What Are Managed Forex Accounts?
Managed forex accounts are trading accounts that are handled by experienced fund managers. These are different from a standard account in a way, as traders do not enter and exit positions on their own. Still, the trades are executed by a money manager who opens or closes positions on the investor’s behalf. Money managers only have partial control over the account they manage. This offers flexibility to the investor and ensures that they can take important decisions for their trading accounts. For instance, an investor or account holder is the only one who has control over depositing and withdrawing money.
When an investor decides to open a managed forex account, the investor and the money manager have to sign a Limited Power of Attorney Agreement. This agreement gives the ability to the money manager to place trades on behalf of an investor’s account, but the investor also has the right to terminate the LPA anytime they wish. Investors can check their account balances and monitor all trading activities. This creates an atmosphere of transparency and safety.
However, before creating a managed account, investors should know that money managers could have specific requirements like minimum deposit or minimum time period for which investors have to keep working with the money manager. Also, they charge extra fees for managing investors’ accounts. Since these requirements and fees can vary from manager to manager, investors should make sure that they have all the necessary information about.
What is MAM?
MAM stands for Multi Account Manager. This is a solution that allows money managers to control multiple accounts simultaneously. With MAM accounts, money managers have a choice to either trade each account turn by turn from a single interface or trade from a master account. When a trader executes trades from a main or master account, the MAM system distributes the trades to the connected account. MAM accounts allow money managers to adjust risk levels based on the account holder’s instructions. They can decide the maximum leverage or lot size for each account, but the best part is that trades are executed instantly across all sub-accounts without delay. MAM accounts are excellent for traders who have the capital to invest but lack the knowledge and expertise to handle their accounts. Professional traders, on the other hand, get an opportunity to trade higher capital and use theoretical knowledge to generate higher returns.
What is PAMM?
PAMM is also a managed account where all sub-accounts are managed by a single trader and traded together. The main account is like a big pool of funds that combines the capital from all sub-accounts. To understand how it works, let’s take an example where the money manager enters a trade to buy 100 lots of GBP/USD, and the trade is a win. Now based on the percentage of equity each investor has in the pool, the profits will be allocated to them accordingly. You can easily keep track of the profits made by the fund manager using a pip calculator and too in your own currency. So, if we look at PAMM accounts from both investors and money managers’ perspectives, it’s quite beneficial for both of them.
Investors can benefit from the trading expertise of a money manager, and at the same time, they have the flexibility to distribute funds across multiple money managers.
On the other hand, a professional trader or a money manager gets an opportunity to trade a huge amount of capital and earn commissions for managing others’ accounts.
Top Reasons For Brokers To Offer MAM/PAMM Services
- Bring in More Clients: When brokers provide PAMM or MAM services, they can attract a bigger range of clients. This includes people like money managers who handle investments, big companies or organisations, and individuals with a lot of money to invest. By offering these services, brokers can appeal to a larger group of potential clients. This can help them grow their business and reach a wider audience of investors.
- More Ways to Make Money: Offering MAM and PAMM services can give brokers extra ways to earn money. They can collect management fees or take a commission on the trades executed by money managers and investors. This means that besides their regular earnings from trading activities, brokers can generate additional income through these services. It’s like having multiple streams of revenue flowing in, which can greatly boost their financial success.
- Get Ahead of the Game: Brokers who offer MAM and PAMM services have an edge over their competitors. Not all brokers provide these services, so it sets them apart from the crowd. By offering MAM and PAMM, brokers can attract more clients and cater to a wider range of investors. When investors see that a broker offers MAM and PAMM services, it shows that the broker is committed to providing comprehensive and flexible options for their clients. It demonstrates that they understand the diverse needs of investors and are willing to go the extra mile to meet those needs. This advantage can lead to more business opportunities and an increased market share. It positions the broker as a leader in the industry and can help them build a strong reputation.
- Boost Your Trading Activity: When traders use MAM and PAMM services, they can handle multiple accounts all in one place. This means they can trade more frequently and with larger volumes. And guess what? This increased trading activity benefits the broker.
With more traders using MAM and PAMM services, the broker sees a surge in trading volumes. It’s like a win-win situation. Traders get the convenience of managing multiple accounts seamlessly, and the broker gets to enjoy higher trading volumes. This can result in more commissions and fees for the broker, leading to greater revenue.
Moreover, increased trading volumes can also attract more liquidity providers and market participants. As the broker’s trading activity rises, it grabs the attention of other market players who want to join in on the action. This can lead to better trading conditions, tighter spreads, and improved overall trading experiences for both the broker and the traders.
Offering MAM and PAMM services means taking on additional responsibilities and adhering to specific guidelines. Brokers need to understand the legal and compliance aspects involved. They must ensure that they have the systems in place to handle multiple accounts, manage the trades effectively, and keep everything transparent and secure.
It’s not just about offering these services but doing it in the right way. Brokers need to invest time and effort into acquiring the expertise and resources necessary to provide MAM and PAMM services. This can include having a knowledgeable team, implementing robust technology, and staying up-to-date with the latest regulations.
By being diligent and compliant, brokers can build trust with their clients and maintain a good reputation in the industry. Brokers should ensure the best possible experience for traders while operating within the boundaries set by regulatory authorities.