PAMM means “Percentage Allocation Management Module”.

Specifically, the manager conducts trades using the total amount of both “own funds” and “funds collected from investors.” The trading profits and losses are then allocated according to the percentage (ratio) of the investment amount.

There are several Forex brokers offering the PAMM platform.

For more information, please refer to the article “PAMM Forex Brokers List and Reviews”.

It is possible to select and invest in PAMM managers (traders) with good performance and earn profits.

Advantages and disadvantages of PAMM

The advantages and disadvantages of investing in PAMM are as follows.

For people who are unable to trade manually or who don’t have the time to trade, automatic trading using an EA is often the first choice.

PAMM is superior to EA (Expert Advisor) and copy trading in terms of setup and operating costs.

For more information, please refer to the article “EA and PAMM Comparison“.

The problem with automatic trading and copy trading is that you need to sign up for a VPS as the operating environment and make various settings on a remotely connected computer.

There are few EAs that can recover the fixed costs of VPS.

On the other hand, with PAMM, such fixed costs are not necessary.

Detailed mechanism of PAMM

A simplified example is shown below.

The total balance of the PAMM account is 100,000 USD, and the details of the investors in the balance are as follows.

PAMM accounts usually have a fixed trading period of about 1 to 2 weeks.
After the trading period ends, the profits and losses during that period will be distributed according to the ratio of the invested amount.

For example, if the entire PAMM account makes a profit of 2000 USD in a certain trading period,
The profit of 2000 USD will be distributed as follows.

If a trade results in a loss, the loss amount will be distributed to the manager and investors according to their investment ratios, as well as profits.

However, the example introduced above is a simplified one, and in reality, profits and losses are not allocated completely according to the investment amount.

This is because PAMM managers receive remuneration.

For example, if the remuneration rate for managers is 20%, the amount investors can receive is 80%.

Reflecting on the previous example, it becomes as follows.

In this way, PAMM managers can receive remuneration according to their trading profits and losses.

The remuneration rate for managers is determined by the manager at their discretion, and is generally set at 20-30%.

However, some brokers may adopt a mechanism in which the remuneration rate to the manager changes depending on the investor’s capital balance.

for example,
If the balance is less than 1000 USD: 50%
If the balance is between 1000USD and 3000USD: 35%
If the balance is 3000 USD or more: 20%

PAMM business model

The business model of the PAMM service is designed to benefit all three parties: the PAMM broker, the PAMM manager, and the investors.

In this way, PAMM is a business model that is built on the relationship between the forex broker, manager, and investors.
This means that the business will not be successful if the manager’s trading is not profitable.

On the other hand, automated trading systems (EA) simply sell.

No matter how bad the system (EA) is, if it is over-hyped and sold, the vendor can make a profit. The profit that the EA brings to the buyer after selling is not important to the vendor.

PAMM managers cannot run a business unless they make a profit from trading. Therefore, focus on making profits with real accounts.

Of course, it is true that there are some managers who don’t care about their investors.
However, if managers and brokers want to make continuous profits, they need to have stable trading performance over a long period of time.

Unlike sell-it-and-finish systems (EA), PAMM is a better business model.

Problems with PAMM

Financial regulations in each country

In some countries, it may be regulated to manage someone else’s funds without a license.

The broker may restrict the use of the PAMM service based on the user’s place of residence.

Risk of loss

As with all trading, while there is a potential for profits, there is also the risk of losses.

When trading on your own, you can optimally adjust the lot size of your positions, place stop losses, and limit your own risk.

However, PAMM leaves all trading decisions to the PAMM Manager.
Even if a manager has been practicing stable trades with low risk and steadily accumulating profits, there is a possibility that they will suddenly start making high-risk trades.

Investors must be aware that they cannot control the actions of managers.

Fraudulent management account

Unidentified account management services are dangerous.
Services that solicit investors using methods other than the PAMM method are also dangerous.
be careful.

It is better to use only the PAMM platform of a reliable Forex broker.

For example, below is a screen shot of the home page of a PAMM service called “CONTOROL FOREX”.

It is stated that the monthly interest rate is 50-200%.

The funds in this account doubled in the first month, and the account had a zero balance in the second month.
In this way, investors are exploited by trapping extremely high rates of return.

Management accounts that promote profits of more than 30% per month are dangerous. Be careful.

In “CONTOROL FOREX,” the compensation for PAMM managers was set at nearly 50% of profits.
Paying a fee to the manager reduces the investor’s balance. In this case, the lot size becomes large compared to the balance, resulting in a very dangerous situation.

Services with too high monthly returns or too high remuneration rates for PAMM managers are likely to lead to account failure.

Transaction method is opaque

Be careful if investors are unable to check the manager’s trading history.

Even if a trader appears to have stable results on the surface, it may actually be a high-risk trading technique.

It is important to look at the PAMM manager’s trading history.
It is wiser to check the stop loss etc. and confirm the risks before investing.

However, brokers and managers who keep their trading history private cannot be reviewed.