In order to run a Managed Account model outside of a mutual or hedge fund structure, special technology is required to allow the portfolio manager to trade all accounts ("sub-accounts") as if they were one ("Master Account").
This technology or software is commonly known as a MAM or PAMM.
What Does "PAMM" Stand For?
PAMM stands for Percent Allocation Management Module. It is a technical solution provided by brokerage firms that allows investors to become part of a "pool" of separate accounts, or sub-accounts, traded together by one trader or money manager who has Limited Power of Attorney (LPOA) over the accounts; in other words, authority from clients to trade their accounts. The account the manager trades is one large "master account," whose equity is equal to the sum of the sub-account balances.
For example, if a money manager executed one trade to buy 50 lots of EURUSD in a PAMM account, the trade would be broken up or sub-allocated to the individual sub-accounts (client accounts) in smaller parts based on the PERCENTAGE of equity of each account relative to the master. This means that if an individual account represented 2% of the equity in the PAMM, that account would be allocated 1 lot of EURUSD from the 50-lot position.
Many brokerage firms offer PAMM's, but some offer a more flexible MAM counterpart.
What Does MAM Mean and Why is it Better?
The acronym MAM stands for Multi-Account Manager. Not to be confused with MetaQuotes' inferior Multi Terminal product, which has various limitations, a MAM offers a number of different ways to sub-allocate the trades – not just using the percent allocation method of a PAMM. For example, a trader who wishes to allocate trades based on a fixed number of lots per sub-accounts can do it (this is one of the old ways to sub-allocate trades achieved by a software known as a "LAMM" or Lot Allocation Management Module). The portfolio manager can also assign a higher leverage to specific accounts in the MAM from investors who have a higher risk tolerance and agreed to it. All of this and more can be achieved with a MAM. That is why it is superior to a PAMM.
Please note that since 2012 the NFA has enacted severe restrictions when it comes to the use of PAMMs by US-based money managers who trade forex. This has made it more difficult for CTAs trade FX in the United States to manage client accounts.
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