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What is a PAMM account?

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Percentage allocation management module, percentage allocation money management or
PAMM is a pool of money in FX trading. An investor has the option of allocating their funds
to the competent traders’/money managers of their pick in the proportions they wish. These
traders/managers may manage many forex trading accounts with their own money as well as
pooled funds in order to earn profits.
Consider the following scenario to better understand PAMM accounts:

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The participants in the PAMM Account setup

  • Forex broker
  • Trader/money manager
  • Investor

Harry, Henry and Hudson are investors who want to earn profits from Forex trading.
However, they don't have enough time to learn about Forex and trade. Sam and Sophie are
experts who have experience trading and managing others money. The Forex trading firm
signs up Sam and Sophie as money managers for investors. Harry, Henry, and Hudson
(Investors) also, sign up with limited power of attorney (LPOA). The premise of the signed
agreement is that investors agree to bear the risk of forex trades by entrusting their funds to a
money manager of their choice, who will utilize the pooled funds to trade forex according to
his trading style and plan. It also specifies how much money (or what proportion of the
money) the manager will take as a fee for providing this service.
Let's say that all three investors hired Sam to manage their money for FX trading and that
Marcus took 10% of the profit.
In terms of percentage contribution to the total pooled PAMM fund of $ 15,000, each
investor has the following share:
Harry= $4,000 / $15,000 = 26.67% and similarly,
Henry= 23.33%
Hudson = 16.67%
Sam= 33.33%

(The sum total of all shares in the pool always remains 1 or 100%.)
Suppose one trading term passes (e.g., a month) and Sam manages to make a cool 30% profit
on his pool, which now stands at $19,500 ($15,000 + 30% profit or $4,500).
He takes away his 10% charge on profit or $450. The remaining profit of $4,050 is
distributed to all investors based on what per cent they each have in the total pool:
Harry = $4,050 * 26.67% = $1,080
Henry = $4,050 * 23.33% = $945

Hudson = $4,050 * 16.67% = $675
Sam = $4,050 * 33.33% = $1,350

Total = $19,050

Assume that because of the first term stellar performance of 30% returns, all three investors
decide to continue with Sam for another term. Harry and Henry stay invested with their
(original + returns) amount, while Hudson cashes out the profit, leaving only his original
investment of $2,500. Henry also refers a friend, Harley, to join the pool, and Harley brings
$2,625. Another new investor, Pam, signs up and selects Sam to manage her $1,000. The
total trading pool for Sam is now = $22,000.
Percentage share for each investor:
Harry = $5,080/22,000 = 23.09%
Henry = 20.20%
Hudson = 11.36%
Sam = 28.86%
Harley = 11.93%
Pam = 4.55%

Sam manages a 15% return during this term (15% * $22,000 = $3,300) and takes his 10%
($330). The remaining profit of $2,970 will be available to individual investors per their
respective share:

Harry = 23.09% * $2,970 = $685.80
Henry = $600.08
Hudson = $337.50
Sam = $857.25
Harley = $354.38
Pam = $135.00
Total pooled money in the fund = $24,970.

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