Alex von Stachelkopf
To put it simply a financially independent person is the one, whose income for equal periods of time exceed expenses. Income may be active (when it is received by means of one’s own labor) and passive (when other people work for you, directly or implicitly). In the Soviet times passive income was called non-labor.
One of the variants of passive income is getting percentage from money invested in a financial business. This issue is further discussed between the “Market Leader” and experts of Masterforex-V Academy.
Percentage on Bank Deposit is More Common and Clear than PAMM and LAMM Accounts at Forex Market
- Market Leader: Percentage on a bank deposit is common and clear. What other financial business may bring the desired passive income?
- Nikolai Kerech (Kharkov, Ukraine), trader, author of innovative volume and wave analysis (CVWA TS): A bank deposit is not as simple as it seems. Let us take a concrete situation as an example: supposing, you are planning to earn from percentage in a Ukrainian bank, for which purpose you have saved 10 000 hryvnia. What bank to open a deposit it? In what currency? For what term? Will you take percentage on a monthly basis or add it to the deposit? Will your money be protected from inflation? And these are only some of the questions that arise. As soon as you have decided to get passive (non-labor) income, think about its essential constituent – risks. All kinds of passive income entail risk; in some cases risk amounts to 100%, which means that you may lose all invested money. Depositors of some Ukrainian banks are painfully familiar with the problem. Investment in Forex may become another variant of passive income. Beginning traders are promised to have fantastic opportunities.
- Evgeny Bobrov (Moscow, RF): Yes, investment in Forex PAMM accounts has left bank deposits behind by the number of advertising filmlets and banners. They have much higher income than bank deposits, but at the same time they have certain nuances.
Investment in Forex: High Income or High Risk?
- Market Leader: That is right, media calls income of Forex investors guaranteed and high-yield.
- Nikolai Kerech (Kharkov, Ukraine): For me as a trader, speaking the language of numbers is easier. Just compare: in a Ukrainian bank for your 10 000 hryvnia you may be offered the income of up to 20% per annum in hryvnia or 11% in dollars. A competent and experienced trader at Forex may get a stable earning of 10-20% from capital per month, in other words, the average of 150% per annum. Impressive? Most successful traders may raise their income to 1000% per annum, and this is not the limit. For an unprepared person such figures may truly seem fantastic. But let us keep in mind the essential constituent of passive income – risks. What does advertising not say? Right, risks. Risks of currency transactions at Forex may amount to 50 or even 100%, and not any financial business that offers Forex investment limits these risks. There is even more, for there are so-called “credit leverage”, which push their clients to higher risks. For justice, or rather without any limitations, they simply create favorable terms, being perfectly aware of people’s weaknesses. Why do such business spend so much on advertising and clients’ attraction? – That’s right, clients’ loss becomes their profit. So, what should a beginning investor do to avoid such unpleasant situation? – Certainly, to learn financial literacy.
- Market Leader: What problems do beginning investors face first of all?
- Ilya Pressler (Izhevsk, Yekaterinburg, trader, the head of DFWA Department at Masterforex-V Academy): Finding a worthy investment among various projects of trust management, PAMM accounts, and similar projects is rather difficult.
1. First of all, one should find maximum available information on every project, namely, its founders, legal addresses, read feedbacks, watch ratings (for example, at one of the largest Forex forums of Мasterforex-V Academy).
2. To have very cautious approach to new projects. From my experience, 90% of all projects on trust management have had a bad ending in the course of their first three years. So, secondly, study and try to understand necessity of diversification. Do not put all eggs in one basket. If you have decided to deal with this seriously, act accordingly: distribute your capital (split risks) into different companies, different PAMM accounts.
3. Thirdly, when assessing current profitability of a PAMM account, try to assess the factor of random result as well. For this purpose, you should watch the history of account, and whether the growth of capital is steady. For example, annual profitability of 100% seems to be fine, but if it is known that profitability has been negative for 360 days, and the result has been achieved from one transactions, should one trust his money to such manager? Just like in any other intricate sphere of activity, getting profit at Forex can be reached only by those most prepared. This refers not only to traders and managers of accounts, but also investors.
