Do I want someone else to trade my account, without my having to do any work? If so, I have three methods as a retail trader to get that done: PAMM accounts, MAM accounts, and copy trading. They all have the same goal: allowing a professional money manager or trader to execute trades on my behalf. I benefit from their results without having to do anything.
Copy trading, PAMM, and MAM each have distinct features and their own pros and cons. The good thing is that all three methods have been around for a long time - their technologies are tried and tested. The most significant variable is the skill of the person trading on my behalf!
Let’s explore each different method: PAMM, MAM and copy trading.
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How PAMM Accounts Work
PAMM stands for Percent Allocation Management Module. A PAMM account allows a trader or professional money manager to directly trade other individuals’ accounts.
To make this work, the money manager trades a “master account,” which is a collection of smaller sub-accounts. When the trader or money manager opens and closes positions, the broker executes those trades across the multiple sub-accounts. From the money manager’s perspective, they are trading a single account, even though it is a collection of multiple accounts.
How does each investor receive their profits? They receive their profits in proportion to the size of their account relative to the group's total. PAMM accounts ensure that each investor has the same percentage profit or loss, regardless of their initial account size. Let’s see how this works in practice.
Example of a PAMM Account Structure
- Let’s say a PAMM account group has 3 individual investor sub-accounts: Account A: $50,000, Account B: $30,000, and Account C: $20,000. The total size of the PAMM group is therefore $100,000. Account A is 50% of the PAMM, Account B is 30%, and Account C is 20%.
- Now let’s say that the trader grows the PAMM account from $100,000 to $150,000, i.e., $50,000 in profit, or a 50% gain.
- Each individual account receives the same percentage share of the profit. Since Account A is 50% of the total PAMM account, it will receive $25,000 in profit. Account B will receive 30% of the profit, i.e., $15,000. Account C will receive 20% of the profit, i.e., $10,000.
- Account A has grown from $50,000 to $75,000. Account B has grown from $30,000 to $45,000. Account C has grown from $20,000 to $30,000.
- Notice each account has received a 50% gain in profits, i.e., in the correct proportions to their initial account size.
Account | Initial Size | Profit | Total after profit | % gain or loss |
Master account | $100,000 | $50,000 | $150,000 | 50% |
Account A | $50,000 | $25,000 | $75,000 | 50% |
Account B | $30,000 | $15,000 | $45,000 | 50% |
Account C | $20,000 | $10,000 | $30,000 | 50% |
How Do PAMM Fees Work?
Typically, the trader receives a percentage of the profit each month, based on new net equity highs. The percentage profit can vary wildly from 15% at the low end to 50% at the high end. Normally, the broker automates the calculation and transfer of performance fees from the investor accounts to the trader. This avoids manual calculations and the need to request money from investors every month.
How MAMM Accounts work
MAM stands for Multi-Account Manager. Similar to a PAMM account, a MAM account allows a trader or professional money manager to directly trade other individuals’ accounts. When a money manager executes trades on the master account, the broker automatically executes those positions across multiple sub-accounts. The key difference with a MAM is that each investor can choose the risk level in agreement with the trader. The two most common ways to choose risk levels are through:
- Lot-based allocation. For example, some clients may choose 1 lot per trade, while conservative clients may choose 0.5 lots per trade, and aggressive clients may choose 2 lots per trade.
- Multiplier allocation. For example, the trader may offer three risk/multiplier levels: 0.5 for conservative risk clients, 1.0 for medium risk clients, and 2.0 for higher risk clients.
MAM accounts give an additional layer of flexibility for investors. This is particularly useful for traders with small account sizes who want a higher lot size or risk multiplier to help boost the potential dollar returns.
How Do MAM Fees Work?
Similar to the way PAMM fees work, the MAM trader usually receives a percentage of the profit based on new net equity highs each month. The percentage profit can vary from 15% at the low end to 50% at the high end. Typically, the broker automates the calculation and transfer of performance fees from investor accounts to the trader, eliminating manual calculations and the need to request funds from investors each month.
Example Of A MAM Account Structure
- Let’s say a MAM account group consists of three individual investor sub-accounts, each with $50,000. Account A asks for a 0.5 multiplier, Account B asks for a 1.0 multiplier, and Account C asks for a 2.0 multiplier.
- Let’s say the trader makes a 50% profit at the normal risk level.
- Account A would receive 25% profit ($12,500), Account B would receive 50% profit ($25,000), and Account C would receive 100% profit ($100,000) on their original capital.
Account | Initial Size | Multiplier | % gain before multiplier | Profit after multiplier | Total after profit |
Account A | $50,000 | 0.5 | 50% | $12,500 | $62,500 |
Account B | $50,000 | 1.0 | 50% | $25,000 | $75,000 |
Account C | $50,000 | 2.0 | 50% | $50,000 | $100,000 |
How Does Copy Trading Work
Copy trading is the electronic copying of another trader's positions (the “signal provider”) on my account (the “copier” or “subscriber”) through copy trading software. This seems similar to PAMM and MAM. However, copy trading does not involve pooling funds in a master account.
If I subscribe to a signal provider, I still control my account. I may decide to close the position early or adjust the stop-loss.
Depending on the software, I may not need to use the same broker as the signal provider. For example, certain MetaTrader 5 signal providers do not require the copier to use the same broker as them, as long as it is another MT5 broker.
Usually, the position size on my account will be in the same proportion to the position size of the signal provider’s account. Let’s say a Signal Provider has a $10,000 account and places a 10-mini-lot trade. If I have a $5,000 account, the position size of the same trade will be 5 mini lots.
Many copy trading services will allow the copier to set risk parameters, such as limits on position sizing, or to stop copying if the account value goes down to a specified level.
