What are PAMM accounts and how to make money on them
Working with financial markets opens up great opportunities for profit. But in order to have a high and stable income, you need to study the basics of such trading platforms, monitor exchange rates, world news, study and test various strategies. Not everyone is ready to spend a lot of time and money on learning how to trade in financial markets. It is easier to open a pamm account by transferring your assets to the competent management of experienced traders and receive passive profits.
What is a PAMM account?
One of the most common investment options is the transfer of funds under the management of brokers. In other words – trust management of finances. A manager is a person who specializes in investing clients’ assets in profitable enterprises. As a result, the client receives income, and the manager receives his commission.
Despite the popularity of the method and legal regulation by civil legislation, the method of trust management had a large number of disadvantages. In particular, there were no guarantees, and the risks were significant. This situation required evolution and as a result PAMM accounts were developed.
The result of the development of PAMM accounts was the proportional distribution of both the risks of losses and earnings between investors and traders, depending on the size of the invested funds. The main difference from trust management is that here the manager himself invests his part of the funds and bears the risk of losses on an equal basis with all investors. This principle makes him pay more attention to his activities.
As a result of correctly performed actions, investors receive profit, and the trader receives profit and a percentage of investors’ earnings. This tool is now considered one of the best for beginners in investing, as it allows them not to delve into the complex processes of a trader.
History of PAMM accounts
As a new tool for investing financial resources, PAMM accounts appeared in 2008. The part of society that deals with passive income took it skeptically and did not believe in the reliability of the presented model. Meanwhile, history has shown that such an approach to trust management with minimal risks for traders is really a progressive solution.
The authorship of the method belongs to one of the giants of the brokerage market of Alpari. Since 2010, the principle developed by the authors has been actively applied by traders. Skepticism was intensified due to the fact that traders themselves were new to this issue and investors lost their investments due to their mistakes. That is why it is important to choose reliable brokers when investing in PAMM accounts.
Alpari, as one of the leading representatives of the market segment under consideration, offers customers a minimum threshold for opening. All PAMM accounts are checked by a specialized audit company, which is the most important tool of an honest financial policy of the company.
The principle of operation
Investors’ monetary assets are transferred to the trader’s PAMM account, which already has the latter’s own funds. A trader, using his knowledge and practical experience, invests them in profitable instruments. After the investor receives the profit, the trader receives his percentage.
How to open a PAMM account
A PAMM account is opened by executing the following algorithm:
- A trader with his own capital turns to a broker, it is better to choose representatives with a license from the Central Bank.
- It is registered on the site.
- Opens a PAMM account in his name.
- Contributes its own capital to it.
- Creates an offer (offer) for investors, in which he prescribes the basic conditions of cooperation.
It is worth remembering that it is not difficult to open a PAMM account. But a trader must have all the necessary skills and experience to properly invest investors’ funds.
Taxes from PAMM accounts
The issue of taxation is currently not fully regulated. Of course, according to the law, any income is taxed accordingly. For non-status residents, it is 13 percent. For individual entrepreneurs – six percent. Brokers who deal with PAMM accounts do not transmit information about their own clients to the Federal Tax Service. Therefore, the decision on the payment of taxes remains with the investor himself.
Risks when investing in PAMM
Despite minimizing the risk associated with the distribution of income and losses, experts consider PAMM accounts to be a risky investment direction. The income that was received by the trader in the past does not guarantee future earnings. But it is precisely due to the risk that the investor’s profitability is significantly greater than when investing in a bank deposit or securities.
The financial market is characterized by an extreme degree of instability against the background of macroeconomic processes. This is the main and only risk of losing the entire investment portfolio. No one can give a 100 percent guarantee of success.
Pros and cons of PAMM
The main positive aspects include:
- The possibility of earning money on the foreign exchange market without the independent participation of the investor.
- Passive income is maximally stabilized.
- The starting threshold starts at $10.
- High income – from 20-30% per annum.
- A very flexible system of terms for investing: from a few days to several years.
- Using portfolio strategies and investing in several companies at the same time.
The disadvantages include:
- There is no clear regulation of the trader’s activities by the state.
- There are no guarantees of losses for investors.
- It is not possible to withdraw funds until the agreed moment.
- The probability of fraudulent actions on the part of the trader.
Having analyzed what PAMM accounts are and how they work, we can conclude that this is a modern investment tool that has received a good reputation in the market. Every day, the ranks of investors through PAMM accounts are replenished by users with different income levels, occupation and investment experience.
Published: 8 July, 2021
