MAM (Multi-Account Manager) and PAMM (Percentage Allocation Module Management) accounts, allow money managers to manage multiple accounts without having to establish an investment fund or firm. MAM and PAMM accounts differ in how they actually function, but both essentially allow for someone to manage multiple accounts from one master account.
What Is a PAMM account?
PAMM stands for Percentage Allocation Module Management. This solution is offered by many brokerages and allows for investors to become part of a group of separate accounts which are then traded by one money manager. This money manager will be given a Limited Power of Attorney over the accounts in his control. This limited power of attorney gives the money manager the ability to trade on behalf of his clients, with the money manager controlling an account whose equity is equal to the total amount of equity held in all the separate individual accounts.
This is where the Percentage Allocation part of PAMM comes in. If the manager of the PAMM account decided to open a 100 lot long position in the EUR/USD, the position would be broken up based on the percentage equity which each sub account contributed to the master account.
Supposing our PAMM manager had five clients.
- Client 1: Accounts for 5% of total equity.
- Client 2: Accounts for 30% of total equity.
- Client 3: Accounts for 30% of total equity
- Client 4: Accounts for 15% of total equity.
- Client 5: Accounts for 20% of total equity.
The 100 lot long EUR/USD trade would be broken as follows:
- Client 1: Long 5 Lots of the EUR/USD.
- Client 2: Long 30 Lots of the EUR/USD.
- Client 3: Long 30 Lots of the EUR/USD.
- Client 4: Long 15 Lots of the EUR/USD.
- Client 5: Long 20 Lots of the EUR/USD.
As you can see each client is allocated a part of the total trade based on the percentage of the equity that their account contributes to the money manager’s master account. Many brokerages offer PAMM accounts to money managers who wish to use their service to manage client funds.
What is a MAM account?
MAM stands for Multiple Account Manager and should be confused with MetaQuotes Multi-terminal product. While PAMM accounts allocate trades based on percentage of total equity, MAM accounts give money managers more flexibility when sub-allocating the trades placed in the master account.
For instance it is possible for the money manager to allocate trades on a fixed lot basis. This means the money manager can set the number of lots to be traded by each individual account, to tailor his service to the account size and risk profile of his or her clients. This fixed allocation can also be achieved with LAMM (Lot Allocation Management Module) accounts which again allow for portfolio managers to manually manage lot size within sub-accounts.
In addition to having the option to manually set sub-account lot size, MAM account managers can also assign higher leverage to certain sub-accounts depending on their clients risk tolerance provided they have agreed to taking on extra risk. This flexibility has led to money managers increasingly opt to use MAM accounts.
Things to note
Since 2012, the NFA of the USA has placed severe restrictions on the use of PAMM accounts by US money managers. This had made it more difficult for USA based CTA’s to trade Forex on behalf of their clients. It should also be noted that traders should advance with extreme caution when considering placing their money with an account manager.