PAMM, LAMM, and MAM investment systems: a quick but thorough guide for the confused
- PAMM, MAM, and LAMM in a nutshell
- What is LAMM?
- What is MAM?
- What is PAMM?
- A frequently asked question: MAM vs PAMM — what to choose?
- LAMM, MAM, and PAMM accounts in comparison
- Final thoughts
The matter of investing is one of the most complicated when it comes to establishing an investment platform within a Forex broker. One of the main stumbling blocks is often the variety of investment accounts types on Forex platforms, which confuses both newbie investors and business owners. For the latter category, the price of a mistake when choosing between PAMM, LAMM, and MAM can be a loss of capital. In this publication, we will provide clear definitions for these systems, review the main differences between them, as well as their main pros and cons.
PAMM, MAM, and LAMM in a nutshell
Before we dive deeper into the specifics of these systems, let's give a short definition of each of them, because that will make it a little easier to understand the comparisons used below.
LAMM is a system that copies the trades of a manager trader to investors' accounts, without any direct investment.
PAMM is an investment service that allows investors to deposit funds in the traders' accounts. These traders are often called managers or masters, and they receive remuneration from the profits for managing investments.
MAM service also does not imply the transfer of an investor's funds to a manager's account, but an investor can change the manager's strategy, i.e. close and open orders at will, monitor every manager's action, and so on.
What is LAMM?
LAMM, or a lot allocation management module, is an investment system where trades or entire strategies are copied, but the trader does not manage investors' funds. An investor opens an account and connects to one of the strategies, but their funds are not transferred to some general pool. Trades are copied automatically, and the author of the strategy does not know the amount of capital connected to their trading activity. An important feature of the LAMM system is also that the investor's account must have enough funds to open each trade with the same volume as the source account for copying.
What else do you need to know about LAMM?
Brokers sometimes resort to using a lot allocation management module when it is necessary to work with large trading capitals, and the percentage allocation method loses its significance. There are also no rollovers on LAMM accounts. Rollovers refer to non-trading operations on PAMM accounts, during which the manager's remuneration is calculated, as well as the deposit or withdrawal of funds. During a rollover, the PAMM manager should closely monitor the volume of open transactions, because if some big investor decides to withdraw all their funds, it can lead to large losses.
What are the advantages of LAMM?
The main advantage of LAMM accounts for investors is the possibility to disconnect from the process of copying trades at any time. Unlike PAMM, LAMM also does not provide penalties for early withdrawal of funds, because the rejection of the offer does not affect the amount of capital in the trader's account. Thus, it is managers who benefit most from the LAMM system, because they feel more comfortable when conducting trading operations.
The bonus advantage for a business: LAMM service can be interesting for brokers who want to attract as many efficient managers to their platform as possible.
What are the disadvantages of LAMM?
Since LAMM is essentially just a system of copying trades, it entails certain drawbacks.
- The manager does not know the amount of capital of investors who invest in his strategies, and can not predict the possible losses caused by his actions.
- Traders can disconnect the source account from the copying service at any time.
- The entry threshold into the LAMM service is much higher than in the case of PAMM, because only trades for which the investor has enough capital can be copied.
The possible disadvantage for a business: the direct participation of investors in trades copying and the high entry threshold can become a discouraging factor for a certain category of clients.
What is MAM?
MAM, or a multi-account manager system, is similar to PAMM by the principle of capital distribution. However, in the case of MAM, the dependence of managers on investors is not so straightforward, because all the funds are placed on different accounts.
Moreover, the owners of MAM accounts can edit traders' strategies, close trades, and conduct independent trading within these accounts.
What else do you need to know about MAM?
It is possible to start investing in a MAM FX account at any time. The trader's profit can be stipulated between the investor and the manager individually as part of the contract (its judicial force is a separate discussion). The number of accounts that can be connected to the manager is unlimited, as long as they satisfy the entry threshold condition.
What are the advantages and disadvantages of MAM?
Full control from the investor and the ability to open additional accounts at the same time is both a positive and a negative side of MAM-type accounts. On the one hand, an experienced investor can get a chance to save capital from the mistakes of the manager. On the other hand, beginners can abuse this feature, risking the loss of their deposit.
The bonus advantage for a business: MAM service can attract more experienced and independent traders to your platform.
The possible disadvantage for a business: the overcomplicated nature of the MAM system may require an additional investment module on your platform to reach more potential clients.
What is PAMM?
Percentage allocation management module, also known as percentage allocation money management or PAMM, is a form of Forex trading that implies the transfer of assets on a trading account into the trust management of a selected trustee for conducting operations in the financial markets.
