PAMM Trading
Percentage Allocation Management Module (PAMM) trading platforms have grown in popularity in recent years. Nowadays, PAMM trading is seen as one of the attractive ways to earn passive income online. In this guide to PAMM trading, we explain how different systems works plus the pros and cons for both investors and fund managers.
PAMM Brokers
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1
xChief$100 No Deposit Bonus
$100.01 Lots1:1000VFSCCFDs, Forex, Metals, Commodities, Stocks, IndicesMT4, MT5Wire Transfer, Bitcoin Payments, Credit Card, UnionPay, Skrill, Neteller, WebMoney, Perfect Money, Debit Card, Ethereum Payments, FasaPay, VoletUSD, EUR, GBP, JPY, CHF -
2
Coinexx100% Deposit Welcome Bonus
0.001 BTC0.01 Lots1:500Forex, Commodities, Indices, CryptocurrenciesMT4, MT5Bitcoin Payments, Ethereum PaymentsUSD
Here is a short summary of why we think each broker belongs in this top list:
- xChief - xChief is a foreign exchange and CFD broker, established in 2014. The company is based offshore and registered with the VFSC and FMA. Users can choose between a wide selection of accounts and base currencies, making ForexChief accessible to global traders. The brand also stands out for its no deposit bonus and fee rebates for high-volume traders.
- Coinexx - Coinexx is an unregulated broker that provides leverage up to 1:500 on forex, commodities, indices and cryptocurrencies with deep liquidity, pure ECN spreads and negative balance protection. The broker uses crypto as base currencies and has low minimum deposit requirements of 0.001 BTC.
xChief
"xChief continues to prove popular with investors looking to trade highly leveraged CFDs on the popular MetaTrader platforms. The broker's rebate scheme and investment accounts will particularly appeal to seasoned traders. However, the lack of top-tier regulatory oversight is a major drawback."
xChief Quick Facts
| Bonus Offer | $100 No Deposit Bonus |
|---|---|
| Demo Account | Yes |
| Instruments | CFDs, Forex, Metals, Commodities, Stocks, Indices |
| Regulator | VFSC |
| Platforms | MT4, MT5 |
| Minimum Deposit | $10 |
| Minimum Trade | 0.01 Lots |
| Leverage | 1:1000 |
| Account Currencies | USD, EUR, GBP, JPY, CHF |
Pros
- xChief offers STP/ECN execution with low spreads from 0.0 pips and low commission rates starting from $2.50 per side
- The low minimum deposit of $10 will appeal to beginners, as well as the beginners’ guides in the Library
- The broker offers several account types to suit different traders, including a Cent account for beginners and pro-level hedging/netting accounts
Cons
- The broker trails competitors when it comes to research tools and educational resources
- The total range of 150+ assets is much lower than most competitors who typically offer hundreds
- Fees and minimums are imposed on most withdrawal methods, including a €60 minimum for SWIFT bank transfers
Coinexx
"Coinexx best serves short-term traders willing to foregoes regulatory protections in return for highly-leveraged CFDs and trading accounts, deposits and withdrawals processed in cryptos like BTC. "
Tobias Robinson, Reviewer
Coinexx Quick Facts
| Bonus Offer | 100% Deposit Welcome Bonus |
|---|---|
| Demo Account | Yes |
| Instruments | Forex, Commodities, Indices, Cryptocurrencies |
| Platforms | MT4, MT5 |
| Minimum Deposit | 0.001 BTC |
| Minimum Trade | 0.01 Lots |
| Leverage | 1:500 |
| Account Currencies | USD |
Pros
- The virtual private server (VPS), hosted near the firm’s data center in Amsterdam, offers 24/7 connectivity, low latency and 99.99% uptime, catering to algo traders.
- Coinexx is one of a limited pool of brokers to support the ActTrader platform, which is highly customizable with detachable widgets, as well as 48 indicators, 11 timeframes, and price quotes up to 8 decimal places.
- Coinexx uses an ECN model that facilitates ultra-tight spreads from 0 pips, which alongside high leverage up to 1:500, may serve fast-paced, high-volume trading strategies.
