We all know that forex can be a profitable hobby for many people, but did you know that forex could be even more fun with a few friends? That’s what forex PAMM (percent allocation management module) accounts do for you. If you open up a PAMM account, then you can use the money of certain investors who put their faith in your forex trading skill. But, how do you become PAMM manager success story? First, let’s explain a little bit about what a PAMM account actually is.
Defining PAMM
Several brokers allow their customers to open PAMM accounts. These accounts are usually open to anyone, and many of them can be opened with small amounts of initial capital. Of course, the goal of a PAMM account is to attract investors who are willing to put their money in the manager’s account. The manager then uses the greater pool of money to make trades and earn profits. At the end of every trading period, the manager must allocate a predetermined amount of funds to each investor based off their initial investment. The managers also get a predetermined cut of the funds received by the investors.
For example, a PAMM manager might have an initial capital of $1,000. Their investor could put in $2,000 for a total pool $3,000. If the PAMM manager makes an additional $3,000 during the first trading session, then they will have made a 100% profit. The investor is entitled to 100% of their initial investment, so they receive $2,000. The PAMM manager is also entitled to 100% of their initial capital, so they receive $1,000. But, the investor must also pay a percentage to the PAMM manager. So, if the predetermined percentage was 20%, the investor would have to pay an additional $400 to the PAMM manager.
This all sounds good in theory, but how to do you actually become a successful PAMM manager?
Be a Good Trader
First and foremost, your goal as a PAMM manager should be to make excellent trades. When you open a PAMM account, you likely won’t have any investors. So, you will just be trading on your own with your own capital. Many brokers have a PAMM rating system so that good traders are more visible than bad ones. As you improve your rating, you’ll start to garner interest from investors. It’s important to get investors to commit because they’re relying on your trading skill to earn them some money. So, brush up on your skills and get your PAMM rating up if you want to be a PAMM manager success.
Employ Reasonable Percentages
Although you are doing most of the work as a PAMM manager, you still need to make sure that your potential investors have some incentive to work with you. At the end of each trading period, you get to take a cut from all of your investors. If you designate a percentage that’s too high, then most investors will skip over you. If you want to work with their money, then you should make it attractive for them. Generally, PAMM managers can designate between 10% and 30% of a return on their investors’ profits.
Work with a Reputable Broker
Because most of this takes place online, you’re really at the mercy of the broker when it comes to receiving your compensation. Make sure that, before you create your PAMM account, you can trust the broker. This is important for both PAMM managers and investors. You need to have some assurance that you’re going to get the agreed-upon percentage from every investor. Your investors also need the assurance that you’re going to pay up at the end of each trading session. If you’re broker doesn’t have trusted, automated tools to ensure the completion of these transactions, then you should look elsewhere.
Contributed by Aaron Stollman for FXOpen.com Forex broker. Feel free to check FXOpen PAMM accounts http://www.fxopen.com/Pamm/List.aspx.
Aaron Stollman is an experienced Forex trader and an independent Forex writer.
