PAMM vs. MAM vs. Copy Trading: What’s the Difference?

PAMM vs. MAM vs. Copy Trading

Trading on financial markets is becoming more attractive than ever. So, as a consequence, solutions that improve and enrich brokerage or any other type of investment firm have become increasingly important. For that reason, we find it relevant to talk about the three most popular solutions today.

You will find out what these trading methods offer not only for brokerages and professional traders but also for those looking to trade for the first time. If you are looking for a firm to provide an easy-to-earn additional passive income, do not hesitate to read further.

Are you keen on learning how to trade on foreign currency exchange markets or Forex, but are you too busy to devote your time to full-time trading? Then you came to the right place to learn about the benefits and advantages of several copy trading platforms offering PAMM and MAM accounts, which may be the best choice for you.

You can obtain one of the most likable and most progressive solutions known as the Percent Allocation Management Module (henceforth – PAMM account), which will be explained further on. Another solution we would like to describe is Multi-Account Manager (henceforth – MAM). This solution is designed mainly for fund and money managers. It allows them to manage trades of multiple of their clients for a certain percentage of their successfully executed trades. When choosing this option, it will be significantly easier for money managers to realize trades for a client group at the same time.

Another method is copy trading. It is a popular form of trading that involves direct copying of specific trades of other leading traders/money managers in the market. That being said, any trade executed by the leading trading manager will show up in the member’s account.

Copy trading is social trading that allows traders to follow others by copying their positions. Traders can choose to copy one or even multiple providers. The main difference that distinguishes this method from PAMM or MAM is that money management and risk management rely solely on the traders themselves.

Towards the end of this article, we will offer you some solid copy trading platforms that have built a reputation for being reliable and trustworthy.

Now, please proceed into the next part of this article to find out what PAMM, MAM, and copy trading are, how they work, and why these solutions are in demand among investors and broker’s investment platforms/firms.

What exactly is PAMM (Percentage Allocation Money Management)?

Let’s begin with the PAMM trading solution. This modern trading option is the most popular and is the most common manage-your-trade method. The main upside of the PAMM trading solution is the distribution of transaction volumes on a percentage basis among all users involved in the trading activity. Traditionally, allocations are based on the main investor’s/ money manager’s balances or equity.

Using this technique on any reliable PAMM-platform, the master trader is responsible for each equipped account. He or she makes trades, which are then immediately and proportionately duplicated to investor accounts. Another aspect to note is that the trading position is at the same price as it was done on the money manager’s account.

Some PAMMs may not show every transaction on investor trading accounts. However, instead of that, they maintain their own back office where only trade-related Profit&Losses are allocated.

Worth noticing is that such an option is not desirable since brokerage customers often want to view all of their trades on their trading accounts.

Most solid PAMM trading solutions have leaderboards for master accounts, allowing investors to analyze money managers’ performance before subscribing to them.

What Is a MAM trading system?

A Multi-Account Manager trading system allows professional traders to handle and manage a certain amount of trading accounts. Every trade executed by the leading manager is replicated across the so-called “pool of accounts” with characteristics like trade size that may be different depending on each investor’s preferences and risk level.

The MAM account is a unique way to invest in the financial markets. This solution essentially lets customers place their capital with professional investors who will trade on their behalf. Moreover, investors within the community are automatically paying a return in the form of a special commission. Various online brokers offer MAM systems along with specific rules and features.

Modern and progressive brokerages utilize MAM solutions to increase their trading volumes. Some of the best MAM software and tools are compatible with industry-recognized platforms, such as MetaTrader 4 or 5.

Moreover, most of the time, the MAM trading method involves associated costs or stipulations like minimum deposits. They range from the lowest available levels to tens of thousands for exclusive users.

Users who utilize the MAM trading method need to pay a fee to the master trader. It mostly depends on a master’s performance and the percentage of returns.

What is Copy Trading?

Copy trading is one of the most progressive trading methods out there. This is where traders and investors increase their chances of becoming profitable without being physically involved in real-time trading. These solutions give new opportunities and a modern comprehensive way to invest in financial markets.

This type of trading solution has been developed for those with little to zero trading experience who seek a passive income. It allows novice traders to copy the trading positions of professionals, also known as trading/money managers.

This solution offers a solid opportunity to earn extra cash in the mid/long run. It is also a great way to get involved in trading, with a high chance of improving one’s skills. It is also a great way to join the network of professional and respected traders, where they can analyze and learn based on their trades.

With the current global situation, more and more investors are looking for the most comfortable and promising types of investments. But making consistent money off the markets isn’t as easy as it may sound. Trading requires patience, commitment, trading knowledge, and time to analyze the market and properly implement your trading strategy. Many investors aren’t yet ready to trade the markets for these reasons. Still, they can be prepared to use several trading solutions to gain access to the markets and generate money to achieve their financial goals while learning how to become a successful and profitable trader.

If you run a brokerage, people might pick you when you offer them promising reliable passive income. Clients want their money to work for them. New investors can start investing in a PAMM account or MAM trading system with a minimum sum of money that they consider appropriate. This is a win-win situation since everybody gets their share.

What are the differences between MAM/PAMM/Copy trading solutions?

These trading solutions are considered modern, easy to use, and effective. They are becoming known as methods that generate a solid passive trading income. However, reaching that goal requires awareness of specific risks and proper application.