Cons
- Despite operating for over 7 years, Coinexx still hasn’t secured any regulatory approvals, respected industry awards or the full confidence of our experts.
- Aside from 7 calculators (forex, margin, pip, currency, commission, swap, PnL), Coinexx offers very little in terms of additional tools, with no education or research features to support traders.
- Although it supports near-instant account funding in 25+ cryptos, the absence of fiat deposit options at Coinexx will be severely limiting for many traders.
How PAMM Trading Works
PAMM stands for Percentage Allocation Management Module or Percentage Allocation Money Management. PAMM trading is a form of pooled capital managed trading whereby investors—also called followers—allocate their money to a qualified trader or money manager in desired proportions. These traders can manage several trading accounts at one time using their own capital and the pooled money to generate profits.
Managers distribute the portion of trades according to the percentage allocation. This percentage is defined by the trader in the manager offer—an agreement regulating the relationship between an investor and the PAMM trader managing funds.
Money managers are usually rewarded by charging management fees—taken from investor balances every month—and incentive fees which depend on the profits obtained by the fund manager.
PAMM trading is an attractive option for inexperienced investors who want to benefit from forex or stock trading, for example, but do not have sufficient time or knowledge to commit to the process.
PAMM Trading Example
Let’s say a trader deposits $2,000 and investors contribute their own money to the trader’s PAMM account too. Investor A adds $5,000 and Investor B adds $3,000. The total of the pooled pot is $10,000. The manager keeps trading through the PAMM account using the pooled funds of $10,000.
If the trader makes a 100% return ($10,000), they would take away their $2,000 investment plus $2,000 profit. Investor A would be able to withdraw their $5,000 investment plus $5,000 in profit and Investor B would take their $3,000 plus $3,000 in profit.
However, say the fund manager’s incentive remuneration was set at 25% of the total return, the trader would also benefit from Investors A and B’s profit. The trader would earn $2,500 from Investor A and $1,500 from Investor B, adding a total of $4,000 to the trader’s overall profit.
Setting Up
The trader or money manager opens a PAMM account and meets the minimum deposit requirement, as specified by the broker. The trader must define the terms in the PAMM manager offer such as the minimum investment deposit, time period, and the premium as a percentage of the profit gained.
An investor can analyse a trader’s results through a system that monitors PAMM accounts held with a brokerage. A user can then decide whether to invest with that specific trader or not. New clients can get up and running in a few minutes at top PAMM trading platforms.
PAMM Vs MAM Vs LAMM
MAM (Multi-Account Manager) solutions are a derivative of the PAMM system. MAM accounts allow traders to use the percentage allocation method but provide more flexibility to allocate the trades and adjust the risk of each sub-account based on the clients’ risk profiles.
MAM accounts combine individual trader capital into a large pool of managed funds. However, if you are connected to the master account in the PAMM system, you will achieve the same results in your investor account which is not guaranteed when MAM trading.
Many brokers offer both PAMM and MAMM trading but MAM master accounts are not typically visible on leaderboards unlike with PAMM services.
LAMM (Lot Allocation Management Module) is considered to be the predecessor of PAMM. It does not function according to the size of each investor account. The investor chooses the number of lots that can be traded in the market and the profits (or losses) are determined based on the multiples of lots invested. LAMM trading is best suited to those with more capital.
Benefits Of PAMM Trading
There are several advantages of PAMM trading for both investors and traders:
- Less experience needed – the trader is the one making the decisions but you still reap the rewards of their hard work. Investors can replicate one or more successful trading strategies in their PAMM terminal.
- Access to more capital – PAMM managers gain access to more capital than they would if they were just trading with their own funds. Unsurprisingly, pooled funds often generate more profits than smaller investments, especially in forex trading due to smaller profit margins.
- Hands-off approach – PAMM trading is a good option for investors who don’t have the time to commit to the financial markets.
- Easy to invest – investors can deposit funds into their account once and then allocate those funds across several PAMM trading solutions.
- Joint risk – PAMM traders are risking their own capital as well as their investors’ money. More experienced investors avoid managers that only have a small amount of their own capital on the line.
- PAMM brokers act as guarantors – the obligations made between money managers and investors are often guaranteed by the broker and the master trader cannot disappear with investors’ money. Although capital is managed by the trader, they cannot usually withdraw it.
