The internal structure of the PAMM service in a brokerage company or what a trader does not see
Forex brokerage companies carry out various options for conducting trading to stimulate our trading activity with you. And it’s not a secret for anyone that in these actions there is a financial interest of the brokers, because the more actively we trade, the more the commission a broker will receive. As a result of this goal, various investment proposals, trade ideas and recommendations are created. And the one who communicates with me knows how I feel about such products of a brokerage company. However, with all the useless proposals, there are still those that you should pay attention to. I also include to this list the percentage allocation management module (PAMM services), too. If the broker has such a product in his arsenal, then he goes up in my personal rating.
The thing is that the PAMM account shows that above all, the broker is interested in profitable products that guarantee an increase in the customer base. It is absolutely pointless to blame the broker for wanting to raise his capital and client base. Each company has identical goals. I consider this from the side that the broker wants to increase his profitability through a profitable product. The logic is quite simple: a profitable product (for example, a PAMM account) will increase the interest among potential investors. If the investor connects to this PAMM account, in addition to the new client, the broker will also receive a new capital, which will be imposed by commission. Thus we get the following scheme: PAMM account with high yield -> new investor (capital) -> increase in the net profit for the broker (commission). That’s why I always advise people to pay attention to the presence of this product in the brokerage company.
At first glance, the logic of the PAMM service is very simple, because if a trader trades well, he can increase his capital. However, the internal functional of this structure is far from simple and lies in the multiple hidden functions that we will consider today.
First of all, I want to note that the PAMM module structure is globally divided into two types: PAMM for the investor and PAMM for the trader. Each of these kinds has special properties and capabilities.
PAMM structure for the trader
Often, the managerial PAMM account is opened only by those who already have experience in the market, as well as a positive statistical sample of trading results. After all, others open it and it makes no sense, because the rating will be very small and it is unlikely that someone will notice your account. Positive statistics solve this issue. Proceeding from the fact that the PAMM account for a trader is a means of attracting additional capital, the functional should solve precisely these tasks. Thus, the structure of the PAMM service logic for traders includes the ability to monitor not only their results, but also to monitor the dynamics of their investors. The trader gets the opportunity to forecast his profitability and payments from the management results, thus, to understand what absolute part of reward he will receive for his work.
PAMM structure for investor
In turn, the internal structure of the trading account, which is opened for investment in the PAMM module, has a different work logic and a set of functionality. It is also possible to monitor the results of a trading account so that you can control your investments. However, only in terms of personal account and capital. The peculiarity is that the investor can view the results of other PAMM services and compare them for a certain period of time. Thus, the investor can choose the most optimal option for investing based on the necessary parameters: profitability, risk, drawdown or even a financial asset. This feature raises the profitability of investments, and the trader should try to keep his investor.
Why do many brokers not implement this service in their product line?
The fact is that most brokers are simply not interested in this product. And we all know what kind of companies they are. If the company earns on the trader’s losses, the implementation of the PAMM service will force it to act as counterparty in all operations of the traders and their investors. Therefore, a trader may simply not have enough volume to cover all the transactions. Moreover, these types of accounts are opened by professionals who are confident in their positive result. Also, managers often connect the trading robots that automatically analyze the currency market and are able to double the capital in the shortest possible time.
Therefore, if the broker does not block such transactions and does not bring them to the market, the risks in his business instantly increase when the PAMM platform is launched.
The second reason is that implementation of the PAMM service is not a cheap pleasure. This is partially true, but at the same time it does not. In fact, it will require certain resources, including financial ones, to write the logic of the PAMM service. However, there are already a number of ready-made solutions that every broker can use. If you are just starting your brokerage business or want to implement this functionality in your company, while I was collecting information on the structure of the PAMM account, I ran into ready-made solutions for brokers. The one that I chose for myself is the service – http://4fxbrokers.com/pamm/.
I think that every broker will be able to find the best option for implementing the PAMM module. In turn, I want to encourage every broker, on behalf of both traders and investors, to realize this opportunity in their company. The result in the form of increased client base and opened trading accounts is guaranteed. Then, everything depends on your trading conditions and, of course, on the input and output of the funds.>