MAM accounts help the trader to manage multiple accounts using a single terminal. MAM accounts thus combine several individual accounts into a large pool of managed funds, which includes both individual trader accounts and associated investor accounts.
All orders executed on the master account are reflected in each associated MAM account, according to the parameters set by the investor. Investors also have the possibility to place orders via their trading accounts and are free to modify MAM trades.
A performance fee is paid to the trader as a percentage for the returns generated. The MAM account is an advanced type of account that offers excellent control over the functionalities that are indispensable to a professional investor.
A PAMM account is a type of trading account that usually has three parts:
With a PAMM account, the investor, via the broker, sets up a trading agreement with a money manager operating on his behalf.
This type of trading ultimately relegates the role of the investor to providing the capital needed in the account for trading. The actual execution of trades depends on the fund manager, who often makes trades at his own discretion within a set of broad parameters outlined by the investor.
When using a PAMM account to trade forex, the knowledge required by the investor decreases dramatically, if not eliminated altogether. This is because the PAMM investor is only providing the capital, and not trading himself.
The role of the broker in a PAMM account is usually to facilitate the connection between the fund manager and the investor. It is also possible that the fund manager works directly for the broker.
With this form of trading, the trader usually takes a commission on winning trades and in some cases charges a fixed commission for his services. The broker is also entitled to a commission or fixed fee.
The investor then only has to wait for the distribution of profits. There are also a number of tools that many brokers provide to keep an overview of the status of one’s account, to be able to monitor all trades made by the authorised manager.
Of course, as with any form of trading, there are advantages as well as some trade-offs that must be considered before deciding to invest with a PAMM account.