A PAMM account is a relatively young tool for investing in financial markets. Forex beginners were skeptical about the novelty in the market, but over the past 10 years, PAMM accounts have certainly earned the status of one of the most popular services. The reasons for this are the convenience of investing and the optimal distribution of risks.
What is a PAMM account?
Russian “PAMM” comes from the English word “PAMM” – Percentage Allocation Management Module. The literal translation is “percentage distribution management module”. In fact, a PAMM account is a tool for proportional participation in investing, as well as the distribution of profits and losses among all participants of the managed account.
Investments in PAMM accounts are currently very popular, as they allow you to get a quite significant passive income. Like any other way of investing money, investing in PAMM accounts has become overgrown with a considerable number of rumors and myths that disorient newcomers.
Let’s distinguish the 4 main myths :
1. Investment risk
It is considered that investing in PAMM accounts is very risky, as it is very easy to lose all the money invested. There is some truth in this statement – high returns are accompanied by a high degree of risk. For this, in order not to lose all the invested funds, it is recommended to distribute them among several PAMM accounts of different managers.
Thus, the negative performance of one will be minimized by the profitability of the other. Diversification of funds is an obligatory rule for every investor, only in this case you can protect yourself from capital loss.
2. High entry threshold
There is a misconception that investment is an expensive pleasure, not available to everyone. This statement is wrong, because you can start with the minimum amount in the account. Here you can compare some types of PAMM accounts and their minimum threshold.
The income is proportional to the investment. Gradually, you can increase the size of your investment by adding additional funds to your account every month. The number of investment and the income will increase accordingly.
3. Account manager, manages your money.
Beginner investors have a fear that the manager can withdraw all the money from the account at any time and hide from the investor. The fact is that the manager can only manage your money and distribute the risks. The invested investments belong to the investor including the income and expenses of this account. However, it is worth mentioning that this statement is typical only for those brokers who have already established themselves in the market and have a good reputation. Choose only a trusted broker.
“The diversification of funds is an obligatory rule for every investor. Only in this case you can protect yourself from the loss of capital”
4. Independent trading is more profitable than management.
Experienced investors can claim that independent trading on a currency exchange can bring significantly more profit than investing in PAMM accounts. This is exactly the case. Yes, you share your profits with the manager, but to work yourself, you need to have a lot of experience, spend at least 10 hours a day on the financial markets, follow the world news in real mode and have an analytical mind. Do you own all of this? If so, then you don’t need a PAMM account.
A beginner trader at first is more likely to trade with negative returns, constantly risking losing all their funds. Independent work also depends on the time that the trader devotes to this activity. The investor does not spend time on generating income. The account manager does all the work for him.
It should be noted that many negative rumors about investing in PAMM are associated with the activities of unscrupulous brokerage firms, so for successful trading and making a profit, choose those brokers that have an excellent reputation in the market.