This blog will explain everything you need to know about MAM vs copy trading and also identify how a PAMM model works, especially in relation to forex trading. We will discuss the terminologies, differences, and some advantages and disadvantages. Our goal is to help you make a better-informed decision that would increase your odds of success. Let’s dive right in.
What is MAM/PAMM?
First things first, let’s clear up the terminology about what is a MAM account. MAM stands for “Multi-Account Manager,” while PAMM is an abbreviation for “Percent Allocation Management Module.” Well, could you please use plain English? Okay, MAM and PAMM are software that allows a fund manager to trade on behalf of investor accounts using their master account. There are three parties involved in the MAM or PAMM as follows:
- Fund Manager or money manager (master account)
- Investor (sub-account)
- Broker (e.g. ACY Securities)
How does MAM/PAMM work?
Typically, traders and fund managers agree about the fund, trading strategy, risk, performance fee, and management fee (if applicable). The fund manager opens a MAM or PAMM account and decides on six criteria as follows:
- Account currency
- Account type (for instance, Standard or ProZero)
- Leverage level
- Performance fee (on average between 20% and 30% from profit distribution)
- Management fee (it is a monthly fee that the investor pays the fund manager regardless of profit – uncommon)
- The allocation method (We will talk about it a bit later)
The fund manager will be the one to control all sub-accounts concerning strategy, volume, as well as money, and risk management. While investor will invest the fund, sign an LPOA (Limited Power of Attorney), and wait for the monthly results. That will bring us to some of the advantages and disadvantages as in the table below:
| Advantages of MAM/PAMM | Disadvantages of MAM/PAMM |
|---|---|
| Excellent for new or busy investors to invest without any interaction with FX trading. | The investor has no power to trade or close trades (because the account would be read-only, but they can detach from the MAM/PAMM system). |
| Money and risk management are done by the fund manager. | The investor is risking the fund |
| A proper fund manager has the associated knowledge and experience | Paying performance fee from P/L + monthly management (if applicable) |
What is the difference between MAM and PAMM? And why do we group them?
Because they are the same thing, the only differentiation is the allocation methods in use. PAMM system allows the fund manager to proportionally allocate trades to all aggregated sub-accounts according to balance, equity, or margin level.
On the other hand, MAM has various allocation methods which allow investors to choose their risk level on their trading account. In this case, a fund manager can allocate trades to subaccounts based on lots or percent of the equity. For example, an investor with USD$5000 on his account could risk 10% percent of the capital per trade. Another investor with $10,000 chooses only to risk 1% percent per trade.
In addition, the PAMM and MAM systems can hide trades from the investor using P/L methods. These methods are ideal for a fund manager willing to keep their strategy secret to save property rights. In this scenario, the fund manager has access to master orders from the backend while the investor receives the P/L after the position has been closed.
What is copy trading?
Let’s tackle the definition of copy trading first. As the name indicates, it is a kind of social trading that allows traders to follow others by copying their positions. Traders can choose to copy only one or multiple providers. Also, they can trade on their accounts or close positions opened by copy trading. Unlike MAM and PAMM, money and risk management rely only on traders themselves. There are four parties involved in the copy trading system
- Provider
- Trader (Copier)
- Broker (e.g. ACY Securities)
- Copy-trading platform (e.g. Sirix)
How does copy trading work?
Typically, copy trading software shows specific metrics of signal providers, for instance, profit, maximum drawdown, and trading symbols. Traders can choose the signal providers they wish to copy and allocate a specific amount for each provider. The system will automatically copy the positions into the copier’s account from this point.
However, traders can open or close positions during normal market hours. Furthermore, they follow or unfollow providers at any time. In return, the signal providers will be rewarded with a performance fee or a monthly subscription fee. This is done through the social trading platforms, which continue to evolve, offer more trading instruments, and even better analytics.
That will bring us to some of the advantages and disadvantages of copy trading as in the table below:
| Advantages of copy trading | Disadvantages of copy trading |
|---|---|
| Excellent for new or busy traders with minimum interaction with FX trading | The trader is responsible for money and risk management |
| The trader can check the track record of signal providers, including in-depth performance matrices | Past performance is not an indicator of future |
| The possibility to follow or unfollow providers with an easy setup | Paying either performance or monthly fees |
Summing up MAM PAMM and social trading
MAM, PAMM, and copy trading are powerful systems enabling investors to follow other successful traders to benefit from their knowledge and expertise. Investors need to think about their objectives, level of control, fees, and risk appetite. In other words, you much do your due diligence before making an investment decision. All these factors are essential, but the most important is that we offer both systems.
If you are a fund manager, a signal provider, or an investor, reach out now to know more and how we can work with you and tailor a solution for your client base.