Increasingly more brokers and dealing centers offer their clients PAMM account services. This seemingly obscure acronym no longer confuses anybody. It is firmly rooted in the conscious mind of both traders and investors. Notably, the original idea of PAMM accounts has undergone quite significant and qualitative changes over the past two-three years.
The financial world's interest in this service constantly grows and, as such, drives financial institutions to implement new PAMM types. Everyone understands at a certain moment that here it is, absolute perfection, which seemed only a pipe dream a couple of years ago.
But it isn't as simple as it seems at first glance. New people come to the financial sphere, so do new ideas. And horizons of managed trading expand multifold. We would like our readers to meet one of the pioneers and regular innovators that invariable takes part in massive PAMMerization of the financial market in the CIS space and distant foreign countries.
A unique project of Forex Trend - PAMM 2.0 - has become a notable phenomenon in the market of financial services. Market Leader already wrote about this (Nos. 18, 24 and 25). Both traders and investors display a growing interest in this product.
The previous issue of the magazine dealt with a unique project of Forex Trend - PAMM 2.0 accounts. Today the project's participants, Denis Petrov and Sergey Cherepanov, share their impressions of operating PAMM accounts. Sergey, Head of the Asset Management Department at the Masterforex-V Trading Academy, will speak about what investors should be primarily focused on when selecting managers for PAMM accounts. Denis, on the other hand, is involved in the project both as a trader and investor and will help us with an unbiased assessment of all novelties in the new system, its pros and cons.
General Manager of Forex Trend, Andrey Polishevich, will evaluate the situation from a bird's eye perspective.
Denis Petrov: Forex Trend is a broker that offers services in the forex market. This broker also provides an investment tool that allows generating high returns for anyone. This investment tool is the PAMM account - the system for an investor's assets to be managed by a professional manager. PAMM account parties include the investor, as the one party, and the Manager, as the other party. Their relations are regulated by the Offer.
It should be said that PAMM account services are currently provided by a large number of brokers, and terms and conditions and the yield might seem very similar at first sight. But this is not the case. To become a successful investor, one has to process a lot of material, study the investment system of each broker. The term itself, PAMM account, is the same, but the approach is absolutely different. Since I act both as an investor and a trader and believe that Forex Trend currently offers a unique approach in the Russian-speaking segment of the market to, so to say, the logic of PAMM accounts that gravitates to protection of investor rights, unlike with other brokers.
So, the primary document that regulates relations between the investor and the manager is the offer that sets out:
• the trading period
• the manager's fee (in %)
• a commission for early withdrawal of funds
• the minimum amount of funding, withdrawal.
• the agent’s fee
It is both the investor and the manager that can create an offer with conditions they determine themselves on this platform. Of course, conditions should be competitive so when creating an offer, one has to elaborate and compare every paragraph with those offers that are already in place. So, if you are an investor and are happy with the manager's offer, you accept it and create your investment account. By funding the balance of the investment account with your own money, you automatically give in to the professional manager for management. All investors' profits or losses are allocated automatically, in direct proportion to the size of actual investment, at the end of the trading period. Profits or losses are calculated after each trade is closed.
In fact, these are only general provisions, the tip of the iceberg, so to say. The investment iceberg is very dangerous, while PAMM account investments are twice as dangerous. The danger to the investor is that it is extremely difficult to measure how professional their manager is. Who can you trust your investments? You want it now, a lot and, of course, in a steady manner. But the reality is that everyone can become a PAMM account manager, but only a few have the knowledge and experience to generate consistent and more or less decent returns. The percentage of traders that ruin the account is quite high. The investor may only rely on statistics of how the manager performed during the previous period, but these data are not a full guarantee of successful performance in the future. I am convinced the investor should have a much more profound idea about how the trader works to screen off potential 'ruiners' and entrust their investments to truly professional managers. It is clear from practice that one can get very serious profits once you learn to select well.
Sergey Cherepanov: I agree with Denis on many points. On the other hand, as Head of the Asset Management Department that deals with selection of professional managers, I would like to give more details of the problem of 'ruining' traders and give a few tips to investors which, I hope, will help them avoid mistakes when choosing managing traders.
Problems of traders that want to manage accounts usually lie in the psychology.
They start at a very early stage when two external factors start affecting the trading process - other people's money and external control. An unprofessional trader will have a very hard time dealing with these because of lack of experience.
I recommend that investors:
1. Independently check their traders, do not ignore the simulated account first, then small amounts for a couple of months. This is what will help you minimize possible losses at the very early stages of cooperation and find out much more about the trader.
2. Demand a clear description of the TS they use - this will enable constructive control and rule out 'pulling your leg' on the part of the trader. Remember: even the weakest trading system is always better than none at all.
General Manager of Forex Trend, Andrey Polishevich:
In case of managing small assets, your assessment criteria used for trader selection are absolutely founded and reasonable. Of course, one can use a simulated account to see how viable the trading system is. Description is also an important aspect but you first need to have the knowledge yourself to concept whether the claimed TS corresponds to the description you got. How fast the trader can adjust him or herself to the realities of the changing market. The psychological factor and stress resistance are definitely an equally significant factor. This is where I fully agree with the guys.
But if you treat investments from a professional point of view, you have to approach it with the following in mind.
Investments in the forex are exposed to high risks. For this reason, never invest more than you can afford to lose.
Do not rely on luck and trust your money to a manager with large returns and a minimum trading history without detailed analysis. Have a careful look at their weekly and monthly trading results. You must check out when the account was opened. The longer the positive trading history, the steadier the trader.
Take a note of the manager's own capital. The larger it is, the more meticulously and consistently the trader will work. It is hard to assume that an unprepared person is ready to risk their own large amounts without a tested trading strategy.
The ratio of maximum and relative drawdown is another important factor in selecting the manager. This indicator will show you acceptable risk levels to the deposit that were reached in trading.
It was mentioned above that our company has the PAMM 2.0 service which limits possible risks of losing your own money to the responsibility level of the manager. This module will suspend trading in the account, while all possible losses in excess of the established level of responsibility will be compensated by to the investors from the manager's funds automatically and unconditionally. It goes without saying that such obligations can be assumed only by professionals who do, instead of speaking, to maintain effectiveness of their trading strategy.
And lastly, a smartly filled investor portfolio, that includes PAMM accounts meeting above criteria, will spare you the disappointment and possible losses of your own money.
Good luck in your trading!
