CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 51% and 89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Profit Allocation Money Management (PAMM)
A PAMM account can be considered as a large main account whose total capital is the sum of individual segregated sub-accounts of customers. The management module feature of a PAMM ensures distribution of trades made on the unified account amongst individual managed accounts based on allocation percentages. For example – a 100 lot trade is made on EUR/USD, and this trade is distributed among sub-accounts based on proportional equity contributions. So in the case where an individual sub-account contributes 1% of the total capital in fund managers PAMM account, the size of the trade for the account holder becomes 1 lot based on the 1% contribution.
Benefits of using PAMM
- Allows traders to take advantage of sophisticated trading strategies without a large capital requirement
- Gives the trader an opportunity to diversify tradings by taking services of multiple trading managers through different PAMMs
- Being fully computerised and automated, the PAMM platform reduces the risk of fraud in the distribution mechanism
Multi- Account Manager (MAM)
MAM accounts provide more complex and sophisticated managed account services by allowing the fund manager to assign higher leverage for particular sub-accounts. MAM also allows the fund manager to regulate and adjust other risk management features across sub-accounts based on the individual trader's risk profiles, thereby giving them the flexibility to execute complex trading strategies. Although the basis of distribution continues to be a percentage allocation, by using a MAM, the fund manager can take advantage of greater flexibility to allocate trades on the basis of risk allowed by each sub-account. If a particular sub-account holder is considered by the manager to have a higher risk appetite, then they can assign greater leverage for the account, thereby increasing the risk of individual trades. If the higher risks pay off, there could be greater rewards. However, this flexibility could be a double edged sword and could bring exceptional losses if markets go against the fund manager.
Benefits of Using MAM Accounts
- Allows fund managers to execute trading strategies which are more in tune with the varying risk appetites of individual account holders
- Allows better representation of individual trader's risk appetite in fund manager's trading strategy
- Gives the trader an opportunity to diversify tradings by taking services of multiple trading managers through different MAMs
- Being fully computerised and automated, the MAM platform reduces the risk of fraud in distribution mechanism
PAMM vs MAM
Risks associated with PAMM and MAM
- Trading in these instruments is risky as a wrong decision of fund managers could lead to large capital erosions
- With the PAMM account system, the managers trading style may not be very transparent. This makes it difficult to make informed choices
- Leads to complete dependence on fund managers skills and does not allow the trader to build their own expertise
- Trades may not be completely liquid and could involve exit loads
Regulated brokers providing PAMM/MAM services
AvaTrade MAM - Key Features:
- Good liquidity
- Allows trading subgroups for variety of strategies
- Client allocations starting from .01 lot
- Provides for MT4 order types, stops, limits, trailing stops close all, etc.
- Leverage up to 400:1
- Prompt monthly payments
Conclusion
Managed accounts have allowed traders to benefit from sophisticated trading strategies provided by professional fund managers for their individual accounts. They also allow traders to harness the benefits of diversification based of varied trading strategies. These instruments provide an alternative to traditional pooled asset trading funds. However, all this sophistication comes with its own set of risks, hence for margin trades like forex , traders must be cautious while using managed accounts.
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Methodology
At BrokerNotes.co, our data-driven online broker reviews are based on our extensive testing of brokers, platforms, products, technologies, and third-party trading tools. Our product testing extends to the quality and availability of educational content, market research resources, and the accessibility and capabilities of mobile platforms and trading apps. We also dive into each broker’s trading costs, such as VIP rebates, inactivity fees, custody fees, bid/ask spreads, and other fee-based data points.
Steven Hatzakis, an industry veteran with decades of experience in the forex market, leads the BrokerNotes research team. All BrokerNotes content is researched, fact-checked, and edited by the research team.
All websites and web-based platforms are tested using the latest version of the Google Chrome browser. Our Desktop PCs run Windows 11, and we use MacBook Pro laptops running the latest version of macOS to test trading on the go. We test mobile apps and products using iPhones running iOS 17 and Samsung devices running Android OS 14.
Note: The online brokers on our site provide the ability to trade forex in one or more ways, such as non-deliverable spot forex (i.e., rolling spot contracts), contracts for difference (CFD), or other derivatives such as futures. The availability of specific markets or features will depend on your country of residence and the broker's applicable brand or entity that services your account(s).
Forex Risk Disclaimer
There is a very high degree of risk involved in trading securities. With respect to margin-based foreign exchange trading, off-exchange derivatives, and cryptocurrencies, there is considerable exposure to risk, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or related instrument. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable, or that they will not result in losses. Learn more about foreign exchange risk.
About the Editorial Team
BrokerNotes.co provides unbiased forex broker reviews and ratings to help traders and investors find the best broker for their needs. All content is researched, fact-checked, and edited by our research team and all ratings and rankings are based on the team’s in-depth product testing.
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Vantage
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HYCM (Henyep Capital Markets)
HFM
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Questrade
Trading 212
BDSwiss
Trade Nation
TMGM
Eightcap
Moneta Markets
Spreadex
MultiBank
Exness
easyMarkets
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VT Markets
Octa
IronFX
IFC Markets
Trade360
Axi
TeleTrade
iFOREX
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FXPrimus
Xtrade
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FXGT.com
ATFX