The forex market has become an attractive space for traders because of the highly liquid trading instruments and volatile market conditions giving rise to many profitable trading opportunities. Even though technological advancement has made it easier for us to access the forex market and get into trading, many of us are still hesitant to dive into the forex space due to lack of trading skills and expertise. Because entering the forex market without any know-how and understanding would only end up in huge losses over time. But there are ways to escape the risk that comes with inexperience and get some market exposure without trading on their own. One popular way to do this is by using managed forex accounts for trading.
Today, we will be guiding you with all the relevant information that you need to know about managed forex accounts including their functioning, advantages, disadvantages, differences between PAMM/MAM accounts and things to keep in mind when you start your trading journey by investing in a managed forex account.
What are Managed Forex Accounts?
Just as the name implies, managed forex accounts are trading accounts where the trading activities will be managed by professional traders who have the expertise and experience to help investors earn profits from forex trading. The complexity and risks associated with the forex market can make it challenging for newbies and it will take time for them to become consistently profitable by trading on their own. These accounts allow beginners and amateurs to step into the forex space without spending a whole lot of time in learning and planning.
Over the years, different types of managed forex accounts were introduced and many forex brokers are also promoting these types of trading accounts through their platform. The most popular types of managed forex accounts are PAMM and MAM accounts. These accounts are specially designed to provide investors with a more hands-off approach to forex trading.
The concept of managed forex accounts are most useful to those who are unable to trade themselves due to knowledge or time constraints. The professional traders use their expertise to execute trades on behalf of the investors with the intention of making profits for their investors, while they receive commission or other compensation in return for their trading services. Read More
What is a PAMM Account?
PAMM stands for Percentage Allocation Management Module. This is a type of managed forex account that allows an investor to allocate a portion of their funds to a trader or multiple traders. The investor will not be participating in the trading process and will get an effortless trading experience. The professional traders chosen by them will be in charge of executing trades on behalf of the investor. They are simply investing while someone else makes all decisions related to trading.
The trader operating the PAMM account gets to handle the trading activities of multiple investors through a single account interface. They get to trade with combined funds of all the investors in the PAMM account. The trades initiated by the master account will get replicated and copied to the investor accounts based on the percentage allocated by them. The profits distribution of profits/losses will also be done automatically based on the percentage.
A Pamm Account Has Several Benefits, Including:
- Diversification: Investors can diversify their portfolio by investing in multiple PAMM accounts with different traders. This will minimise the risk of loss to some extent.
- Access to Expertise: Investors can benefit from the expertise of professional traders who already have a profitable trading system and proven track record of success.
- Transparency: Investors can monitor their account performance in real time which gives more transparency.
What is a MAM Account?
MAM stands for Multi-Account Manager. This is a type of managed forex account that allows a professional trader to manage multiple accounts on behalf of different investors. The MAM account allows the trader to trade with the pooled funds of a number of investors, very similar to PAMM accounts. But one notable difference between PAMM and MAM accounts is the fact that MAM accounts are more flexible and investors get to make some decisions unlike in the case of PAMM accounts, where all key decisions including risk management is done by the account manager alone.
In the case of MAM accounts, investors have their own trading account, and the one managing their account will be trading on a different account. The trades entered by the professional trader on the master account will get executed on all the investor’s accounts simultaneously. This means that each investor gets some control over their own trading account as they get to choose the amount of risk they are comfortable with and the trader can only trade in accordance with the risk parameters set by the investor. This type of managed account services are ideal for those who want to invest and trade based on their own risk tolerance without leaving it all to the trader managing their account.
A Mam Account Has Several Benefits, Including:
- Customization: Investors can customise their own risk parameters, such as the lot size, stop loss, and take profit levels.
- Control: Investors get more control over their account in comparison to PAMM accounts.
- Transparency: Investors can always see the status of their account and trading activity in real time.
Difference between MAM & PAMM Account?
MAM (Multi-Account Manager) and PAMM (Percentage Allocation Management Module) accounts are quite similar in functioning as they both allow investors to have their funds or trading capital managed by professional traders. But they are also very different from one another when we talk about the allocation of funds and the parameters for managing these funds.
In a MAM account, the investor’s funds are pooled together into a single trading account, which is then managed by a professional trader. Each investor in the account is assigned a specific position size based on their investment and risk tolerance specified, and their profits and losses will depend on the profits/losses that the master trader gets on the main account. This means that every investor in the account receives the same percentage of profit or loss, regardless of the actual percentage of funds brought by them to the account.
On the other hand, a PAMM account operates on a percentage allocation basis. Each investor has their own individual trading account, which is then linked to a master account managed by a professional trader. This means that the profits and losses for each investor are determined by the performance of their individual account and this makes the results they get won’t be dependent on the trading results generated on the master account.
Advantages & Disadvantages of Managed Forex Accounts
Advantages:
- Professional Management: You can be assured that your trading activity will be managed by a master trader who is skilled and experienced in the field of trading. This guarantees a professional approach towards trading which can generate good returns for investors.
- Diversification: Investors can minimise the risk by diversifying their funds in different asset classes or by investing them with different master traders.
- Passive Income: Those who do not have the time or expertise to actively trade in the forex market can utilise managed forex account services for earning passive income with limited exposure to market risk.
- Transparency: A high level of transparency can be experienced when you invest in a managed forex account. You get to monitor and evaluate the performance of your trading account in real time along with an access to detailed reports of trading.
Disadvantages:
- You are still exposed to risk that comes with market volatility.
- Cost in terms of profit sharing and commission.
Things to Keep in Mind While Investing in Managed Forex Accounts
- Research well and plan your investment based on your risk-tolerance.
- Choose a trusted and transparent trading platform for opening a managed forex account.
- Choose the best trader after checking their trading history and investment levels.
- Diversify your funds with different traders and asset classes for mitigating the risk.
- Keep monitoring the performance of your account on a regular basis and take action if there is any deviation. The investor has the right to detach their account from a trader anytime if the trading results do not meet their expectations.
Conclusion
In a nutshell, we can say that managed forex account services is a revolutionary concept on its own, as ordinary people get a chance to avail the benefits of forex trading without being directly involved in the process of trading. We discussed the similarities and differences between the two most popular managed forex accounts: PAMM and MAM accounts. Both types of accounts have their own unique benefits, and the investor needs to make a choice between the two based on their own preferences and requirements. The account manager’s authority is limited to using the funds for trading, which makes managed forex accounts a proper medium to invest and earn some passive income from forex trading as an amateur.
