On Forex, both investors and managers can earn money. Managers earn profits by managing investors’ funds, while investors, in turn, earn well without engaging in direct trading on Forex, but merely by providing funds. The investment service that facilitates this entire process is called a PAMM account.
How a PAMM Account Works
A PAMM account is opened by a manager to begin trading on the market. The so-called “manager’s capital” is created, into which a certain amount of money is invested. The manager then allocates funds from their capital to selected investors. In trading, both parties share the risk equally. Afterward, all the terms of cooperation with investors are carefully considered and an offer is created, which includes the conditions and the percentage of profit as a reward.
The investor does not accept just any offer to join a PAMM account. They first review an independent rating, where they select managers with the highest efficiency.
Investors invest in a PAMM account, thereby bringing profits to the manager. However, this is not the only source of income for the manager. He also uses both the invested funds and his own capital for earning. The profits and losses, both for the manager and the investors, are automatically distributed according to the proportions of the initial investments.
To achieve good results in the PAMM account ratings, the manager must work hard. The more successful they become, the higher they rank in the ratings. For this, the manager needs to trade using not only their own funds but also the funds invested by investors. If the trade is successful, the amount in the PAMM account will increase proportionally. The profit will then be distributed according to the investments. After receiving profits from successful trading, the manager is paid a reward. The amount is determined both by the percentage of his investments and by the terms of the investment.
PAMM Account: Key Terms
A transaction made through Forex trading is called a “trade.”
Trading begins with a specified amount of base currency. This amount is calculated as 1:100,000 units of currency and is called a standard contract. The entire trading process is based on the use of leverage.
On the last day of the current month, a process known as “interest accrual” takes place in Forex. The trader’s account has an unused amount, which is used for the interest accrual process.
To avoid excessive costs, interested traders can minimize risks and start with an amount that is affordable for them.
Each trader’s account must always have the required margin, which is the amount needed to start trading. This is called a margin requirement. The deposit required to open two positions with opposite data is called the locked margin.
The balance amount, stated in percentages and variable profit amounts without considering costs, relative to margin conditions, determines the Margin level.
If the deposit funds approach the minimum margin threshold, the trader receives a warning or a Margin Call. At this point, the trader has three options: they can deposit additional funds, cancel some of their orders, or, in the most severe case, the company itself may block the trades if the trader hasn’t already done so.
The minimum allowable margin amount, where all trades on the market are suspended, is called the Stop Out level.
The Gap mode is designed for the automatic execution of orders. Trading on the Forex market is tied to prices. When the price gap reaches or exceeds a predefined gap level, the mode is activated. The term “gap” determines the criteria that, when met, trigger the activation of the mode. The order setting the Stop Loss is executed according to the gap price, while the Take Profit order is executed according to its price.
In some cases, orders may be rejected, such as in the situation known as “non-market price.” This occurs when an order with a Take Profit price is placed, and the gap bypasses this price.
Every trader who wants to earn money in the financial market must constantly learn, study additional information, and improve their skills. We have provided only the basic terms necessary for starting trading. If you want to be successful and engage in a profitable and enjoyable activity, read, work, and grow with Forex.