Investing in the foreign exchange market is possible not only through trading on your own. You can open PAMM or MAM account to manage your funds with a professional trader. Another option is investments is trust management. Today we will compare PAMM/MAM accounts and trust management, so you can decide what is the best fit for you.
Trust Management
This type of investment implies that you transfer your account to a more experienced trader. Finding such a professional should not be difficult. Many experienced traders advertise their successful results online or are promoted by brokerage companies.
You don't have to take the money managers' word for it. Professional traders provide their past accounts as proof of their competence. If the manager cannot show you this data, keep searching.
Advantages
- You don't have to spend time and effort on self-trading.
- Your investments fall into the hands of an experienced trader immediately. Right from the start, a money manager can bring much greater profit than a trading robot or a beginner in Forex.
- Your relationship with the manager will be supported by an agreement which will spell out the terms of your cooperation.
- You are still the account holder. You can’t open or close trades but you can freely withdraw the received profit.
- You can set the risk level that is acceptable for you and also discuss your preferred trading strategy with the money manager.
Disadvantages
- Managers rarely work with small amounts. It all depends on the requirements of the trader but the amount should be significant.
- 20-50% of your profit will go to the manager as compensation for his work.
- This type of investment doesn’t provide any guarantees as well. Your investment may even decrease.
If you choose this method, remember: don’t chase high instant profits - give preference to money managers with average but stable growth.
PAMM and MAM Accounts
These two types of investment are slightly different technically but have a common essence. They are also managed by professional traders, however, they accumulate funds of several investors. Later, the profit is distributed between the manager and all investors, depending on the size of their contribution.
The main difference between PAMM (Percent Allocation Management Module) and MAM (Multi-Account Manager) accounts is how they manage investors' funds. For example, a PAMM account copies all the trades proportionally, while you can set a MAM account to investors' preferences like position size, leverage, etc.
Using MAM accounts in Forex is a better option for experienced traders because investors can change their master trader strategy and open or close trades anytime. In contrast, a PAMM account is a good option for newbies.
Advantages
- This type of investment has the lowest risk level in comparison with other methods.
- The minimum investment is much lower than in trust management accounts.
- You can pre-select a manager with a suitable percentage of profit and risk level.
- Profit is available for withdrawal at any time.
- Your relationship with the manager is backed up and protected by an appropriate agreement.
Disadvantages
- You cannot dictate to the manager what trades to open and what risk level to set. This issue is governed only by the selection of a suitable trader.
- Up to 50% of your profit will have to go to the money manager.
- The human factor retains. Your investment might also be lost, although less likely than with other methods.
Trading Forex and CFDs is not suitable for all investors as it carries a high degree of risk to your capital: 75-90% of retail investors lose money trading these products. Forex and CFD transactions involve high risk due to the following factors: Over-leveraging, unpredictable market volatility, slippage arising from a lack of liquidity, inadequate trading knowledge or experience, and a lack of regulatory protection for clients.
In any case, you have to be wise if you decide to open your MAM or PAMM Forex account. It's essential to analyze master traders' strategies, risk management, and leverage level. Make sure that the investment platform is reliable enough, and it will copy all trading processes.
These are all the available types of Forex investing. You need to make a sensible estimate of how much time, money, and effort you are willing to invest, and based on that, choose the best method for you. Good luck!