If you are building a Forex brokerage, you want it to have all the necessary components and high-quality features to lure as many clients as possible. However, many new brokers are often confused when it comes to MT4 PAMM and MAM functionality. Which one is better? How do they differ? In this article, we will focus on the differences between PAMM and MAM and how each of them can be beneficial for your brokerage.
Understanding the Concept
PAMM stands for “Percentage Allocation Management Module,” and MAM stands for “Multi Account Manager.” They are both types of investment management systems that allow investors to entrust their funds to a professional trader who will manage them on their behalf.
A PAMM or MAM account manager’s profits and losses are distributed among the managed accounts associated with them. When clients open a managed account, they link it to the main account of their chosen manager, who then reflects all trades made in each client’s account proportionally.
How Does a PAMM Account Work?
PAMM involves transferring funds from an investor account into the safe hands of a professional trader (money manager) who will conduct all operations within the financial markets on the investor’s behalf.
It must be mentioned that with the MT4 PAMM investment system, the manager has no direct access to investors’ funds, so the trading process is risk-free. Gains and losses are allocated among all involved parties based on their respective investments – determined entirely by what is outlined within the public offer: including minimum required amounts, terms of participation, and commission details.
Although having a PAMM account does not guarantee profitable returns for investors, it offers various attractive benefits. In particular, such a system streamlines the technical interactions between traders and investors with features such as automated monitoring of accounts, seamless fund transfers, and segregation of managers’ funds from those of trustees.
Pros of the PAMM System
- Safety of Funds
The main advantage of the MT4 PAMM system is that managers do not have direct access to user funds. Instead, all transactions are conducted within a secure environment. This ensures that users’ money remains safe throughout the whole process.
The PAMM system is fully automated, so investors can invest without actively taking part in the trading process. Consequently, this offers more opportunities to bring in additional investors to your platform.
- Manager’s Responsibility
PAMM involves a high degree of accountability on the part of its managers, as they are investing their own funds in addition to those entrusted to them.
Cons of the PAMM System
- Risk Always Persists
Even if you do your due diligence in selecting a top-notch trading manager, there’s still no assurance that your deposits won’t suffer losses or that an acceptable return on investment will be achieved. So investors must be careful when selecting a PAMM account manager and always remember that risk is associated with any kind of financial activity.
Establishing a system of PAMM accounts necessitates additional software and more complex risk management, as well as legal issues. This is due to numerous countries having particular licensing prerequisites in place for such operations.
- High Commissions
To ensure that their customers remain driven to invest with them, brokers must serve as a regulator and guarantee fair commission rates are charged. In certain cases, managers may unjustifiably increase the commissions without any reason for it.
How Does a MAM Account Work?
The base principle of MAM is analogous to PAMM in how it distributes capital. The main difference lies within the fact that, with this system, investors don’t solely depend on a manager as all funds are kept in different accounts.
The owners of MAM accounts have a great deal of control over the traders’ strategies, allowing them to edit and close trades, as well as conduct independent trading. This gives them much more flexibility than PAMM account users.
With a MAM account, investors and managers can agree on the expected profits as part of the contract. As long as entry threshold requirements are fulfilled, there is no limit to how many accounts one manager may link to their MAM profile.
Pros and Cons of MAM System vs. PAMM
Rather than sticking to just percentage allocations such as those provided by PAMM accounts, traders can customize their trading process by allocating positions on even more granular levels with a MAM account. For instance, traders can be given various amounts of leverage based on their risk-taking capacity.
- Diversification Capabilities
Through a MAM account, traders can distribute their capital across various trading accounts and amplify their potential for profits. This presents endless opportunities, enabling savvy investors to maximize returns while mitigating risks.
However, if you are a broker, the additional investment module may need to be implemented on your platform due to the complexity of a MAM system.
Comparing MAM and PAMM
So, how do these systems differ?
Firstly, a PAMM account indicates that all funds within the system are managed by one person. On the other hand, a MAM account involves several accounts with individual money management strategies for each of them.
Additionally, in terms of risk and reward, MAM accounts are more flexible than their PAMM counterparts. With a MAM system, investors retain greater control over their funds, allowing them to make decisions regarding when and where to allocate capital.
Finally, MAM accounts offer money managers more flexibility than PAMM accounts because they can set the number of lots to be traded by each account and assign higher leverage depending on the risk tolerance of their clients.
When it comes to the MT4 PAMM and MAM services, brokerage owners have a tough choice on their hands. Although various distinctions exist between these two systems, it is difficult to make an accurate recommendation of what to choose without taking into account the specific needs of the specific brokerage. However, by gaining insight into each system’s features, one can make an educated decision that works best for them.
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