Lets first define what PAMM is: it stands for Percentage Allocation Management Module. In plain English, a money manager manages a pool of money. The pool is composed of (usually) multiple investors each of which has a share or percentage of the pool. When the money manager opens a position, the position is spread out across all of the investors accounts as an equivalent percentage of their share in the pool.
For example, if I have $10,000 and the money pool is composed of $100,000, that means that my percentage is $10,000 / $100,000 = 0.1 x 100 ( to get percentage) = 10%. So my share of the pool is 10%. Now, if the money manager opens a 1 standard lot position in the market, my account will have to open 10% of 1 standard lot, or 0.1 standard lot position.
Why have a PAMM account?
There are people who have money to invest but they just do not have the time, expertise or the patience to trade the markets by themselves so they prefer to give their money to someone else who has those skills and does this for living. Your money will automatically grow (assuming a good trader is controlling it) more than if it were in a bank and you still have full control over your account. You decide when to invest and when to stop. The trader never has access to your money and most brokers also offer protective stops which get rid of the risk of account destruction.
Advantages of investing in a PAMM
1. You do not need any Forex skill to make money all you need to do is to connect your account to the PAMM and the rest is done automatically.
2. You can keep your day job or your business and make money from two income sources. The money will grow while invested in the PAMM.
3. You have full control over what happens to your account and you can stop investing and withdraw the money nearly instantly. If the traders loses X amount of pips or Y% of the capital, you simply stop trading.
5. Professional traders charge usually 20% of the performance and even with such commission they manage to make more money than you in the same period of time.
6. They trade all day long because they are professionals while you can trade only after work most of the times.
7. With a nice amount of capital you can expect to make enough to pay you a second wage.
Disadvantages of investing in a PAMM
PAMMS are great but there are also some disadvantages you need tom consider when investing your money with them. Not everything are roses, there are some spikes on the road as well:
1. You do not know who is on the other side of the line, so you trust someone you do not know your hard earned cash. Make sure you read the profile very carefully about what his trading objectives are and how he manages the money. Do not go for the PAMMs which are a month old and already making 120% a month. These PAMMS rarely make it to the second month.
2. If the PAMM does not have a six month past performance or more you are trusting your money to a very high risky system that can lose all your capital if you are not careful to withdraw the money on time. PAMM trading does have risks, especially for investors seeking to make more than 5-10% a month.
3. There is no way to know when the traders changes his trading methods from good to bad and so you do never know when you can start losing money.
PAMMs are perfect for the traders who are not so skilled like the professionals or they just do not have the time or the patience to trade. PAMMs are very secure and transparent these days. Unlike what you can read in some forum reviews, PAMMs cannot steal money from the accounts, the PAMM traders has authorization to trade the money only and can never touch or withdraw it.