Managed accounts, or PAMM (percent allocation money management) is a solution used by Forex brokers that enables their customers to attach their funds to specific traders who manage a number of managed accounts.
This solution involves the following steps:
- A trader deposits his own funds to the managed account, which he uses during the following few months to carry out transaction and build a trading history and strategy;
- On having conducted an analysis of traders, an investor chooses the trader whose performance, profits and strategy are best suited to the investor’s requirements,
- The inwestor opens a PAMM account with the chosen trader and deposits funds to be invested. The trader invests his own funds and those of the investor and generates a profit;
- At the end of the investment cycle, the trader is paid a commission on the profits he has generated.
One of the advantages of this solution is that when the trader enters a transaction, he puts at risk his own capital as well as that entrusted to him by investors. Therefore, the trader is likely to select a less risky strategy to protect his own capital.