What is a PAMM-account?
PAMM-account is a trading structure that consists of one or a group of accounts, which can simultaneously engage several investors. At the same time, trade within this structure is leaded by one trader – a manager. Work with PAMM-accounts is beneficial for both parties, namely:
- investors who profit without making any trading operations on their own;
- traders who have an opportunity to attract funds of investors and receive additional compensation for managing the account.
Investing in a PAMM-account is carried out in automatic mode. Profit and loss from trading operations is distributed among all investors. They are calculated as the ratio of the amount of funds invested by each of them to the amount of total capital of the PAMM-account. A trader managing an account profits from the completed transactions. The reward for trading is a fixed percentage of the investor's profit. If a transaction is unsucessful, a trader will not receive a reward.
Advantages of PAMM-accounts
Before the emergence of PAMM-accounts, investors worked directly with traders . They either provided traders with the access to their accounts or transferred their funds to own risk. Naturally, in such conditions there was a high probability of fraud. Besides, to make traders manage an account, an investor must have a decent amount of money. After the emergence of the PAMM-accounts, it became possible to engage in Forex trading even with an investment budget of less than $100 in trading on the Forex. In addition:
- PAMM-accounts operate in the areas of PAMM brokers that govern the commitments of both investors and traders;
- all information about PAMM-accounts is provided on the platforms of the brokers. An investor can see the real statistics of successful and unsuccessful transactions, the total sum of the capital accounts and other characteristics for making decisions i.e. where to invest their funds;
- each participant of the PAMM-account has access only to his own funds, which eliminates a possibility of fraudulent transactions from a trader's side;
- the whole process of negotiation of cooperation conditions is carried out automatically;
- a trader does not only manage an account, but also invests his own funds — it stimulates him to consider the deals more thoroughly. While choosing a PAMM-account, an investor can see a trader's capital amount to understand if he is interested in the successful result of trading.
Rollover and ratings of PAMM accounts
Rollover of PAMM account is a generalization and update of information on key indicators of the PAMM-accounts, which happens at the end of each trading hour. Rollover includes:
- fixation of the trading results;
- calculation of a manager’s remuneration;
- processing of requests for withdrawal and deposit of funds;
- update on the ratings at the broker's website.
Rollovers are of 2 types: closed and open. When rollover is open, a request to deposit or withdrawal is performed, when closed — not. On every PAMM-account, at least one active rollover must occur per day.
Closed rollovers exist for regular updates of the key indices of PAMM-accounts. On the basis of these indicators, ratings are formed and reflect the level of PAMM-accounts profitability for a certain period (day, month, year). It also provides information about capital and popularity of a manager, mutual shares of investors, etc. Ratings allow investors to assess how successful the activities of a particular trader are and to understand if it is worthy to invest in the PAMM-account managed by him.
Monitoring of PAMM-accounts
Monitoring of PAMM-accounts is a service that displays the ratings of PAMM-accounts excluding balance operations. The results of the monitoring are provided in graphical form and based on a mutual system.
A share is a major performance indicator of monitoring, which reflects the investor’s part in the total capital of the PAMM-account. A share's price is one for all participants of the PAMM-account. It is calculated as the ratio of total assets to the number of particular PAMM account units . The unit price is recalculated after each rollover.
The number of the investor's units is calculated as a ratio of their investment to the price per unit. For example, an investor invested 1000 USD. Price per 1 share in the active rollover — 200. Accordingly, the number of shares in his investment account: 1000/200=5. Profit or loss from trading operations is distributed among the investors of PAMM-accounts in accordance with number of shares.
All of these parameters – price, number of shares and the specific yield of the PAMM-account is displayed on the monitoring services and regularly updated. This allows investors to obtain real data about the PAMM-accounts, to decide on the choice of a trader, and to observe the funds' movement.