Forex trading is a competitive arena, and it takes years for traders to develop and build their skills. Even the most experienced traders have a difficult time sustaining themselves in the forex market. So, the new traders often get discouraged. Moreover, trading requires a time investment, and many traders are unable to do so.
This is why many traders go for managed accounts. With the help of these accounts, new traders can enjoy the benefits of trading, as a professional forex trader will trade on their behalf. MAM and PAMM accounts are the most common types of managed accounts offered to forex traders. In this article, we will see the difference between the two. You will also get the answer to the most frequently asked question: Which is better for a new investor – a MAM or PAMM account?
What is MAM?
MAM and PAMM accounts are ways to invest in the forex market through experienced traders. They are both similar types of managed accounts, but there are some differences, too. A fund manager is responsible for managing MAM and PAMM accounts, making all the trading decisions for you. They manage multiple accounts from a single account while also investing their own funds for trading.
Here are a few things you need to know about MAM accounts.
- The full form of the MAM account is Multi-Account Manager.
- They allow traders to manage multiple accounts on a single platform.
- Each manager can offer their clients unique investment strategies thanks to the MAM accounts’ high degree of customisation and appropriate systems.
- If you open a MAM account, you will have full control, and you can even open additional accounts at the same time.
- They may require additional software to organise a system.
What is PAMM?
Imagine you want to invest in the forex market but don’t have the time or resources to learn about trading. You can invest in a PAMM account and let an experienced trader manage your investment. PAMM stands for Percentage Allocation Management Module – a form of pooled money forex trading. When you open a PAMM account, you can access various asset classes. Although they are also a type of managed account and provide the same characteristics as MAM accounts, they are different from MAM accounts in terms of control over your accounts.
Investors who want full control over their investments and customise their investment strategy should invest in an MAM account. However, some trading knowledge is necessary to be involved in MAM accounts. You should know a few things like trading strategies, trading tools and trading platforms that most traders use to trade on, etc., as these things will help you monitor your investments more properly.
Advantages and Disadvantages of MAM
Below are the advantages and disadvantages of using MAM accounts.
Advantages:
1) Customizable: MAM accounts are highly adaptable and suitable systems that allow each manager to give custom investment strategies to their clients. You can manage all your trading accounts from a single platform. This can save time and increase efficiency.
2) Diversification across accounts: Another great thing about MAM accounts is that they allow diversification. You can diversify your investments across multiple accounts. As a result, they can help you spread risk. This can also help improve risk management, as your money manager can manage multiple accounts with different risk profiles.
3) Greater transparency and accountability: MAM accounts offer greater transparency and accountability, as you can see exactly how your money is invested.
Disadvantages:
1) Complexity in managing multiple accounts: While MAM accounts can save time and increase efficiency, they can also be complex to manage – especially if a trader is managing a large number of accounts.
2) Risk of abuse by beginners: MAM accounts can be a boon and bane for traders. While experienced investors can use this feature to protect their capital from the manager’s mistakes, beginners can abuse it and risk losing their deposit.
3) Additional software is required: Organising a system of MAM accounts requires additional software. This can be a disadvantage for businesses that have a limited budget or are new to the market.
Advantages and Disadvantages of PAMM
Advantages:
1) Diversification of Portfolio: A new trader is unable to benefit from diversification because of a lack of market knowledge. But with PAMM accounts, you can diversify your portfolio by investing in different trading instruments, as a professional forex trader will trade your account. Moreover, you will get automated risk management tools to protect your accounts from big losses.
2) Increased liquidity: PAMM accounts provide increased liquidity, enabling quick withdrawals from your accounts. Traders can also choose to invest in different managers or change their strategy based on market needs and their own requirements.
3) Cost-effective: PAMM accounts are cheaper than conventionally managed accounts. Opening an account requires no setup fees, commissions, or minimum capital.
4) Transparency: PAMM accounts offer investors full transparency. You can monitor your investments closely and make adjustments when necessary. They are safe to follow since the involved trader will also invest their money in the account.
Disadvantages
1) Risk of capital loss: Your success is in the hands of a money manager. Profits or losses, he/she is accountable for your successes and failures. Winning every trade is not possible for even professional traders, so you need to be realistic about how much you make from PAMM accounts and put your faith in a money manager who can give you consistent results.
2) Limited control: Since your money manager will have all the rights to make all your trading decisions, you will have limited control. This could be a disadvantage for traders who want some involvement in their trading decisions.
3) Lack of regulation: Due to their low risk, PAMM accounts are not subject to the same regulations as other types of investments.
MAM vs. PAMM – Which Is Better For New Forex Investors?
Coming to the main question, which account should you choose? MAM and PAMM accounts offer investors the opportunity to invest in the forex market through experienced traders. Investors who desire portfolio diversification, automated risk management, and increased liquidity should use PAMM accounts. If you want a highly customisable system, full control, and the ability to open additional accounts at the same time, you should go with MAM accounts.
However, there are some unique and less-talked-about points to consider. One of the less-discussed benefits of PAMM accounts is that you can use them to invest in the forex market without becoming an expert trader. This is particularly beneficial for new investors who may not have the time or resources to learn about the forex market. Furthermore, PAMM accounts allow you to invest in various asset classes, which can help you diversify your portfolio.
However, one of the less-talked-about disadvantages of MAM accounts is that they can be complex to manage. Traders can have a difficult time handling a large number of accounts. This can be overwhelming for new investors, who may not have the experience or resources to manage multiple accounts. Additionally, your broker might not be able to provide you with the additional software you need to use MAM accounts.
The investor’s preferences and financial objectives ultimately determine which type of account to use—MAM or PAMM. Before making a choice, you should carefully weigh the benefits and drawbacks of each type of account.
Verdict – Who Wins?
Managed accounts offer a bridge for new traders navigating the complex terrain. MAM and PAMM accounts, while distinct in control and customisation, both present promising opportunities. MAM accounts are appropriate for those accustomed to managing multiple accounts because they offer complete control and customisation.
In contrast, PAMM accounts provide diversification, automated risk management, and accessibility – which is an ideal choice for traders desiring a more hands-off approach.
Ultimately, your choices will narrow based on individual preferences, risk tolerance, and goals. While MAM and PAMM accounts differ, they both hold the promise of enabling traders to engage in the forex market with tailored strategies. So, make your choice after carefully assessing all the factors.
