Now a lot of people in developing countries are interested in generating income from financial markets. Especially tempting sounds like the possibility of obtaining passive income.
One option for this could be a PAMM account. Let’s see what PAMM accounts are, how safe it is and how it works.
What is the PAMM?
PAMM system or percentage allocation money management is a mechanism by which an investor can entrust his capital to a trader in order to multiply it.
The investor deposits money on the PAMM account and transfers control to the trader. The trader performs trading operations that must increase capital for a fee. Usually, the fee is a percentage of a successful transaction.
There is also a PAMM portfolio, this is a group of PAMM accounts managed by different traders.
You can read more about PAMM accounts here.
How do PAMM accounts work?
To understand how a PAMM account works, let’s look at the process of investing from the very beginning. In order to start investing with PAMM, you need to find a broker, so check this list of PAMM Brokers allowed to trade in South Africa.
Brokers provide investors with a platform to connect with the trader.
Brokers also provide security guarantees, in connection with which a trader can perform transactions with a PAMM account only in the PAMM system, cannot withdraw money, and also make other unauthorized transactions.
Brokers also provide a transparent history of transactions and reports so that investors can track the movement of their funds.
In order for the broker to perform all these functions, you must select a proven licensed broker. It will also help you to get proper protection from the state in case of default by the broker or trader of their obligations.
Through a broker, an investor deposits money into one or more PAMM accounts (creates his own PAMM portfolio). An investor can set a drawdown limit to protect himself a little from the risks of losing all capital if used inefficiently.
When money is on a PAMM account, it is traded on financial markets (for example, the Forex market). If the transactions are successful, the trader and the investor earn, if not, the investor incurs losses.
All operations that the manager conducts with the investor’s capital, he also conducts with his own capital.
This can be a good motivation for the judicious use of capital. The investor can deposit and withdraw money from the account at any time, which is an advantage over bank deposits.
How to be profitable with PAMM?
In order to profit from the use of a PAMM account.
An investor needs to carefully select a broker. Also, to avoid losses, you can choose a money manager. Most brokers offer a list of PAMM accounts with trader statistics, as well as suggest information such as the amount of trader experience.
And yet, you should not use only one PAMM account, even with a very good rating. Reduce your risks and use a PAMM portfolio.
We hope this information has helped you understand what PAMM is.