Being a beginner is challenging in the dynamic forex market, and you may not be able to deal with the complexities of trading on your own. But does trading have to be a tough job all the time? Or is there a way through which you can simplify forex trading? No, we are not talking about any shortcuts or cheat codes but legal ways to make the trading process less ambiguous for a beginner. In fact, the concept of managed forex accounts and copy trading has made the forex market way more accessible for all traders, irrespective of their knowledge or skill level. Anyone with some basic knowledge about these trading approaches can easily earn profits with minimal effort.
This write-up will educate you about managed forex account services and copy trading, the most popular methods for amplifying forex trading.
What Happens When You Invest in a Managed Forex Account?
Managed forex accounts are self-explanatory as all the trading activity will be managed by another expert trader on behalf of the investor. You just need to find the ideal trading platform for managed forex accounts and make an investment after choosing professional traders for managing your account. The profits & losses will be shared with you after deducting the service charges of the manager as per the terms and conditions at the time of account opening. There are different types of managed forex accounts, but the most common ones offered by forex brokers are PAMM and MAM accounts
How Do Forex Pamm Accounts Work?
PAMM is the abbreviation for Percent allocation management module which obviously means a certain percentage of the account capital of investors will be allocated to the top trader or fund manager for trading. But the PAMM manager won’t be directly trading on your account as they only use their master account to which the investor’s account will be connected for managing. The profits and losses resulting from trades will also be reflected in the investor’s account on a percentage allocation basis.
The accounts of investors will replicate the trades entered by master traders with automated technology, which makes trading easier and almost effortless for them. Because of this, PAMM accounts have become a popular choice for those who want to earn from passive trading or simply lack the time and skills to manage trading activities on their own. The risk of trading will be diversified among investors based on the percentage they invest in a top trader’s account.
Pros of investing in PAMM accounts
- PAMM accounts are considered to be safe as the fund manager will also be trading with their own capital, and hence they will make the best trading decisions in every situation.
- PAMM accounts allow investors to earn without any hassle as they don’t need to get involved in any part of the trading process, but at the same time, their funds are secure as the account manager does not have any direct access to capital.
- Your trading activities will be managed by a professional with enough experience, which minimises the risk to a great extent.
Cons of investing in PAMM accounts
- PAMM accounts are kind of rigid as investors do not get much control over risk management and completely rely on the account manager.
- Investors may not be able to know much about the actual strategy followed by the trader they choose for managing funds, as PAMM accounts are quite secretive in nature.
How does a Forex MAM Account work?
MAM is the short form for Multi-Account Manager, which simply refers to the trading technique in which a top trader manages multiple accounts from a single interface. Here the fund allocation mode will be chosen by the investors themselves and does not follow the typical percentage allocation method used in PAMM accounts. MAM accounts offer more options to investors as they can set certain trading parameters as per their risk tolerance.
MAM accounts would be ideal for someone who knows enough about risk management in trading and still wants to hire an expert trader to carry out trading activities on their behalf. You can also use some basic tools like trading calculators for calculating the risk and other key metrics for setting these parameters.
Pros of investing in MAM accounts
- You get more control and choices while investing in a MAM account.
- The investor will have to trade according to the parameters set by you in all situations, which makes it a safe option.
Cons of investing in MAM accounts
- Individuals who lack knowledge about risk management will find it hard to set the parameters for their MAM accounts.
- MAM accounts may limit your profit potential if the trading parameters set by you do not fit well with the fund manager’s strategy.
- The risk of loss due to mistakes that happen due to inexperience will be eliminated as MAM account managers are mostly expert traders with hands-on experience in trading.
Steps to Setup a PAMM or MAM Account
- The first step is finding a forex broker or platform that provides PAMM/MAM account services and signing up with them.
- Then you go through the list of top PAMM/MAM account managers and choose the one that meets your requirements.
- The rest of the process will be automated, and you can avail of the benefits of trading without actively engaging.
Copy Trading – Basics
Copy trading is yet another innovative approach that simplifies the process of trading in a unique way. It is also a perfect way to earn passively from the forex market, as the process of copy trading is fully automated on most platforms. The top traders who wish to share their trading system or strategy with others will join copy trading platforms and will make all their trading activity public, allowing users to review their performance and follow them for copy trading. The trades initiated by the top trader you follow will be mirrored to your trading account in real-time without any delay.
The top trader you choose must have a strategy or trading system that resonates with your trading goals and risk appetite. You won’t be able to enter or exit any trades manually but can unfollow a trader when you notice a drop in their performance. Copy trading can be ideal for a beginner who wants to skip the learning part of trading for now and is eager to get some market exposure with minimal risk as they simply copy the trades executed by an experienced top trader. It can also be a good alternative for those who simply don’t want to trade themselves but are keen to make profits by copying an already profitable trader.
Perks of Copy Trading:
- Copy trading platforms are very transparent as they disclose all relevant information related to the top traders covering their trading history, account performance and real-time statistics.
- Copy trading does not require any prior knowledge or experience.
- Copy trading allows you to have a hands-off trading experience.
- You will be copying an expert trader ranked, and hence you will be trading like an expert by following their footsteps, amplifying your profit potential.
Negatives of Copy trading
- You are completely dependent on the trader you copy, making copy trading risky.
- You may not be able to find the right trader as experts often have a higher tolerance for risk, and this might go wrong for those who open small accounts.
Steps to Get into Copy Trading
- Finding a Platform – The first step is finding a reliable copy trading platform and a reputed broker that supports copy trading. Some brokers also offer copy trading via their own platform, but your options would be limited here as you can only choose from the traders with an account with this broker. In that aspect, copy trading platforms give more options as they may have partnered with several brokers, forming a social trading community of traders who have accounts with different brokers.
- Choose a Trader and Start Copying – The next step is choosing a top trader to copy and following them based on the information that is available about their trading style and performance. Many copy trading platforms have a transparent ranking system which is very helpful for making a wise choice. Once you complete this step, you can start copying their trades in real-time, which is an automated process in most platforms. You can also start by opening a demo account with real funds once you feel satisfied with the platform’s work.
Final Words
To sum it up, you can see that managed forex account services and copy trading are feasible solutions for those who struggle to trade independently for various reasons. You just have to choose the most suitable option for yourself and get started after evaluating the pros and cons in detail.
