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MAM, PAMM and Social Trading – Which one to choose?
Almost every broker strives to offer his clients several investment opportunities, especially those who do not want to trade themselves. For this purpose, they can use special trading robots that can be executed directly on their accounts.
Another option is to call the Managed Accounts Service, which can follow a specific strategy with the desired risk. Below are the main differences between MAM, PAMM and social trading solutions, which are the most popular on the market.
The problem with the description is the inaccuracy and lack of formal definitions. Many brokers or solution providers use these terms in different meanings. However, we will try to describe them in the most popular versions.
PAMM, short for Percentage Allocation Money Management, is the most popular system for automating and managing your trading. The biggest advantage of PAMM is the percentage allocation of transaction volume to all investors. Allocation is usually based on the investor’s balance or equity.
It is worth mentioning that all the assets of all the investors are copied to master accounts (money management accounts), which have an aggregated balance of all the linked accounts. This means that the master has no money of its own, but only a virtual balance corresponding to the balance of the investors’ accounts. As soon as the master executes a trade in the PAMM system, it is immediately and proportionally allocated to the investor accounts at exactly the same prices that were made on the master account.
There are some PAMMs that do not show individual transactions on investor trading accounts, but they have their own back office where only profit and loss statements related to trades are assigned. This is usually less preferred as clients usually want to see all their trades on the trading account. Some PAMMs also offer leaderboards for master accounts, where investors can check their performance before subscribing to them.
It is also important to note that investor accounts linked to PAMM cannot trade themselves as this would affect the percentage allocation. However, it is usually possible to disconnect the investor account from the master at any time.
When connected to the master in the PAMM system, you can be sure that the same results are achieved as with the master account, which is not guaranteed in MAM or social trading (copying).
Money managers in PAMMs are usually rewarded with so-called administration and incentive fees. Management fees are usually charged monthly from the investors’ assets. Incentive fees are strictly dependent on the profits made by the money managers and the associated investors.
The MAM (Multi-Account Management) solution is a derivative of the PAMM system. The main difference is that the division of transactions between master and investor accounts cannot be done proportionally.
Each investor can choose what risk he wants to take and what leverage he wants to put on his account. In other words, trades can be copied with different multipliers depending on the risk appetite of the investor. Usually, trades copied in MAMs are also executed as separate transactions and are always visible in investor accounts.
Similar to PAMMs, investors cannot trade individually on the managed accounts, but can disconnect from them at any time.
However, in MAMs, the balances of master accounts are separated from the balances of related investors, which can result in different returns between them.
As a rule, MAM master accounts are not publicly visible in leaderboards, but rather private subscriptions to certain money managers. In summary, MAM accounts are designed for investors who want to choose their own level of risk and have more flexibility in managing their funds.
Social (Copy) Trading
Social Trading is the most public way to manage trading. There are special platforms such as ZuluTrade, eToro, TradeSocio which offer an option to connect the copy trading solution with your broker. They also provide their own database of verified signal providers with a number of different statistics for all of them.
This is a great advantage because as an alternative to PAMM or MAM, the broker doesn’t have to search for trusted money managers themselves. It is also worth mentioning that MT4 and MT5 servers have their own copy trading service integrated into the platforms, for which a number of providers are available on the MQL5 website.
On social trading platforms, customers usually follow selected signal providers with a certain volume. They can follow several providers on one trading account, which is not possible in MAM or PAMM. At the same time, they can also trade on these accounts or close the positions opened by signal providers without restrictions. Results obtained on investor accounts usually correlate less with signal providers, as all money management is done by the investor himself.
Providers are only responsible for the results achieved on their accounts, and the signals provided may be used differently by different investors. Some of the platforms even allow signal providers to reverse trading. On most platforms, it is also possible to interact directly with the providers by sending them questions, commenting on their strategies or conducting online chats with them. In order to use a particular signal provider, you need to purchase a subscription. This is usually a fixed monthly fee.
News presented by LeaprateAs you can see, there are several solutions that can be used by a broker to provide a managed account service. It only depends on the trading platform used and the customer’s preferences which option is most suitable for a company. The strong competition in the marketplace provides a good opportunity for brokers to get the desired solution at a reasonable price. It will certainly help your company to stand out from the crowd.