Lesson 12: PAMM System. History. Pros and Cons

Published 15.12.2014 at 08.37 PM.

When Forex was just starting to gain popularity in post-Soviet states, some retail traders offered money management services to potential investors. The scheme was rather simple. A trader finds an investor, overwhelms him with stories about limitless opportunities of Forex, and if the investor agrees to provide the funding, a trading account is opened in the name of the investor. While the investor remains the holder of the account, all deals are actually conducted by the trader. To some, this type of investment may seem quite transparent: a trader trades, an investor invests, and they share the profits generated by the trader. Unfortunately, the potential benefits of such joint profit making are offset by a number of bitter-reality issues: 

  • To start with, one investor meant one account back then, so a trader could not possibly manage many different accounts at once.
  • Such an investment was in fact a pig in a poke. You never knew if a trader was really professional or just pretending to be. You could easily lose your money by trusting it to a scammer with fake trading records.
  • Sometimes investors just failed to fulfill their obligations. After getting the returns, they never paid traders who managed their accounts what they had promised to.
  • Dishonest manipulations were all too common. A trader managing two accounts from two separate investors would open opposite positions simultaneously, thus blowing up one of these accounts. This would secure a 100% return for one of the investors, and the trader would receive part of this profit as a reward.  

 

As you can see, this retail capital management service was far from perfect, and over time it was replaced by the PAMM system as we know it today. The new system eliminated all of the issues listed above. It was a positive change both for investors and managing traders. The PAMM system features the following advantages:

 

  • Funds from an unlimited number of investors can be managed simultaneously on a single trading account.
  • Before committing to a particular project, an investor can analyze the yield curve and statistics from the entire period of a PAMM account’s existence.
  • Trading is conducted from a managing trader’s account. Commissions are paid automatically to the trader whenever a PAMM investor requests a rollover or full investment return.
  • You can also trade the yield curve of a PAMM account. To enhance investment profitability, seasoned market players often use system drawdowns to invest in PAMM accounts. This strategy requires an account opened 6 or more months ago. Applying the Martingale system is not allowed. 

How to choose a PAMM account?

Same as with trading, I would recommend choosing a PAMM account based on your psychological makeup and preferences. If you are more of a gambler ready to take risks, stick with aggressive accounts. Conversely, if even the tiniest losses may drive you into panic, you’d better invest in more conservative PAMM projects. We will look into this issue more deeply in another post, where I’ll provide you with some examples.

What returns can you expect from PAMM investments?

Dear friends, if you want to keep and multiply your savings, I’d recommend building a portfolio of PAMM accounts in a way that would ensure that your minimum annual return exceeds bank interest rates and covers currency conversion and money transfer costs.  

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