- Account history – PAMM brokers usually provide a breakdown of a master trader’s track record to help clients find a reliable trader.
- Rewards – profitable traders can receive profits from the management of both their own capital and investors’ funds.
Drawbacks Of PAMM Trading
As with most types of investing, there are some drawbacks to PAMM trading:
- Loss possibility – if a broker doesn’t allow an investor to set a maximum loss limit, the client’s loss can hit 100%, meaning a total drawdown.
- Less learning – unlike with copy trading, investors cannot study a PAMM trader’s investing style, making it harder to develop your own skills.
- Less visible – investors may not know who is managing their capital. It could be either a seasoned trader or a beginner using profitable but seriously risky strategies. It could also be a sophisticated bot developed to partially or fully wipe out investors’ funds after several profitable time periods.
How To Start PAMM Trading
Choosing A Broker
- Regulation – look for PAMM trading platforms that are properly regulated and licensed. We do not recommend trading with unregulated providers.
- Fees – make sure your broker is transparent about performance and fees, including having the full flexibility to deposit and withdraw your funds as needed. Also, customer deposits should be held in your own trading account so that you’re the only person able to make payments.
- Statistics – having access to information and important statistics is vital. You want to choose a PAMM trading provider that offers a service that suits your risk appetite, profile, and financial aspirations. Key information includes the type of PAMM trading system, when it was created, the currency, how many followers/investors the trader has, average win/loss ratio, drawdown, and more.
Choosing A Manager
- Experience – looking at the PAMM trader’s track record will help ensure you find an experienced and established investor. By looking at their history, you can conduct a deeper analysis of their financial results. Ideally, PAMM trading services with 3 or 4 years’ experience are best.
- Maximum drawdown – being able to set a maximum drawdown will decrease your risk exposure. For beginners, we recommend choosing accounts with the maximum drawdown level equal to no more than 40%.
- Profitability – select a PAMM trading provider that balances profitability with your investment style. Profitability is closely linked to your maximum drawdown limit. Accounts where the ratio of maximum drawdown to profitability is no higher than 1:3 tend to perform better.
- Consistency – how consistent is a fund manager’s results? Consistent returns are arguably better than unpredictable peaks and troughs with regular success making it easier to plan.
- Fund manager equity – investors can view PAMM managers’ equity via the broker. Sophisticated investors tend to avoid using PAMM traders who only have a small amount of their own funds on the line. The higher the equity, the greater their personal risk and arguably the more motivation to get it right.
- Popularity – a trader that already manages funds for several investors is a good sign. The best providers are transparent about their current portfolio of clients.
Final Word On PAMM Trading
PAMM trading technology allows investors with a limited understanding of market trends to profit from others’ expert knowledge. But while there are multiple benefits of PAMM trading, beginners may struggle to build their own skills. As a result, it’s important to weigh up your options, including how much time you have, your objectives and your risk appetite.
See our list of the best PAMM trading brokers to get started today.
FAQs
What Is PAMM Trading?
With PAMM trading, your money is handled by a fund manager who places trades on your behalf with the aim of making a profit. Multiple investors pool their funds to maximise returns and profits are distributed equally according to the amount each investor put forward.
Should I Start PAMM Trading?
PAMM trading is growing in popularity. For beginners, in particular, it offers a means of generating income from the financial markets without a serious time commitment. With that said, profits are not guaranteed and you can lose money, especially if you don’t choose a master trader carefully.
Is PAMM Trading Safe?
PAMM trading is offered by many regulated brokers that offer a secure investing environment. However, PAMM trading is not always profitable, and to a large extent, you are at the mercy of the fund manager.
Which Brokers Offer PAMM Trading?
See our list of the best PAMM trading brokers, including reviews, to get started.
What Is The Difference Between PAMM, MAM, And LAMM Trading?
PAMM, MAM, and LAMM are all money management systems. MAM accounts allow managers to assign higher leverage to sub-accounts and are attractive to investors with a high-risk appetite. LAMM is an early iteration of PAMM where a trader is allowed to allocate different lots to individual investor accounts.