Differences between Trade Allocation Systems

As a new investor in Margin Forex, you may come across enough terms and other jargon to make your head to spin. Therefore some clients opt to invest in Margin Forex with a managed account structure. Managed account structures involve assigning a professional portfolio manager to proactively manage the trades on behalf of a client. It is important to ensure these portfolio managers are licensed with the appropriate regulators with the right authorisations. Clients should be wary of systems that advertise themselves as ‘signal providers’ that do not operate under any regulated financial services licence.

Professional traders that are assigned to these accounts use tools such as Multi Account Managers (MAMs) in order to efficiently trade multiple client accounts that they have been assigned to manage.  Note each client account that is linked is segregated and there is no authority to move or transfer funds.

As a client investing in a managed account that is linked to a MAM trading system you need to understand the differences between allocation systems so that you know exactly how the trades are being allocated to you and if they are done so in a fair manner.

Managed Account operators or managers should explain their allocation systems to their clients in order to justify the use of them in managing the client’s trades transparently. In this post, we will look at the differences between LAMM, PAMM and MAM trading systems:

Multi-Account Managers (MAMs) simply allow managers to divide and assign bulk trades to selected accounts. Portfolio managers will execute trades using a ‘Master’ account that is linked to multiple client accounts which may also be known as ‘slave’ accounts. The way the executed trades are booked to the individual client accounts will then depend on if the MAM allocation rules are set to a LAMM or PAMM algorithm.

Lot Allocation Management Module (LAMM) came before PAMM. It does not function based on the size of an investor's individual account. Instead, each account will automatically increase by a standard lot size whenever the portfolio account manager buys a standard lot of currency. The system is effective only in the event where each client accounts investment are the same, similar to that of a unitised managed fund structure.  If the client accounts vary significantly, the system could be flawed in managing trades fairly.

Percent Allocation Management Module (PAMM) is different in that trade allocations are dependent on the linked client account size using a ratio based on volume. Therefore this system takes into account any deposits or withdrawals that are made in each account and adjust allocation accordingly. Some managers may explain this system as allocating based on account equity. Given that this system can accommodate a range of account sizes this system tends to be used more frequently by Managed Discretionary Account (MDA) operators or managers. This is because of the individualised nature of the MDA services. 

Sponsor Ads

• Ad Space Available - Rent it Now!

Report this Page

Created on Dec 31st 1969 18:00. Viewed 0 times.

Share on APSense

Comments