Difference Between PAMM and MAMM; Investors are always looking for methods of diversifying their portfolio and getting professional trading expertise. In forex trading, PAMM and MAMM accounts let investors profit from skilled traders without direct involvement.
Both account types allow investors to earn returns by entrusting their funds to experienced managers. However, they differ in fund distribution, control flexibility, and profit-sharing methods.
This article dives into the key differences between PAMM and MAMM accounts to help you choose the best option for your investment needs.
What is a PAMM Account?
A PAMM account, or Percentage Allocation Money Management, is one kind of managed forex account whereby an investor allots money to a professional trader a so called “money manager” who then trades on behalf of all participants in the account.
How does this work?
- Investment Pooling: The investors’ funds are pooled into one account traded by a trader. Still, each investor separately owns his capital, which cannot be directly accessed by the other investors.
- Distribution of Profit and Loss: Here, the profits and losses will be divided in direct proportion to what each investor contributes into the account.
- Distribution of Risks: In case money manager’s trade affects the entire fund, the risks and gains will also be equally distributed across the investors shares.
Benefits of PAMM Accounts:
- Easy Entry for Beginners: Allows those with limited trading knowledge to participate.
- Professional Management: Accounts are managed by experienced traders who use established strategies.
- Reduced Risk Exposure: Managers are motivated to perform well, as their own funds are often invested in the PAMM account.
Drawbacks of a PAMM Account
- Limited Control Over Funds: The investor has very little or no control over individual trades.
- Dependence on the Money Manager’s Skill: Success of an account depends greatly on the skill and decisions of the manager with respect to trading.
What is a MAMM Account?
A MAMM account stands for Multi-Account Management Module, which, in simple terms, allows a money manager to trade on behalf of several accounts simultaneously but offers more flexibility and greater control for each investor. Here’s how:
- Individual Accounts: Unlike PAMM, investors maintain separate trading accounts within the MAMM structure. While each account is linked into the manager’s master account, ownership and all the controls remain individual.
- Personal Risk and Allocation Preferences: One would have the freedom to choose the level of risk different investors are willing to take and to uniquely allocate their funds, hence making them more personalized trading experiences.
- Control Flexibility: An MAMM account gives room for both the investor and money manager to act with more flexibility, in that investors can change the levels where involvement is required, to better suit their tastes.
Benefits of MAMM Accounts:
- More Flexibility and Control: Investors are at liberty to set their level of risk tolerance and control the proportion they invest in a particular trade.
- Customized Allocation: Every investor can decide on how much they wants to allocate to any particular strategy or trade.
- Diverse Risk Management Options: MAMM accounts give investors the ability to diversify their portfolio based on their risk tolerance.
Drawbacks of a MAMM Accounts:
- Higher Complexity: MAMM accounts are more complicated to manage because it requires investors to make the decisions about the level of appropriate risk and spread trades.
- Greater Risk to Inexperienced Investors: Since MAMM accounts introduce more freedom, uninformed investors make the wrong choices, which increases their potential losses.
How MAMM Account Works
- Separate Account: Each investor still maintains a separate account directly linked to the master but is separately controlled.
- Custom Allocation per Investor: Investors may further apply different trade sizes or lot sizes or even increase the risk tolerance on trade.
- The flexibility: for investors to modify their respective risk exposure and commitment in specific trades to individualize the investment.
Comparison Between PAMM and MAMM Accounts
- Control Level: PAMM accounts are best for investors looking to have less involvement. MAMM accounts suit more controlling investors who want complete trade and risk management.
- Risk Level: For those who have a higher risk appreciation, the control over MAMM accounts can be useful, while for individuals who have a moderate level of appreciation, PAMM accounts provide more suitability.
- Long-Term Investment Goals: Those seeking steady return through the long term, PAMM accounts may be the best choice, yet if you are more toward trading with very high-risk, short span return MAMM accounts do offer that.
- Administrative Fees and other Costs: Compare any cost involved in each category since MAMM offers is highly customizable, but the administrative fees are sometimes larger due to the custom offering of it.
Frequently Asked Questions (FAQs)
What is better for those starting, PAMM or MAMM accounts?
- PAMM accounts are usually better for beginners because they call for less involvement. The beginners will take part passively depending on the professional money managers, while MAMM accounts need one to be more participatory and knowledgeable in risk management.
Is it possible to lose money in both PAMM and MAMM accounts?
- Both PAMM and MAMM accounts carry the risk of losing money because forex trading can often be very risky. With MAMM accounts, however, it’s possible to set controls over the risk per trade, and accordingly, the losses can be minimized.
Are commissions the same for PAMM accounts as well as for MAMM accounts?
- Not necessarily. Fees vary depending on the broker and account manager’s compensation structure. MAMM accounts will not fundamentally be much more expensive but rather because of the added complexity and customization options it can be a little bit more expensive.
Is it possible to withdraw funds anytime from PAMM and MAMM accounts?
- It depends on the broker’s and money manager’s policies. Most PAMM accounts have withdrawal conditions at some regular intervals. MAMM accounts might allow easier access to withdrawals, but that again depends on the company providing them.
How do PAMM accounts share their profit?
- PAMM accounts distribute the profits in the same way as the initial contribution of each investor to the fund. For instance, if an investor provided 10% of the total fund, then he will get 10% of the profits.
Who are the investors that should open MAMM accounts?
- MAMM accounts are suitable for advanced investors who want more control over trade allocations and risk levels. They are attractive to those people who, by virtue of changing market conditions, might want to alter exposure.
Is it possible to track trades in PAMM and MAMM accounts?
- Yes, most brokers provide real-time monitoring features whereby the investor can keep an eye on his account performance. In any case, however, PAMM investors do not get the same insight as MAMM investors, as they may only see the overall result of each individual trade and risk.