PAMM-type investment system concentrates all funds of the investors, connected to a particular offer, in one account, which is managed by the trader. The manager does not have direct access to these funds, which eliminates non-trading risks. Profits and losses are distributed in proportion to the share of each participant according to the size of the investment. The minimum amount of investment, its terms, as well as trader's commission, are always regulated by the public offer.
What else do you need to know about PAMM?
A trusted PAMM manager (account manager, controlling trader) is usually a trader who publishes statistics on his trades, and who takes over the management of other traders' or investors' funds. One trader can have several PAMM accounts.
When advertising the platform and promoting the service, remember that the presence of a PAMM account does not guarantee profitability to your investors. The main value of such a system is the technical simplification of interaction between the manager and trustees, which includes automatic monitoring of PAMM-accounts, the reception, and return of funds, the distinction of own funds of the trader and the trustees.
Are PAMM accounts safe? The answer to this question depends solely on the broker's level of technical infrastructure, as well as the behavior of managers and investors. The role of the broker lies in the implementation of equity accounting, the provision of equal rights to all fiduciaries, as well as automation and simplification of all possible processes associated with trading on the PAMM platform.
What are the advantages of PAMM?
One can highlight the following advantages of PAMM accounts over independent trading and other account types.
- The relative safety of the investor's capital, since managers have no direct access to the funds.
- Ability to reduce trading risks through diversification and investing in accounts with different strategies.
- Virtually unlimited returns.
- There is a high degree of responsibility on the part of the manager since their funds are also involved in trading.
- The profitability potential is quite high because investors can start receiving returns as soon as the account is opened through ongoing manager positions.
The bonus advantage for a business: a PAMM system for a Forex brokerage is almost fully automated, and does not require the participation of an investor in the trading process. Thus, the potential for attracting a wider range of investors to your platform is increased.
What are the disadvantages of PAMM?
The cons of a PAMM FX account stem from the risks of investment and Foreign exchange trading in general.
- Higher risks for investors. Even opting for a trader with a good history does not guarantee profit and protection against losing the deposit.
- Possible inflated manager commissions. Many managers unreasonably increase commissions, arguing it with the trading performance or experience. In this case, a broker can act as a regulator, so as not to scare clients away from their investment service.
- Penalty for early withdrawal of funds. Some managers allow withdrawals only at the end of a trading period, which may not suit potential investors.
The possible disadvantage for a business: organizing a system of PAMM accounts requires additional software and more complex risk management, including legal risks, as the legislation of many countries provides for a special licensing regime for such operations.
A frequently asked question: MAM vs PAMM — what to choose?
Since MAM was offered as a PAMM alternative, which addresses some of the potential drawbacks of PAMM accounts, business owners often wonder which of these two popular services could be introduced on their platform with a greater potential benefit.
Needless to say, it is impossible to give an unambiguous recommendation about this, because everything depends on the specifics of each particular FX broker. However, there are differences that distinguish PAMM and MAM systems. It is possible to draw independent conclusions based on these features.
Speaking to the point, the main difference between PAMM and MAM accounts is their target investor groups.
As mentioned above, the MAM account gives a high degree of freedom to investors, but it comes at a price. The ability to interfere in the strategies of the manager can play a cruel joke with newcomers, so multi-account manager services are best recommended as a training program or as an additional tool for experienced investors who have time and resources for independent actions.
PAMM is essentially a trust management system, which completely removes the need for investors to monitor any trading activity. It is suitable for beginners without experience as well as seasoned users who want to invest money in high-performing managers.
LAMM, MAM, and PAMM accounts in comparison
And finally, this comparison table is intended to demonstrate more clearly the most important features of all three systems.
|Arbitrary trading termination||It may be subject to a fine||Yes||Yes|
|Risk limitation opportunities||Restricted||Yes (depends on investor's skill)||Yes (depends on investor's skill)|
|Low entry threshold for investors||Yes (it may be as low as $1)||No||No|
|Returns comparable to those of the manager||Yes||No||No|
|An investor can start receiving profit from the first day (from previously opened manager’s positions)||Yes||No||No|
|The entry into positions is completely correlated for investors and managers (same price, slippage values, etc.)||Yes||No||No|
Final thoughts: choosing the right service
In any case, the final word on which system is best for a particular business is left to the owner. At the same time, however, it is important to remember that an investment platform should have a reliable technology behind it that will ensure the automation and continuity of all trading processes. Clients will look for effective managers with reliable strategies, and the latter, as a rule, seek brokers who provide comfortable operating conditions and a large set of trading instruments.