The issue of investing is one of the most challenging when it comes to setting up a service within a Forex broker. The variety of investment accounts on the platforms can confuse not only newcomers but also business owners. For the latter, the mistake of choosing between PAMM, LAMM and MAM models can result in a loss of capital. In this Traders Union article experts will clearly define these systems, examine the main differences between them and describe their main pros and cons.
PAMM, LAMM and MAM in a nutshell
Before going any further, let us give a brief definition of each of the investment models. Account management in Forex helps not only beginners but also professionals
LAMM is a system where the trader is not the manager of investors' funds, but only opens his trades for automatic copying. MAM — a service which does not imply transfer of funds to trader's account, where investor can change trader's strategy, i.e. close and open orders as he wishes, control every action of trader and so on. PAMM is an investment service that allows investors to place funds in traders' accounts. These traders are often referred to as managers, and they are rewarded with profits for managing their investments.
What are LAMM Accounts
LAMMs, or Lot Allocation Modules, are used on platforms that provide access to copy trades or entire strategies, where the trader is not the manager. The investor client opens a personal account and connects to the strategy, but the funds are not transferred to a capital fund for management. The author of such a strategy has no information about the amount of funds in the investor's account, because the copying of the transaction is automatic. An important feature of the LAMM system is also that the investor's account size is subject to the condition that it must not be smaller than the original account size to be copied.
Features of MAM accounts
You may invest in a MAM FX account at any time. The trader's profit can be agreed between the investor and the manager individually as part of the contract (its enforceability is a separate discussion). The number of accounts that can be connected to a manager is unlimited as long as they meet the entry threshold condition.
Features of PAMM accounts
According to traders Union trusted PAMM manager (account manager, controlling trader) is usually a trader who publishes statistics on his trades and takes care of managing the funds of other traders or investors. One trader may have several PAMM accounts. When advertising your platform and promoting the service, remember that having a PAMM account does not guarantee returns for 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, receiving and returning funds, and the separation of trader and trustee's own funds.
Are PAMM accounts safe? The answer to this question in this Traders union article depends solely on the level of technical infrastructure of the brokerage platform, as well as the behavior of managers and investors. The broker's role is to implement equity accounting, to provide equal rights to all trustees and to automate and simplify every possible process associated with trading in a PAMM account.
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