Copy trading relies on an electronic bridge between the signal provider and the copier.
Because of the technological setup of copy trading, nothing is stopping me from subscribing to multiple signal providers.
How Do Copy Trading Fees Work?
Most copy trading services charge a flat subscription fee, e.g., $50 a month. The fees typically do not depend on results.
Example of a Copy Trading Structure
- I select a signal provider to follow.
- I download the copy trading software. Some copy trading services may not require additional software.
- I subscribe to the signal provider that I have selected and let the trades automatically execute on my account.
- Monitoring the results is crucial - if I find that the results are not reflective of their past records, I should consider whether I want to stop following their signals.
PAMM, MAM, Copy Trading—Key Differences
PAMM | MAM | Trading Copying | |
Pooled funds | Yes | Yes | No |
Performance fee | Yes | Yes | No |
Subscription fee | No | No | Yes |
Same broker required | Yes | Yes | Not usually |
Control over risk | No | Yes | Sometimes |
Control over the account | No | No | Yes |
Identical execution to the money manager | Yes | Yes | Not always |
Multiple money managers allowed on the same account | No | No | Yes |
PAMM, MAM, Copy Trading - Pros and Cons
Pros
PAMM | MAM | Trading Copying |
Identical execution to the money manager | Identical execution to the money manager | Thousands of trade copying services are available across different markets, trading styles and trading timeframes. |
Highly experienced and successful money managers use PAMM | The most professional money managers use MAM, as it attracts high-net-worth individuals | My broker does not always have to be the same as the signal provider’s broker |
I only pay fees if the performance is positive | I only pay fees if the performance is positive | There’s usually no minimum account size |
Ability to control the level of risk | Many copy trading services have standardized ways of comparing performance between signal providers. | |
Trade copying services usually do not have a minimum term other than a monthly subscription. | ||
I can subscribe to multiple trade copying services from a single account. |
Cons
PAMM | MAM | Trading Copying |
There are fewer PAMM money managers compared to copy trading signal providers. | There are few MAM money managers compared to copy trading signal providers. | Copy trading attracts many inexperienced signal providers who take unnecessary risks, such as poor reward-to-risk ratios. |
The minimum account size can be high | The minimum account size can be high | My execution may not match the signal providers' execution, depending on the broker's feeds and technology. |
I only pay fees if the performance is positive | I only pay fees if the performance is positive | I pay a subscription fee even if the signal provider is not profitable |
I must use the same broker as the money manager | I must use the same broker as the money manager | |
I have no control over the trades | I have no control over the trades | |
PAMM money managers often require a minimum term. | MAM money managers often require a minimum term. | |
The account is “locked away,” meaning I cannot place other trades on the same capital. | The account is “locked away,” meaning I cannot place other trades on the same capital. |
Who Should Choose Which Type of Trading Account?
PAMM
PAMM services are often best suited for individuals with a reasonable account size who are willing to give up control of their capital to a money manager. It’s the most set-and-forget approach, similar to investing in a traditional mutual fund. Many PAMM services require a minimum term.
MAM
MAMM services are best suited for individuals seeking a customized solution that aligns with their risk profile. Many high-net-worth individuals choose a MAM structure with a money manager they have researched.
Copy Trading
Copy trading has the lowest barrier to entry. There’s often no minimum account size, the subscription fees can be small, and subscribers can be located anywhere in the world because they can usually use whichever broker they want. Therefore, many new and beginner traders start with copy trading. Copy trading also attracts more short-term traders.
Safety, Transparency & Regulation
PAMM | MAM | Trading Copying | |
Safety | Higher-quality, professional-grade money managers offer PAMM accounts rather than trade copying. This often means a disciplined approach with risk control and fewer drawdowns. | MAM money managers are often among the highest-quality traders, usually at an institutional level. They can have solid track records, low drawdowns, and strong risk control. | Many trade copying services have poor risk control, such as negative reward-to-risk trading and taking too many trades. |
Transparency | Aside from monthly P&L reports, there is little visibility into the actual trades. | Aside from monthly P&L reports, there is little visibility into the actual trades. | There is 100% transparency into the positions on the account, and even the flexibility to adjust them, for example, adjusting stop-losses or closing positions early. |
Regulation | The broker will have a PAMM structure that complies with the relevant regulatory authorities. | The broker will have a MAM structure that complies with the relevant regulatory authorities. | There is little regulatory oversight of the trade copying industry. |
Typical Costs, Performance & Fee Structures
PAMM | MAM | Trading Copying | |
Minimum account size | Typically, several thousand dollars | Typically, several thousand dollars | No minimum account size |
Performance fee | Yes - usually monthly on new net equity highs | Yes - usually monthly on new net equity highs | No |
Performance fee amount | 15-50% is typical | 15-50% is typical | N/A |
Subscription fee | No | No | Yes, typically from $30 per month upwards is typical |
Bottom Line
PAMM and MAM accounts attract experienced, high-quality money managers, some of whom offer their services only on a private basis to individuals they know personally or through introductions. The services are well-structured, for example, with minimum account sizes, fixed broker selection, minimum holding periods for investors, and performance fees. Higher-net-worth, more sophisticated investors use PAMM and MAM services, especially the latter, because of the level of customization they offer. Trade copying, on the other hand, is advertised openly by thousands of signal providers. Almost anyone can start because of the low barrier to entry, such as no minimum account sizes, and the signal provider usually lets the subscriber use a broker of their choice. Beginner traders often use trade copying compared to PAMM or MAM.
The point I would most highlight is that the most significant factor determining profitability will be the money manager’s skill. A profitable trader will make money for their investors, regardless of whether they use PAM, MAM or trade copying. That means everyone should spend a lot of time digging into the money managers’ track records.
