PAMM, or a Percentage Allocation Management (or Money) Module, is a broker-offered service and a type of trading where investors pool in collective money to be trade in a foreign exchange market. The collected funds in PAMM accounts are usually handled with faith by capable and accomplished traders and money managers. The collaborating investors get to settle on what quantity of allotted money will be managed by the qualified trader or money manager. The endgame for traders and managers is to manage the multiple Forex trading accounts of the participants with the aim to generate substantial profit. How do PAMM accounts work?
How PAMM Accounts Work
When observing the patterns of these Forex-managed accounts, PAMM accounts will need three participants in its setup, namely the brokerage firm, who will oversee that everything is conducted within regulation and provides quality services to its clients. The next would be the money manager or trader who would manage the accounts and the investors who will fund the trades.
Enter the investors whose names are Franklin, Michael, and Trevor are all eager and keen to start benefitting with proceeds from Forex trading. They look toward the professional money managers. Let’s say there’s one named Carl. The two will be in charge of managing the funds. However, before the investors can commit, they sign an agreement, an LPOA or Limited Power of Attorney. The LPOA would then state the percentage of the manager’s fee in return for his services.
Now, that the three investors agreed to work with Carl, the money manager whose cut would be 10% of the profit. When it comes to the division of overall contribution of the total PAMM accounts’ fund of $15,000, the investors will have the following:
• Franklin = 26.67%
• Michael = 23.33%
• Trevor = 16.67%
• Carl = 33.33%
Now, after a trading session, Carl has done good work and manages to make a profit of 30% amounting from $15,000 to $19,500. For his services, Carl takes his 10% share of the profit, equal to $450.
The remaining $4,050 will be allocated to the investors according to their percentage which will go as follows:
• Franklin = $4,050 * 26.67% = $1,080
• Michael = $4,050 * 23.33% = $945
• Trevor = $4,050 * 16.67% = $675
• Carl = $4,050 * 33.33% = $1,350
Currently, since the 30% profit, all three investors conclude to work with Marcus once more. Franklin and Michael stay with their usual amount. However, Trevor withdraws his profit and leaves only his initial investment of $2,500. Let’s say Michael brings in a friend Niko who contributes %2,625 to the table and a new investor, Roman, chooses Carl as his money manager. This brings the total pool amount to $22,000.
The breakdown will then look like this:
• Franklin = $5,080/22,000 = 23.09%
• Peter = 20.20%
• Michael = 11.36%
• Carl = 28.86%
• Niko = 11.93%
• Roman = 4.55%
Carl pulls off a 15% return later, with a profit of $3,300 overall and takes his cut of 10% ($330). The remaining $2,970 will be given to the individual investors as per their respective share.
Hopefully, in this bottom-line, this example would have given you an understanding of the PAMM accounts concept and how does how do PAMM accounts work.