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Investor's Offer - Who Does the Final Word Rest With?

01 July 03:05 PM

The forex market has long attracted many investors with a high return on investment in a relatively short period of time. However, only a few experienced financiers can work in the market demonstrating good results as one has to possess outstanding expertise in the area of technical and fundamental analysis, money management and have iron discipline. Even if the trader manages to enter positive territory, the profitability of his or her trading system may appear scanty compared to that of more experienced colleagues. In this event it may be more beneficial to invest in a professional who is prepared to increase the balance of your account for a percentage of profits.

The time comes when the investor delivers their investment portfolio for management to a professional manager (trader). This is where the name comes from - Asset Management (AM). It should be noted that the manager has no responsibility whatsoever for a possible drawdown or ruin of the account, and all risks are fully assumed by the investor. Platforms offering PAMM services and widely implemented by broking companies has become a new stage in the development of asset management.

A PAMM account is a more flexible, convenient and reliable type of asset management where the manager works with an aggregate capital of different investors through a single account. This technology optimizes processes of allocation of funds and limits non-trading risks for both parties.

An offer is an integral component of each PAMM platform. An offer is a public agreement between the trader and the investor that stipulates all aspects of cooperation. The offer also includes the term for investment, the percentage in which profits are distributed between the investor and the manager, penalties for early withdrawal of money and distribution of profits or possible losses among members of the PAMM account. The offer's terms and conditions are set by the manager, while the investor accepts them by getting linked to the PAMM account. It should be noted that only professional managers can assume responsibility, especially in significant volumes.

It's quite obvious that a demanding investor may carefully study the rating and fail to find managers whose conditions he or she is fully happy with. What should one do in this event?

A unique service comes handy - the investor's offer. It is the same public offer whose terms and conditions, however, are set by the owner of the investment portfolio rather than the manager. In turn, the manager may accept conditions of the investor's offer if he or she finds them acceptable, and the company that owns the PAMM platform provides the mechanism for meeting all terms and conditions.

Regardless of the trading PAMM platform, a standard offer of the investor should provide for the following main aspects:

• the trading period - the period of time during which the manager makes trades to generate profits and following which profits will be divided among members of the PAMM account.

• the volume of investment - the amount the investor plans to fund the PAMM account.

• a penalty for early withdrawal of funds from the account - the amount of the penalty for the investor's withdrawal of funds before expiry of the trading period.

• the fee - the amount of the manager's commission for work he or she has performed.

• the profit distribution principle - the percentage of how profits are distributed among PAMM members.

Each investor is very likely to want and add their own special conditions, and requirements tend to become tougher with larger invested volumes. This should be the ideal case: he who invests calls the tune.

Implementation of a service like the investor's offer surely has a positive influence on development of investments in that it helps the investor to more flexibly approach formation of their investment portfolio. Investors and managers on forums have had a difference of opinion on this matter, but most of them have definitely recognized this tool is necessary and practical.

The majority also believes that the service will be useful to both parties only in case of large investments. There's no point in creating an offer for small amounts. The manager sees no point in agreeing to it because he or she calls the tune and others invest in him or her anyway.

Investors who objected to the offer argue that they would have to entrust their money to a person they don't know because any manager, even outside the TOP rating, can agree to conditions of the investor's offer. This is why they prefer a careful old-fashioned selection of managers even if they had to give in on some points.

It should be noted that Forex Trend has become among the first brokers to offer this tool to its investors. It left all its competitors behind by developing the investor's offer bundled with PAMM 2.0, a risk management system. The PAMM technology helped managers and investors avoid non-trading risks, but the investor still bears the risk of account ruin exclusively. As many investors were unhappy about this situation, Forex Trend developed the PAMM 2.0 system. Now the manager has a level of liability stipulated in the offer, and his or her own capital (which should be in the account before trading starts) serves as a guarantee of return.

From the Editor's Office:

Forex Trend was founded in 2009. It is headquartered in Dnepropetrovsk, a major financial center of Ukraine.

Orders of Forex clients are directly forwarded by Skopalino trading limited to Integral, an international electronic system.

Skopalino trading limited and Forex Trend have entered into a cooperation agreement. It made it possible for clients to invest in stock markets.

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