- Igor Zotov (Tomsk, Russia, trader, author of unique indicators of market trends analysis): In order to get valid profit from any investment, you should have good understanding of how and form where it will appear, as well as how your money will work. In other words, an investor is to know about perspectives of the project’s developments: plans, dividends, and risks of the business, which he is going to invest in. One should understand the sphere that he expects to get profit from. International currency market Forex is no exception. Any investment into the market, no matter how it is effected, is to be based on competent actions of the investor.
- Ivan Kurapov (Saint-Petersburg, Russia): A belief that profitable investment in PAMM account is possible without deep knowledge of trading is a MYTH. In fact, one should clearly know principles of trade, hold thorough analysis of a trader’s statement (result of work), see his drawdown, watch the way he deals with loss-making periods, and much more. Without enough training and correct choice of a broker and a manager investor’s profit will be random. And random nature of capital management is usually fatal.
- Market Leader: What rules should be followed by an investor at Forex market?
- Igor Zotov (Tomsk, Russia): He should understand that risks may be exchange and non-exchange, which means risks that are directly connected with the manager’s trade and risks related to other factors, such as payback guarantee. In order to exclude such risks, one should choose a broker company correctly. Impersonal type of investment is most risky, for investment is effected without signing an agreement between a manager and investor that would specify any possible outcome, including responsibility for risks. One of the ways of protection from such risks is provided by the system of PAMM accounts. However, such form of investment does not presuppose direct work with a trader, so all responsibility for invested means falls on the investor. This means that investor will be obliged to pay for mistakes of the manager of a PAMM account. Therefore, the best way out is to learn how to manage your means at Forex. As a well-known saying goes “If you want a thing done well, do it yourself”.
- Market Leader: Does the choice of a broker for investing in a PAMM account also matter?
- Oleg Kravchuk (Kiev, Ukraine): PAMM accounts may be different, and they largely depend on Forex brokers themselves. For example, if you open a PAMM account in one of the leading broker companies, such as Forex Trend, Alpari, or Panteon Finance, which have top positions in Masterforex-V Academy rating of brokers of PAMM accounts, that’s one case, especially if to consider that Forex Trend offers insurance of PAMM deposits. But it is a different case if you open PAMM accounts in Instaforex or Iron Group, which have numerous claims and negative feedbacks from traders. You will then find out about all drawbacks of brokers.
- Market Leader: What is the average profitability of a Forex PAMM account?
- Evgeny Bobrov (Moscow, Russia): Average monthly profitability usually amounts to 8-10%, but it may reach 15-20%, as shown in the table of profitability of PAMM accounts in Forex Trend broker company:
- Oleg Kravchuk (Kiev, Ukraine): Panteon Finance has slightly different profitability of PAMM accounts at Forex market:
- Oleg Kravchuk (Kiev, Ukraine): Alpari provides profitability of a PAMM account for six months:
- Market Leader: Would you advise to deal with one broker or to make an investment portfolio from investments in PAMM accounts of different Forex brokers?
- Evgeny Bobrov (Moscow, Russia): Certainly, an investment portfolio that would include at least 2-3 reliable Forex brokers. After the first months of investment and money output, you may change the proportion of investment, but on no account invest over 30% of your means into one PAMM account.
What Conclusions are to be Made when Investing in Forex PAMM Accounts?
- Market Leader: Let us make conclusions for Forex investors.
- Nikolai Kerech (Kharkov, Ukraine): Conclusions are evident:
1. A beginning investor should understand presence and size of risks when choosing the way for getting profit.
2. One should not pin faith on advertising – any promises in case of money investment are to be specified in a signed agreement, pay particular attention to payback guarantee.
3. Before investing in an unknown sphere try to get certain knowledge in it.
4. Rising financial literacy is mandatory for a beginning investor.
5. In order to get high profit from currency transactions at Forex one should have a wise choice of a broker company, a manager, and most importantly – learn how to manage one’s own means.
The “Market Leader” and Masterforex-V Academy hold a poll in Masterforex-V Academy Discussion Club: What do you choose as a source of passive income?
- a bank,
- a manager of Forex PAMM account,
- to become a Forex trader.
Alex von Stachelkopf
