Trying to excel in your career, maintain a social life, drink enough water, exercise, text everyone back, stay sane, survive, and be happy. We have too much to do but too little time to do it. No wonder people struggle to find good trading opportunities and strategies. But it doesn’t have to be this way.
There are social trading platforms that provide an opportunity for people to copy professional traders and make a lot of money. And these professional traders need a solid platform. This is where B2broker comes in. We provide IT services for financial institutions. You’d likely hear our name if someone asks about social trading for brokerage business. So, how do we make social trading possible for our customers and clients? Through MAM & PAMM accounts.
What is PAMM?
PAMM stands for Percentage Allocation Management Module. People who don’t have the time or knowledge to attempt forex trading opt for PAMM systems.
In this method, investors pick and choose a qualified trader known as money manager. This money manager will use investors’ money to trade forex as per his/her trading style and strategy.
This way, investors can reap profits without any effort. However, they can also incur losses if the money manager fails to make a profit on the trade.
Here’s how it works:
- Investors A, B, C, and D open forex trading accounts and allocate $50000, $30000, $15000, and $5000 respectively to a money manager.
- The money manager is charging a performance fee of 20% of the profit.
- Total pooled money = $100000
- The trade is successful and there is a $12500 profit.
- The money manager takes his 20%, which is $2500.
- Remaining profit = $10000
- Investor A allocated 50% of the total money so he/she gets 50% of the remaining profit, which is $5000.
- Following the same principle, investor B gets $3000, investor C gets $1500, and investor D gets $500.
What is MAM?
MAM stands for Multi-Account Manager. It’s similar to PAMM but the key difference between PAMM and MAM is that MAM is more sophisticated. It provides money managers higher flexibility to adjust risk levels and allocate funds.
Here, investors can choose the risk level on their trading account. Based on these risk tolerance levels, money managers can set higher leverage to specific investors.
Another important thing to note is that in MAM, trading is conducted on the accounts of individual investors.
This is very different from PAMM where all the trading and investing takes place on a single account.
Here’s how it works:
- A MAM money manager with 4 investors opens a long position of 100 lots in EUR/USD.
- Investor A will get 40% of the total equity.
Investor B will get 30% of the total equity.
Investor C will get 20% of the total equity.
Investor D will get 10% of the total equity.
- Each client’s lot was assigned based on their risk tolerance.
- The money manager sets Investor A’s lots at 40 lots of EUR/USD based on Investor A’s high risk tolerance.
- Similarly, the money manager sets Investor B, C, and D’s lots at 30, 20 and 10 lots of EUR/USD respectively.
- After the lots have been allocated, the money manager will start trading from each investor’s account as he/she has full access to them.