can compare what you like. When using several PAMMs, Forex provides the opportunity to use the PAMM-index, which will give you an understanding of the overall return on your investments.
Before investing in the PAMM, think about how much you need a period of big risks. After the newly created account is untwisted, the profit from it will be as smooth as on older PAMM-accounts. At the peak of the return on the account, it is better not to make investments, because soon the recession will inevitably begin. You can choose a recently opened PAMM, but it is better to inquire about the reputation and experience of the trader. It is useful to analyze the rating of PAMM-accounts.
PAMM-investment helps to unite the efforts of several investors in order to obtain greater profits. If a trader usually receives $ 100 of profit with an initial capital of $ 1,000, the 10% can be a good argument to convince investors X, Y and Z to invest in the PAMM.
Suppose, as a result, the PAMM-account contains $ 10,000 due to the following investments:
Trader - $ 1,000;
X - $ 6,000;
Y is $ 2,000;
Z is $ 1,000.
When the promised 10% profit is received, its size will be $ 1000. According to the invested funds, the distribution of this profit should be as follows:
The trader is $ 100.
X - $ 600;
Y is $ 200;
Z - $ 100;
However, in the process of profit making, not only money was involved, but also the work of the trader, which must be paid in accordance with the offer contract. A conventional offer contract provides compensation to the trader, say, at a rate of 50% of the profit that the PAMM-investor receives.
Thus, attracting investors X, Y and Z will allow him to get a total of:
The usual profit according to the invested funds is $ 100;
50% of profit X - $ 300;
50% of the profit Y - $ 200;
50% of the profit Z - $ 50;
Total - $ 550.
Also, in the offer contract, a specific trading period is prescribed, following which the profit is calculated and the remuneration is calculated. For a trader, the benefit is that his labor is paid from the money of investors depending on the profitability of operations. For investors, the benefit is that they only need to provide their own capital and wait for profits - all the work is done by the trader. The whole question is the correct choice of the trader, since losses are also possible.
How to choose a PAMM
Investing in the PAMM-account is better done taking into account the following aspects:
You have found an efficient trader with extensive experience and reasonable drawdowns on the accounts. If your deposit is used up by half, and if there is no profit, then it can negate all the benefits of transferring the work to the trader. You will be constantly nervous and thinking about how to resolve the situation. Drawdowns should not be more than 30%, and from them a trader should be able to go out in a week or two.
Data on the status of the PAMM-account is provided automatically in the form of a schedule - the dealing center where it was opened. Thus, the possibility of the trader's dishonesty regarding the data provided is excluded.
You will have all the data on the loading of the deposit - that is, about what percentage of your money is used in transactions. This is an indicator of the aggressiveness of trade. The greater the percentage used, the greater the possible profit, but the greater the risk. Regardless of which trading strategy you like, you should be aware of what is happening.
There should be an opportunity to invest in the PAMM a small amount, estimated at tens of dollars. If you have not previously invested in the PAMM, try to get acquainted with this mechanism by investing less.
The PAMM service should include a mechanism for limiting losses - then the investor can set a critical level at which trade for him will be automatically discontinued and funds withdrawn.
Investing should not be bypassing the systems that PAMM-brokers provide. Offer this can only an unconscientious trader. The PAMM-system is a guarantee that the money will be under the control of the broker, and the trader will not disappear with them. That's why you should start by choosing a reliable broker with a good reputation.
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