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Here’s a Brief Talk About Running MAM/PAMM Accounts in the United Kingdom

Here’s a Brief Talk About Running MAM/PAMM Accounts in the United Kingdom, FP Markets

Reading time: 8 minutes

 

  • A MAM account (Multi-Account Manager) represents an individual account in which a money manager, or fund manager, employs to execute trades. These trades are mirrored by way of linked trading accounts (sub-accounts), client accounts belonging to the money manager. The manner by which trades are mirrored, however, depends on predetermined allocation methods.

 

  • A PAMM account (Percentage Allocation Management Module or Percentage Allocation Money Management) is similar, though the allocation method is different. Allocation is according to ratios proportional to the deposit amount of each client account.

 

If you’re a money manager working with more than one Forex account, consolidating your retail investor accounts (sub accounts) into an individual master account is an option.

According to the Global Financial Centres Index (GFCI), New York ranks as the world’s top financial services centre, followed by London. Still, you don’t need to work with a Forex broker on Wall Street to be able to command a sizeable client base. In fact, being located in the United States (US) can be a disadvantage, as opposed to operating out of the United Kingdom (UK) or Hong Kong, for example. Although the Forex market is a global market, with Forex traders essentially sticking their fingers in the same pie, regulation of financial instruments differs depending on the country you trade from.

Here’s a Brief Talk About Running MAM/PAMM Accounts in the United Kingdom, FP Markets

Regulation: Forex and CFDs (Contracts for Difference)

Regulators demonstrate different levels of tolerance when it comes to risk. Although these variances in tolerance levels are usually reflective of the philosophy of policymakers, sometimes these differing levels are not just due to the ethical stances these regulators decide to adopt.

 

Online Forex traders and OTC Forex turnover by European country in April 2016

Here’s a Brief Talk About Running MAM/PAMM Accounts in the United Kingdom, FP Markets

If you look at the above table, it makes sense the UK has the highest monthly over-the-counter (OTC) Forex turnover as the country also has the highest number of online Forex traders. Interestingly, though, Turkey still manages to generate a high volume of monthly OTC Forex turnover (22bn USD) despite only having a modest number of online Forex traders. Compare this to Russia, which has more than 36,000 online Forex traders, yet turnover is only 45bn USD. This is likely due to tighter regulation in Russia, governed by the Central Bank – renowned for their strict approach towards monetary philosophy (this regulator has been around since 1860).

Another example is in the US. Americans are prohibited by the US Securities and Exchange Commission (SEC) to trade CFDs due to rules regarding over-the-counter products. As a result, this could be part of the reason the OTC Forex turnover for the US in April 2016 was 1,272bn USD, compared to the UK’s $2,406bn USD.

 

The FCA: MAM and PAMM Accounts

Another thing the SEC regulates heavily are managed accounts.

Because of the SEC’s stance on managed accounts, many US-based brokerages tend to do away with CFDs and offer other types of trading accounts.

The Financial Conduct Authority (FCA – the conduct regulator for 58000 financial services firms and financial markets in the UK) is another well-known regulatory body who do permit Forex/CFDs. Many UK-based brokers, therefore, are not put off when it comes to offering a MAM Forex/CFD account on top of the common standard account. Another type of managed account common in the UK is the LAMM account, or lot allocation management module account. However, the trend is many LAMM account holders have switched to a PAMM account.

 

Demo Accounts

Consider test-driving a UK-based broker using a demo account before making any concrete decisions. A demo account offers a simulated environment under live real-time market conditions, with no minimum deposit required.

Demo accounts are a great way to gain experience, test trading strategies and trading platforms, while exercising prudent money management. However, once you feel ready to trade a live account (real money), you can simply open a standard account with the minimum deposit. Once you yourself have made money (a positive return), convincing others to become clients is the next step. Once they make a profit, these sub-accounts will subsequently generate managers a monthly performance fee.

 

 

Disclaimer: The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be high risk; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

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