PAMM Account

Funds from the PAMM-account are not transferred to the account of the manager, the managed account belongs to the principal ( investor ), the manager cannot withdraw funds from the principal from him. The manager makes operations with his own account, risking funds on it. This should reduce the likelihood of irresponsible management. In this case, the market risk is usually assumed by the principal within the framework of its amount, but in some systems part of the risk may be assigned to the manager. All trading operations are duplicated in investor accounts. Duplication occurs in proportion to the size of the account: if the investor’s deposit is 2 times the manager’s deposit, then the size of the copied transactions will also be 2 times larger. In this property, PAMM accounts are a descendant of LAMM accounts (“Lot allocation management module”), in which duplication occurred exactly, regardless of the size of the client's account. This is convenient for accounts whose size is approximately the same as the manager’s account ^[1] .

A trusted manager (account manager, managing trader) is usually a trader who publishes statistics on their transactions and who is trusted by other traders or investors to manage funds. One trader can have several PAMM accounts.

Using a PAMM account in itself does not guarantee profitability. The main purpose of such a system is the technical simplification of the interaction between the manager and the principal, which includes automatic monitoring of PAMM accounts, receiving and returning funds, distinguishing between the trader’s own funds and the principal’s funds.

The broker carries out equity accounting, provides the same rights to all principals, allows you to allocate at any time that part of the managed property that belongs to each of the principals individually.

In its legal essence, a PAMM account is one of the forms of trust management of the joint property of several principals.

Civil Code of the Russian Federation in Art. 1013 prohibits transferring to trust only money, except in cases provided by law. Not only in Russia, but also in most other countries, asset management services are licensed activities. As of 2015, banks and management companies holding the appropriate licenses of the Federal Financial Markets Service have the right to manage funds. At the same time, they cannot attract any loans secured by property under management (including cannot use the margin trading mechanism, which is widely used both in the stock market and in forex ).

The Code also provides that transactions with property transferred to trust management are performed by the trustee on his own behalf, indicating that he acts as such manager (Article 1012 of the Civil Code of the Russian Federation). In the absence of instructions on the action of the trustee in this capacity, the trustee is obligated to third parties personally and answers to them only with his property. In addition, the trustee is liable to the founder of the management in full of the losses caused. Failure to comply with the form of an asset trust agreement entails its nullity (Article 1017 of the Civil Code of the Russian Federation). Variants of accounts and contracts offered at forex usually violate these norms of the Civil Code of the Russian Federation, which in disputed situations does not allow the use of legal protection.

Typically, companies providing PAMM accounts do not inform their principals of these legal norms, and companies themselves do not have broker licenses.

The terms “ PAMM-account ”, “ PAMM-wallet ”, “ PAMM-portfolio ”, “ PAMM-terminal ”, “PAMM-account” are trademarks of several companies registered in Cyprus . This has to be taken into account when using such terms ^[2] .

A trading platform can consider a PAMM account as a single entity, and not as many separate accounts of principals and a manager. In this case, any trading operation changes the total balance. At the end of the trading period, the profit earned on the PAMM account is proportionally distributed among the participants in the PAMM account. In addition to the share of profit proportional to his capital, the manager additionally receives remuneration for his activities in accordance with the terms of the contract.

The loss is also subject to a proportional distribution between accounts. In some systems, the loss can be distributed primarily to the manager with a restriction of the level of loss for the investor. Usually, the amount of loss does not change the manager's remuneration.

The distribution of results between the participants in the PAMM-account is carried out by the broker automatically.

Advantages of a PAMM account for manager

• all positions that the manager opens on his account are distributed to the accounts of principals in a percentage of their current balance, with each account bearing the same level of risk, regardless of the size of the account;
• single trading account for an unlimited number of principals;
• the possibility of generating income both in the form of remuneration from customers and from own trading;
• the ability to set trading conditions for a PAMM account at one’s discretion;
• The manager’s profitable trade can attract an unlimited number of trustees, which will increase the manager’s income in the form of management fees.

PAMM Account Benefits for Investors

• the presence of a manager’s equity on the PAMM account, which acts as a guarantee of observing the interests of principals;
• a security system that does not allow the manager to withdraw funds from principals, but allows you to make transactions on the account;
• the ability to deposit and withdraw funds from management at any time;
• the ability to diversify investments by placing them on PAMM accounts of different managers;
• transparent current trading activity on the PAMM account, history of transactions, the ability to monitor transactions on the account in real time.

PAMM Account Disadvantages for a Broker

The organization of a PAMM-account system requires the broker additional software and more complex risk management, including legal ones.

PAMM Account Disadvantages for Investor

The legislation of many countries (including Russia, Ukraine, the USA) provides for a special licensing regime for the implementation of such operations ^[3] . The actions of the investor without complying with legal requirements make it impossible to obtain official protection in the event of fraud by either party or failure to fulfill its obligations.

PAMM accounts retain the risk of money loss due to unsuccessful trading strategies of traders. Managers can impose restrictions on the amounts accepted to the account and refuse to accept new principals ^[4] .