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How forex PAMM Accounts Work.

Started by admin, Jul 29, 2020, 08:52 am

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How forex PAMM Accounts Work.
Interested in trading foreign currency exchange markets but don't have the time or know-how to trade forex? forex PAMM accounts may be a good choice for you. (Related reading: Introduction to Currency Trading)
What is a PAMM account?
Percentage allocation management module, also known as percentage allocation money management or PAMM, is a form of pooled money forex trading. An investor gets to allocate his or her money in desired proportion to the qualified trader(s)/money manager(s) of his or her choice. These traders/managers may manage multiple forex trading accounts using their own capital and such pooled moneys, with an aim to generate profits.
To demonstrate PAMM accounts further, let's look at an example:
The participants in the PAMM Account setup:
forex broker/ forex brokerage firm trader(s)/ money manager(s) investor(s)
The investors (say Peter, Paul, and Phil) are interested in reaping profits from forex trading, but they either don't have time to devote to trading activities or don't have sufficient knowledge to trade forex. Enter the professional money managers (Marcus and Mathew), who have expertise in trading and managing other people's money (like a mutual fund manager), along with their individual trading capital. The forex trading firm signs up Marcus and Mathew as money managers for managing other investors' money. The investors (Peter, Paul and Phil) also signup with Limited Power of Attorney (LPOA). The crux of the signed agreement is that investors agree to take the risk for the forex trades, by giving their capital to their chosen money manager who will use the pooled money to trade forex per his trading style and strategy. It also states how much the money (or percentage) the manager will charge as his take for offering this service.
For simplicity of example, let's assume that all three investors chose Marcus to manage their share of money for forex trading and Marcus charges 10% of the profit. Here is what the share from each investor and the manager's own trading capital in the total pool looks like:
In terms of percentage contribution to the total pooled PAMM fund of $ 15,000, each investor has the following share:
Paul = $4,000 / $15,000 = 26.67% and similarly,