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What Are Forex Managed Accounts & Their Types?

Enroute Editor by Enroute Editor
May 28, 2024
in Finance
0
Forex Managed Accounts

What to Know

Toggle
  • How Managed Forex Account Work?
    • 1. Forex PAMM Accounts
    • 2. Forex LAMM Accounts
    • 3. Forex MAM Accounts
  • Why Should You Invest in Managed Forex Accounts?
  • Final Thoughts

Many of us are well aware of the profitable opportunities that can be explored by entering the dynamic forex market. However, the complexity and risk associated with forex trading make us hesitant to give it a try. The fear of failure often leads to procrastination as we feel like we are never fully prepared to navigate the volatile currency market even after spending a lot of time studying it. Some of us are just too lazy to indulge in in-depth learning or we just don’t have enough time to devote to developing professional-level trading skills.

But what if I tell you that you can actually get a professional trader to manage your trading account on your behalf? I am talking about managed forex accounts, in which an experienced fund manager will be executing trades on behalf of multiple investors. They not only manage investor accounts but also help them earn without playing an active role in the trading process.

There are different types of managed forex accounts that you can consider for passive trading/investing and this blog will cover all the details about the same so that you can make an informed choice.

How Managed Forex Account Work?

We will be talking about the different types of managed forex accounts but in order to understand it better, you have to learn about the working of these accounts and how they are different from traditional forex trading accounts. When you open a regular Forex account, you will be the one making all small and big trading decisions based on your personalized trading plan. To succeed as a forex trader, you will have to execute winning trades and the only way you can earn is by making profits.

You cannot do this without developing the necessary skills that are crucial to survive in the fast-moving market. Just having trading skills is not sufficient to attain success as a solid strategy is the foundation for building your trading career. So, those who are opening a regular forex account must be ready to learn, plan and be patient until they start making profits. Just investing your money is not enough to earn as an independent trader as the time you invest to educate yourself is just as valuable along with your effort.

The time and effort can be minimized when you invest in a managed forex account where you are not directly involved in the trading process, and the fund manager will be in charge of all trading activities. When you follow an account manager or invest money with them, only they can enter and exit trades for you but they don’t have any direct access to your funds. Your accounts will be linked to the manager’s account and your funds will be safe when you join a reliable platform with experienced traders to choose from.

Now, let’s have a look at different types of managed forex accounts that you can consider as an investor.

1. Forex PAMM Accounts

PAMM is the abbreviation for Percent Allocation Management Module and in this type of managed forex account, the profits and losses are shared among investors on the basis of the proportion of funds that they have allocated to a PAMM account manager. For example, if your investment in a particular PAMM account is around 5% of the total funds that are pooled, 5% of the total profits earned will belong to you and this applies to losses as well. The risks and rewards are equally shared.

This type of managed forex account is preferred by beginners who just want to make some passive income from the frequent fluctuations in forex currency pair prices. You can choose an ideal PAMM account manager after checking the performance statistics and then allocate funds based on your risk tolerance. I suggest investing with different PAMM account managers following distinct strategies as diversification maximises your potential earnings and the risk can be minimised too.

2. Forex LAMM Accounts

LAMM stands for Lot Allocation Management Module, and just as the name suggests, the lot size and number of lots that you choose as your position size are considered for the distribution of profits/losses among investors. In PAMM accounts, you cannot decide your position size, but LAMM account investors can manage their risk by choosing the optimal trade size. If you are still confused about lot sizes, you should spend some time on a demo account that can not only be used to test trading platform functionality but also to get clarity about the basic concepts. And, which platform is better than MT4 to understand the concepts of Forex trading? The simple UI of MT4 and the presence of all the necessary tools make it ideal for beginners.

The trades that LAMM account managers execute on their main account are automatically copied to the investors’ accounts at the same time. The minimum deposit for investing in this account type will be higher than in PAMM accounts as the investor should have sufficient funds to cover the chosen trade size. One benefit of a LAMM account is that the investor can remove a fund manager anytime, which may not be possible in the case of a PAMM account investment.

3. Forex MAM Accounts

MAM stands for Multi Account Manager which is way more flexible as it is a hybrid approach combining the best features of both PAMM and LAMM accounts. Here, the risk depends on the proportion of funds you allocate to a MAM account manager but you have more flexibility to manage the risk. You can set some conditions and parameters about the position size, leverage and more which gives you more control over how your funds are used for trading.

MAM accounts will be a perfect match for those investors who have enough knowledge and experience to manage their risk on their own. Experienced traders can also invest in MAM accounts for diversification. Many forex traders have excellent risk management skills but are unable to commit to trading due to time constraints or they just fail to find the ideal strategy. Forex MAM account investment can be a feasible solution in this situation.

Why Should You Invest in Managed Forex Accounts?

There are many reasons to try this innovative trading solution and get the benefits of currency trading by simply investing in a top trader’s strategy. You just have to select the best account managers before allocating your funds, and diversification is the best method to mitigate the risk as your profits/losses will not be solely dependent on the performance of one account manager.

They are experienced traders with a track record of success in the past, but even professionals can encounter losses when the market becomes unfavourable. This is totally normal, and you still get to minimise the risk to a great extent and simplify the trading process. Thus, managed forex accounts can benefit all types of investors, allowing us to earn even if they lack the expertise and experience to trade themselves.

Final Thoughts

In a nutshell, forex-managed accounts were introduced as an alternative for those who were unable to make sound trading decisions or simply struggled to make profits due to various reasons. Such options are making the forex market more accessible to all as traders, especially novices, get an opportunity to earn by relying on an expert trader.

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