PAMM Basics
PAMM accounts are managed accounts.
The clients provide funds and appoint an external manager who manages the account on their behalf on the basis of a limited trading power of attorney.
The Percent Allocation Management Module (PAMM) is the technical solution that is used to allocate trades between clients' accounts, therefore allowing an external manager to manage simultaneously an unlimited quantity of managed accounts on on trading platform.
Only the manager has access to the trading platform and he is the one who is trading. Clients control their funds and review the manager's trading activity through web reports and receive a daily report via email.
The external manager is not an employee or representative of the Broker.
The Broker provides the trading platform and will not supervise or interfere in any manner with the trading performed by the manager.
Supported Instruments
Forex instruments are available for trading on managed accounts. Gold (XAU) and Silver (XAG) are available upon request only.
Trade allocation
The manager's activity (trades, profit & Loss) is allocated between managed accounts according to the ratio.
Ratio
The ratio is used to determine the allocation of positions, profits and losses. Each managed account has its own ratio in PAMM. The total sum of all ratios under one PAMM account is always equal to 100%.
The client's ratio is calculated as the equity of the client divided by sum of the equity of all clients at settlement. If there is one single active client, the ratio for this client is 100%.
Example with one client
In this example, we neglect commissions, performance fees etc.
- Equity of client 1 is 60 000 EUR -> Ratio is 100%
Manager opens a position of 1 000 000 EUR and makes a profit of 10 000 EUR.
- 100 % of the positions is allocated to client 1 -> 1 000 000 EUR -> profit is 10 000 EUR
If the client's ratio is 100% and the manager opens a position of 1 000 000 EUR/USD, the position is fully allocated to the client. With his funds the client sustains the full amount of the position, participating 100% in its profits or losses.
Example with two clients
Again, commissions, performance fees etc. are neglected.
- Equity of client 1 is 60 000 EUR -> Ratio is 60%
- Equity of client 2 is 40 000 EUR -> Ratio is 40%
Manager opens a position of 1 000 000 EUR and makes a profit of 10 000 EUR.
- 60% of the position allocated to client 1 -> 600 000 EUR -> profit is 6 000 EUR
- 40% of the position allocated to client 2 -> 400 000 EUR -> profit is 4 000 EUR
Client blocks trading
When clients decide to deactivate their account or the equity stop loss for the account is triggered, the recalculation of the ratios is done instantly. All open positions on the managed account are closed immediately except for off-market hours when deactivation will become effective at the opening of the market and positions will be closed at the opening price.
In the example, this would lead to the following situation.
- Client 2 deactivates account -> this part of of the position is closed (400 000 EUR)
- Manager left with a position of 600 000 EUR -> sustained by client 1 -> client 1 ratio changed to 100%
Client joins manager
When a client activates the account and the manager decides to accept the request, the funds are available for trading in the manager's platform immediately or after next settlement (if manager was already trading on that day).
Immediate activation
This is the case when the manager has no managed clients or if he has, did not trade on the current day.
Activation after next settlement
The manager has managed clients, and has traded during the current day, than the activation of a new client takes place after the next settlement at which the ratio for each client is calculated new. There are two scenarios:
Scenario 1 - No Positions open at settlement
If the manager has traded during the current day, but all positions are closed at settlement time, than the activation of a new client takes place after next settlement. At settlement (21:00 GMT in summer, 22:00 GMT in winter), the ratio for each client is calculated new.
Scenario 2 - Positions open overnight
If positions are open overnight, than the activation of the new client takes place after the next settlement, and the positions would be split according to the new ratio for each client.The positions of the manager will NOT be affected. However, the position held by each managed account will change, accordingly with the new ratio.
Let's look at an example for this scenario. In order to focus on the essentials, commissions and currency conversions have been left out.
There are two clients.
- Equity of client 1 is 60 000 EUR -> Ratio is 60%
- Equity of client 2 is 40 000 EUR -> Ratio is 40%
Manager opens a position of 1 000 000 EUR and makes a profit of 10 000 EUR until settlement.
- 60% of the position allocated to client 1 -> 600 000 EUR -> profit is 6 000 EUR
- 40% of the position allocated to client 2 -> 400 000 EUR -> profit is 4 000 EUR
A new client with 90 000 EUR joins them and is activated at settlement when the ratios are recalculated.
- Equity of client 1 is 66 000 EUR -> Ratio is 33%
- Equity of client 2 is 44 000 EUR -> Ratio is 22%
- Equity of client 3 is 90 000 EUR -> Ratio is 45%
Manager closes the position on the second day with a loss of 10 000 EUR. In total, the trade has profit/loss of 0.
- 33% of the position allocated to client 1 -> 330 000 EUR -> loss is 3 300 EUR
- 22% of the position allocated to client 2 -> 220 000 EUR -> loss is 2 200 EUR
- 45% of the position allocated to client 2 -> 450 000 EUR -> loss is 4 500 EUR
Final equity after settlement
- Equity of client 1 is 62 700 EUR
- Equity of client 2 is 41 800 EUR
- Equity of client 3 is 85 500 EUR
Client 1 and 2 had a positive performance for this trade, but the third client has negative performance.