Alternative forms of investing in the Forex market are becoming more and more popular. It opens up new opportunities for trade, both for beginners, intermediate and professionals, who can easily increase not only their revenues but also diversify the investment portfolio. What are PAMMs, how they work, and who are they targeting? The following article will answer these questions.
What are PAMM accounts?
PAMM is an abbreviation of Percent Allocation Management Module. The name itself may seem insignificant, which is why a more extensive explanation is useful.
PAMM accounts are a solution that allows one trader to perform identical transactions on several accounts at the same time without having to log in, enter passwords, restart the platform, select the appropriate transaction volume and paste orders. In other words, this technology allows you to combine several accounts into one account.
PAMM accounts are a variant of managed accounts or a kind of equivalent to investment funds.
Who can benefit PAMM accounts?
It is possible to distinguish two main target groups to which PAMM accounts are addressed. They are managers and investors.
Managers are people who know each other on trade and achieve satisfactory results. Thanks to managed accounts and the scale effect, they can significantly increase their revenues without undue effort by adequately performing the same activities as before. By showing the history of their results, they may be able to encourage the second group of investors who decide to cooperate.
Investors are a group that has capital but does not have the knowledge or skills, that is, people who would like to multiply their savings on the currency market, but do not know how they prefer to entrust this task to more experienced traders.
How do PAMM accounts work?
There is no uniform specification of the PAMM operation because brokers usually create their technologies and solutions that allow the allocation of investor funds, but the overall operating pattern is always similar. The start of cooperation looks very simple:
Trader opens a managed account for which a deposit is not paid.
The investor establishes a real account and pays his deposit to them.
The investor connects his account to the managed account.
The trader is starting to invest.
The managed account shows the sum of deposits from investor accounts that have been connected. Let’s assume that three investors have connected their bills:
Investor A with a deposit of 25,000 USD
Investor B with a deposit of 25,000 USD
Investor C with a deposit of 50,000 USD
The manager sees this as one account with a deposit of 100,000 USD and begins to invest in it. By opening a transaction with a volume of 10 flights, each of the investors sees a transaction with a value proportional to the deposit paid, i.e. 2.5 flights, 2.5 flights and 5 flights. Similarly, it looks like the distribution of the achieved profit. If the trader earns another 100,000 USD on the main account, it will be distributed proportionally between investors, 25,000, 25,000 and 50,000 USD.
At the moment when a given investor decides to withdraw part of the deposit, his / her share in the account will decrease, and thus smaller volume will be visible on his account, and less revenue will be generated on subsequent transactions.
The investor does not transfer his funds physically anywhere — they are always on his brokerage account. The manager can not pay them or transfer them to another account.
How much is it?
Usually, the only cost that accompanies investments in PAMM accounts is the manager’s commission, which depends on the results achieved. This commission is determined in advance in a percentage and settled on a specific date (e.g. every month, quarterly, every year). If the manager sets his / her rate at 25%, it means that at the beginning of the new accounting period, he will receive 25% of the generated profits on the PAMM account. The investors’ income (value before taxes) will also be reduced.
Sometimes you can meet with other types of commission, such as an annual fee for management or volume. However, investors are reluctant to agree, which is why managers do not decide.
Transaction costs such as commission or spread on the platform only affect the investor indirectly because they affect the level of income earned by the manager, who does not earn an additional income.
Legal regulations
Some PAMM account managers do not like the idea of regulators from some countries, because they believe that inappropriate people manage their resources and start demanding specific licenses from managers to increase their security. Unfortunately, this is not the right approach. Having a license, i.e. passing even the most prestigious state or international exam, does not guarantee that a given person will work out satisfactorily.
PAMM accounts are available on FOREX market since 2008. Geco.one is the first in the world Platform that brings PAMM accounts to the cryptocurrency market.
So what is Geco.one?
Geco.one is a platform that enables you to safely invest in the cryptocurrency market using skills and knowledge of experienced traders. Our flagship service, called PAMM account, allows you to invest in cryptocurrency pairs by entrusting your resources to experienced traders as well as providing you with all the tools necessary to become a crypto-trader yourself. PAMM trading system is the safest way to do so because it also provides tools like futures trading, leverage as well as short & long positions are available as standard.
Imagine giving your money to a trader, so he can make a profit for you when he makes one for himself — introducing cryptocurrency PAMM accounts by Geco.one.
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