How Forex PAMM Scams Work

PAMM accounts may be beneficial for traders and investors, but there are scams and frauds looking for victims who don't know how to recognize the signs.

The Percent Allocation Management Module (PAMM) is a way for investors and traders to work together on investments. The system lets investors trade and makes money on the financial markets without having to trade themselves or keep track of market positions. In other words, a trader takes care of their accounts and makes trades for them. The name for this kind of trader is a portfolio manager. With this PAMM service, portfolio managers can also trade with bigger funds and make more money.

Advantages of Forex PAMM

One of the biggest advantages of a PAMM account is the fact that the manager is risking their own investment as well so they won't place any positions that will harm you as that would directly harm them as well. Since their funds are also included in the deal, they will be making trading with more caution and utmost focus. There is also minimal risk of fraud since the manager can't directly deal with the account holders. Some accounts even give you the option of allocating your funds among several different managers which can significantly help minimize risk and increase the chances of good profits.

Disadvantages of Forex PAMM

Despite all the reasons why PAMM accounts are pretty useful, they also come with their fair share of disadvantages. When investing in a PAMM account, you're basically giving away all decision-making power to the manager. Therefore, if you don't like the strategy that your account manager is using or if you prefer they use another strategy, you can't do anything about it. Another big disadvantage is that most brokers don't allow you to withdraw any funds unless the manager permits it. So if your account is losing, there really isn't much you can do about it other than watch it drowns.

The Risk of PAMM Scams

In this scam, the broker will tell you that you can have your forex trades handled by highly-skilled forex traders who can give you great returns. They will show you how your small account will be linked to a high-value account and how much profit you will get based on how much you invest. They may also show you a profit of 30% to 50% on your investment, making it hard for you to turn down the offer. They will display some totally bogus records on their website to back up what they say. As a matter of fact, the real return you can get from a PAMM account is somewhere between 2% and 5% per month max.

Even though some real brokers do offer real PAMM accounts, a few of them do run the scam, and if you fall for them, you'll lose your money for sure.

How to Spot PAMM Scams

Now that we've understood how exactly a forex PAMM scam works, we need to figure out how to spot it so we can avoid it at all costs. Lucky for us, spotting these scams is not tough if we know exactly what we're looking for. Here are the top things that give away the signs you're going to be scammed through a forex PAMM account:

High Profits

A PAMM account manager that is a scam artist would lie to their customers and offer them unachievable levels of profit. When a forex broker makes such claims, it is almost certain they are not genuine. This is due to the fact that no respectable broker in the industry can promise large profits to any trader. In addition, based on the available data, only 11-25 percent of newbie traders ever go on to become professional investors in the forex industry. Only a small fraction of these 11–25 percent really start making decent money. Because of this, you need to proceed with utmost caution when dealing with managers that make such statements. You should avoid them at all costs due to the fact that they are difficult to get rid of once you're exposed to them.

Zero Risk

A PAMM account manager who is a scam artist will make false promises of trading with minimum to no risk of losing. This is simply untrue because no matter how good a manager is, market risks are always present due to the unpredictable nature of the price movement. Remember that if it seems too good to be true, then it usually is.

Not Regulated

Legitimate foreign exchange brokers are required by law to have their business operations overseen by a regulatory agency. This might be a public licensing firm or a private licensing firm. On the website of the broker, you may discover information about the regulators, and you can also check this information on the website of the regulatory agency. This is public information and it will only take a few moments to determine whether or not the license still applies. Naturally, the actions of firms that are on a blacklist are not regulated in any way. If your broker is unregulated, chances are that the managers controlling their PAMM accounts aren't legitimate either. Therefore, we really recommend you always double-check to make sure your broker is regulated by a top-tier body.

Fake Ratings

Currently, there are a large number of fraudulent reviews available on PAMM account managers. A significant number of forex brokers that are on blacklists are fond of boasting their top managers in questionable rating polls. However, they only provide ratings that are already existing on their website or ratings from a third-party source that genuinely belongs to the same individual and has no influence on the forex market. They never display the actual ratings left by actual customers. This is due to the fact that they are fully aware of how poor the actual ratings are.

Now that you're aware of PAMM scams and how to recognize them, you may want to try another type of managed account service that gives you the freedom of setting your risk management.