Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.
The Ultimate Guide to
Managed Accounts – PAMM & MAM
Managed accounts are segregated accounts, owned by a trader, but with the trading decision-making function delegated to a fund manager. Managed accounts differ from mutual funds as in a mutual fund, contributions from traders are pooled together in a corpus, which is managed by the fund manager: the trader holds a portion of the portfolio and has no practical ownership of the underlying securities.
Two of the major modes in which managed accounts operate are Profit Allocation Money Management (PAMM) and Multi- Account Manager (MAM).
PAMM and MAM both allow fund managers to manage multiple segregated accounts through a single account, without the need to create a trading fund. Client managed accounts are all connected to the manager’s main account and all trades made by the manager are distributed proportionally among account holders. Similarly, the gains or losses arising out of a fund manager’s performance get proportionally distributed among the segregated account holders.
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
PAMM
MAM
Method
Egalitarian, distribution directly based on individual contribution
Sophisticated use of leverage and distribution is a function of both contribution and risk taken
Structure
Single managed account aggregating all the trader contributions.
Multiple accounts split across brokers
Withdrawal
At rollover
At rollover or at end of trading period
Minimum Deposit
Varies from vendor to vendor
Varies from vendor to vendor, but generally used by traders with high risk appetite
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
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.
Why Choose ThinkMarkets For MAM and PAMM Accounts?
ThinkMarkets scored best in our review of the top brokers for mam and pamm accounts, which takes into account 120+ factors across eight categories. Here are some areas where ThinkMarkets scored highly in:
8+ years in business
Offers 50+ instruments
A range of platform inc. MT4, Mac, Web Trader, Tablet & Mobile apps
24/7 customer service
Tight spreads from 0.10pips
Used by 0+ traders.
Offers demo account
2 languages
ThinkMarkets offers two ways to tradeForex, CFDs.
If you wanted to trade EURUSD
The two most important categories in our rating system are the cost of trading and the
broker’s trust score. To calculate a broker’s trust score, we take into account a range of factors, including their regulation history, years in business, liquidity provider etc.
ThinkMarkets have a B
trust score, which is good. This is largely down to them being regulated by Financial Conduct Authority and ASIC, segregating client funds, being
segregating client funds, being established for over 8
Want to see how ThinkMarkets? We’ve compared their spreads, features, and key information below.
Spread & fee comparsion
The spreads below are illustrative. For more accurate pricing information, click on the names of the brokers at the top of the table to open their websites in a new tab.
