Forex Managed Account is the type of account that is managed or operated by a professional trader on behalf of his/her client (owner of the account). The retail trader who is the owner of the account opens a forex managed account and afterward, gives full access to the account manager to do buy or sell transactions on his/her behalf. Regardless of whether you are a Beginner or you have been trading for a very long time, there will be times that you want to sit back and let your money work for you without you lifting a finger. Sometimes, you might not have the time to trade. That is what a Forex managed account is for. The fundamental idea is not hard, you deposit your money in the account, watch it develop, and withdrawal it when you need it. Generally, you don’t work with your money; it’s a professional trader (your account manager) that will work with it for you.
There are different types of accounts but we are going to talk about two (2), which are;
- Percent Allocation Management Module (PAMM)
- Multi Account Manager (MAM)
What is Percent Allocation Management Module (PAMM)?
Percent Allocation Management Module (PAMM) is a Forex account management that disperses the size of trades as per an allocation percentage. This solution is offered by numerous forex brokers for account
managers and investors. With a PAMM account, an investor can likewise assign a percentage of his/her account to one or more account managers. The account manager’s PAMM account is a huge “primary (main) account”, whose account balance is equivalent to the sum of the accounts under him (investor accounts he/she is managing). Automatically, the manager’s trades are repeated in the sub-accounts (investor accounts) according to a percentage basis.
For instance, if a money manager manages 4 sub- accounts (investor accounts) in the following proportion;
“Sub-account 1” with a deposit of $200,000 and percentage of 40%
“Sub-account 2” with a deposit of $80,000 and percentage of 16%
“Sub-account 3” with a deposit of $115,000 and percentage of 23%
“Sub-account 4” with a deposit of $105,000 and percentage of 21%
If the money manager makes a 10-lot trade on the GPBUSD (decides to buy 1 million GPBUSD), the trade is divided among the individual sub-accounts (clients) into smaller parts based on the percentage of equity of each sub-account in relation to the master account (manager’s account). PAMM assigns the order between managed accounts according to its percentage. For instance, let’s say the profit made from the trade is $60,000 and the performance fee of the money manager is 20% of the profit made from the trade ($12,000), after removing the performance fee from the profit, the remaining profit will be $48,000. So, $48,000 will be divided among the individual sub-accounts (clients) into smaller parts based on the percentage of equity of each sub-account in relation to the master account.
What is Multi Account Manager (MAM)?
Multi Account Manager (MAM) is also an account like PAMM that assign trades based on percentage of total equity. But MAM has other features that PAMM doesn’t have. MAM accounts make it possible for money managers to sub-assign the trades placed in the master’s account. For example, the money manager can assign trades on a fixed basis, which implies that he can define the lotsize traded by each sub-account. The money manager can likewise change the amount of leverage applied to the sub-accounts if his/her clients need to take on a higher level of risk.