When real money is on the line, everyone’s concern is raised immediately. As time goes on, the amount of major brokers, who decide to offer these services, is growing significantly. However, the central aspect to consider is how much the customer is willing to give up control of their funds.

With a regular copy trading account, a trader can make decisions independently, which is not possible with a PAMM/MAM account. When utilizing a PAMM account, funds will be moved directly to a leading trader who uses them to execute various trading operations. Remember that one specific trader is responsible for dozens of other investors within a particular group.

Commissions are another difference. With a specific PAMM account, there is often only one fee, which is the spread, paid by the fund manager for opening trading positions. On the other side, with the copy trading method, there will be both the spread and commission charged by the copy trading platform.

When we compare MAM and PAMM, we won’t find many differences because they are practically the same. The only aspect that separates them from each other is the allocation methods.

PAMM account allows the fund manager to proportionally allocate trades to all aggregated sub-accounts according to balance, equity, or margin level.

On the other hand, MAM has several allocation methods that allow investors to choose the risk level on their trading accounts. In this case, a fund manager can allocate trades to subaccounts based on lots or percent of the equity.

Besides that, PAMM and MAM methods have the option to hide trades from the investor using P/L. When a money manager wants to keep their strategy secret for several personal reasons, these methods are used.

What are the main advantages and disadvantages of these trading methods?

PAMM advantages

There are plenty of advantages for retail traders when utilizing a PAMM account. For instance, traders are welcome to adjust their own trading conditions. Besides that, investors can choose from a wide range of money managers and spread their funds between multiple money managers to diversify their portfolios.

The use of registered and official brokerage firms ensures that money managers cannot abuse their position. They will not be able to steal your funds or withdraw them without permission or act as an independent body to provide statistics and performance history of different PAMM accounts.

PAMM disadvantages

No matter the trading solution, financial markets are risky. Although a brokerage may have the best traders, the risk always remains. Therefore it is simply impossible to avoid losses in trading, no matter the financial market.

Always remember that losing capital might occur at any time. Even though professional traders of certain firms have seen it all, it doesn’t mean they are always 100% right. They have losing streaks too.

In addition, PAMM and MAM offer the capability of hiding trades from investors using the P/L. Because of this, investors might not know what the money manager does or how he handles trades. However, this can be a plus for the manager who does not want to share his strategy.

MAM pros

This solution is perfect for people who do not want to spend too much of their free time behind a computer screen and monitoring financial markets. This is why such solutions were designed to do – to spare your time. You need to set it up and enjoy this time-efficient solution since there is no more need to bother yourself with analyzing the market. Clients can be sure that their capital is in good hands. There are appointed professionals for this job.

Also, another positive information for novices. New clients can start at a minimum of 0.01 lots per trade. That means that this solution is accessible for people with less capital to get involved in investing.

MAM cons

Be wise and do your research when choosing a MAM solution provider. First of all, sometimes, it can be challenging to interpret the records of a MAM master, where there are no modern high-level tools. 

However, this can be avoided by choosing top-level platforms, of which there are more than enough.

Sometimes it can be difficult for a MAM framework to calculate the correct number of lots to be apportioned, particularly when there’s a massive distinction within the balance or value estimate of client contributions, occasionally leading to unbalanced trade shares for more significant accounts.

The last significant downside is when dishonorable customers misuse or plagiarize the strategy of MAM traders, mainly by copying these trades in for their separate account or even sharing it with a different person.

Upsides of Copy trading

One of the most convenient methods for beginners. Copying successful traders’ trades reduces the risk of losing funds but does not fully protect them. Without necessity or special knowledge of the market principles, anyone can join this trading solution.

Copy trading is an automated solution that saves time for everyone who decides to utilize it. Thanks to this, transactions will be placed quickly and efficiently.

Access to statistics provides essential data that allows you to observe your risk management regularly. Every single user has the opportunity to check those statistics and analyze leading traders’ work before joining him.

Downsides of Copy trading

Copy-trading has its other side of the coin as well. Even though it might be one of the best and most satisfactory solutions in the business, everyone should be aware of this method’s disadvantages and potential risks.

Bear in mind that even the best traders are humans, and they can make mistakes. This factor makes it impossible to claim that you cant lose your capital.

When you decide to use a manual copy trading platform, the traders must have 24/7 access to the exchange. On the other hand, if you choose an automatic program, it also implies partial presence on the network. Since everything is digitalized, you can’t escape it.

No human service in this world is for free. That’s why professional traders require a specific fee for their work. Therefore, your profit will always be somewhat smaller in a successful trade.

Few more words

To summarize, different brokerages offer different solutions, and each has its own unique characteristics.

The opportunity and continuous earning potential of copy-trading, PAMM, and MAM are solid. By getting involved in trading as a beginner, you increase your chances of improving your skills. You can also join the network of professional and respected traders, which can be beneficial in the long run.

So, it is a great way to make passive income while doing your full-time job.

Before you get into investing, it is also essential to have realistic expectations. Trading on financial markets is a long-term activity with ups and downs and a certain risk of losing money.

Take the time to learn about financial literacy and the psychology of trading, organize your financial goals, and make a money management plan to make your trading efficient and successful.

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