Is Forex PAMM Profitable For Investors?

Forex PAMM is when your invested capital is bound to be allocated by a fund manager who runs his own capital and his investors' capital. Nevertheless, is it really profitable for investors?

There you go, you are an investor, and you want to be rich without learning Forex 101 simply because you don't have the time to do so. Then someone offered you to join forex PAMM. He said, yes, you can enter the Forex industry without the know-how (well, probably a little bit). But the biggest question is... Is forex PAMM profitable for investors?

Forex PAMM stands for Percentage Allocation Management Module. As written on the tin, your invested capital is bound to be allocated by a fund manager who runs his own capital and his investors' capital.

Forex PAMM accounts can potentially be profitable for investors, but it is important to note that profitability is subject to various factors and individual circumstances.

You know, it's like handing over your faith to a reverend, except that this faith is pretty much tradeable and thus profitable.

Benefits of Using Forex PAMM

Using a Forex PAMM account can offer several benefits for investors. Here are some potential advantages:

1. Professional money management
   It allows you to delegate trading activities to professional money managers. These managers have experience and expertise in the forex market, potentially increasing the chances of making profitable trades.
   
   
2. Diversification
   Investing in a Forex PAMM account provides an opportunity to diversify your investment portfolio. By allocating funds to multiple PAMM accounts with different money managers, you can spread your risk across various trading strategies, currency pairs, and market conditions.
   
   
3. Accessibility
   It also offers accessibility to the forex market for you who may not have the time, knowledge, or... I don't know what to say, expertise to actively trade yourself perhaps. It allows you to participate in the forex market without requiring in-depth market analysis or continuous monitoring though.
   
   
4. Potential for passive income
   Profits generated from successful trades made by the money manager are proportionately allocated to you based on their investment size. This can provide an additional source of income without active involvement in the trading process.
   
   
5. Transparency
   Many Forex PAMM platforms provide transparency by offering detailed reporting and performance metrics. You can monitor the performance of the money manager, review trading history, and assess risk management practices. This transparency helps investors make informed decisions and evaluate the effectiveness of the money manager.
   
   
6. Flexibility
   Forex PAMM accounts often offer flexibility in terms of investment amounts. You can choose the desired investment size based on your risk tolerance and financial goals. This flexibility allows for scalability, as you can increase or decrease your investment in the PAMM account as per your preferences.

How It Works

Forex PAMM service would always converge several parties to partake, they are:

1. Forex broker
2. Investors
3. Traders (or in this case, fund managers)

Let's say an expert trader, named after Soros, agreed upon terms and conditions imposed by ABCFX (fictional firm) broker and thus registered as one of their Forex PAMM fund managers. Soros then advertised his current trading portfolio to attract investors, and boy! It worked!

Two investors signed an agreement with ABCFX to invest under a certain term which enabled them to join the same program. They dumped their sizeable funds for Soros to kickstart his trading wonder.

Notice that these two investors came about with substantially different budget allowances. One such investor, namely Hitler, invested USD50,000 compared to a random Bonobo that could only afford USD1,000. On top of that, Soros ran his own USD15,000.

Now, let's do the math (I promise, I'll keep it as stupidly simple as humanly possible)

The first thing investors need to know is the total amount of invested funds.

Total invested fund = Soros capital + Hitler capital + A random Bonobo capital = 15,000 + 50,000 + 1,000 = USD66,000

Please note that the percentage of each fund to total invested fund does play a huge part in this role as each profit or loss will be accounted for according to it. After all, that's why P in Forex PAMM stands for percentage.

Soros' percentage = Soros own fund/total invested fund = USD15,000/USD 66,000 = 22.7 percent

Hitler's percentage = USD50,000/USD 66,000 = 75.8 percent

A Random Bonobo's percentage = 1.5 percent

Let's say, Soros actually lived up to his trading wonder, he made 25 percent profit in his first trading term (can be monthly or weekly, up to parties' agreement) which netted him USD16,500, tallied up the total invested pool to USD82,500 (66,000 + 16,500)

And let's not forget that Forex PAMM fund manager would actually charge investors with a fee that's completely up to them to set. So, let's say Soros was rather charitable and set his fee to 5 percent of the profit gained within a trading term.

Soros' Fee = 16,500 x 5 percent = USD825

The remaining profit which was USD15,675 (16,500-825) would then be shared according to each investor's percentage, like so:

Hitler's profit = USD15,675 x 75.8 percent = USD11,882

A random Bonobo's profit = USD15,675 x 1.5 percent = USD235

Soros' profit = USD15,675 x 22.7 percent = USD3,558 (wait, what? He got profit on top of his fee? Yes, in Forex PAMM each registered trader is also counted as a single entity of investor)

As you can see, Hitler as the top investor also got the most share out of it (quantitatively speaking), while that random Bonobo...well, he only deserved to get the breadcrumbs. In other words, if you want to be a rich investor, consider dumping more money to your faith-bound reverend, ehm, a Forex PAMM fund manager.

What Happens If Your Fund Manager Loss the Trades?

That would anger Hitler for sure as he would suffer the most loss as well.

No question asked, Soros didn't get his trading fee after his loss (he's lucky enough to escape alive, though).

The impact of losing trade savagely cut the total invested fund. So, if Soros made a 30 percent loss, it would also drain the previous collective funds (including total profit made on previous trading terms) by 30 percent as well.

Speaking about number crunching, it's like Hitler would send a load of army to terminate Soros. So, uhm, yeah, here's the number anyway:

Total current pool = Total invested pool + profit/loss on previous trading term = USD66,000 + USD15,675 = USD81,675

Total loss = Total current poolSoros' Loss on a trading term = USD81,675 x 30 percent = whooping USD24,503

That total loss would be spread according to each investor's accumulated fund (initial capital plus previous profit or loss) minus the loss percentage. Again, that's why P in forex PAMM stands for.

Hitler's loss = accumulated fundloss percentage = 66,882 x 30 percent = USD20,065.

Soros' loss = 18,558 x 30 percent = USD5,567

Bonobo's loss = USD371

As you can see, Forex PAMM can actually provide humongous profit if you invest on a titanic level (just like Hitler). However, it also carries out potential huge risks every single investor should be aware of.

At the end of the day, you may not need to learn the intricacies of Forex trading, thanks to Forex PAMM. But hey! Now you need to scrutinize one and each of the available fund managers and made a leap of faith with them!

Oh, by the way, Hitler made the decision to desert his failed fund manager and switch to a spanking brand new one, his name is Mr. Belfort (aye, that one man).

Here Comes the Broker

Up to this moment, there are several lines of major retail forex brokers providing PAMM services, their basic features generally include:

• Security: fund managers can not withdraw other investor funds. It's safe and locked.
• Access: investors can assess fund managers' trading portfolios and track records. Each broker may come up with different interface and statistic view.
• Risk Diversification: there goes a saying, don't put all your eggs in a basket, it also applies to Forex PAMM fund managers. Investors are recommended to split their investment funds with some of the top traders.

Instaforex is one of the most popular Forex PAMM providers, along with FXTM, RoboForex, FXOpen, Forex4you, and so on.