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Let us assume Mr. William wants to become a Forex External Asset Manager Trader (Money Manager) with FX Broker/Bank. Once the partnership agreement is signed, William and FX Broker/Bank proceed to the PAMM setup. A special referral account opening link will be given to the Money Manager to attract clients into his PAMM. Manager William can advertise his managed account services through different ways, such as personal promotion, exhibitions, Forex forums and related web sites.
The Investors Smith, Brown and Davis are interested in investment solutions and apply for a managed account with FX Broker/Bank to be attached to William’s PAMM. Once the Limited Power of Attorney (LPOA) is signed and the client’s initial account deposit has arrived to FX Broker/Bank, the managed account is connected to Master PAMM account. Investor Brown has decided to invest 4 000 USD while Investor Smith and Investor Davis go with 3 000 USD each.

                                                       PAMM 1 Description PAMM account balance after the first month of trading

Let us assume manager William’s performance fee is 30% from the profit he earns for the client. The Performance fee is determined in the LPOA. Manager William has gained 2 000 USD on the initial investment of 10 000 USD. The PAMM account balance after the first month has grown to 12 000 USD. The profit (2 000 USD) is allocated to all managed accounts based on their share of the Master PAMM account balance.
With the initial investment of 4 000 USD, Investor Brown has gained a profit of 800 USD after the first month (40% of 2 000 USD). 30% of profit earned is subject to Manager William’s reward: 240 USD. Investor Brown’s end balance after the first month is 4 000 USD + 560 (800-240) USD = 4 560 USD.
We came to the point when the balance of the PAMM account becomes 10 000 USD (Investor Smith 3 000 USD + Investor Brown 4 000 USD + Investor Davis 3 000 USD). PAMM manager starts trading.
With an initial investment of 3 000 USD, Investor Davis has gained a profit of 600 USD after the first month (30% of 2 000 USD). Manager William is rewarded with the 30% performance fee of this amount: 180 USD. Investor Davis’ end balance after the first month is 3 000 USD + 420 (600-180) USD = 3 420 USD.
With an initial investment of 3 000 USD, Investor Smith has also gained a profit of 600 USD after the first month (30% of 2 000 USD). Manager William – again – receives 180 USD to his commission account from the profit made for the investor. Investor Smith’s account end balance after the first month is 3 000 USD + 420 (600-180) USD = 3 420 USD.
After the first month of trading, Manager William has earned the following amount of commissions: 240 USD + 180 USD + 180 USD = 600 USD.

PAMM 2 DescriptionThe balance of the PAMM Account is now 11 400 USD (Investor Smith 3 420 USD + Investor Brown 4 560 USD + Investor Davis 3 420 USD = PAMM Account Balance 11 400 USD).

PAMM 3 DescriptionNew Client

Thanks to the successful trading William’s PAMM became popular and more people are interested in joining the good trader. After having his managed account approved Investor Bentley wires in 5 000 USD. The funds are credited to the Master PAMM account after the existing open positions are first closed. The client’s managed account is connected to the PAMM on the first day of the second month.
Thus, the balance of the PAMM Account has grown to 16 400 USD (Investor Smith 3 420 USD + Investor Brown 4 560 USD + Investor Davis 3 420 USD + Investor Bentley 5 000 USD).

PAMM 4 DescriptionPAMM account balance after the second month of trading
The agreed performance fee, which is determined in the LPOA, remains the same month after month.
Manager William keeps trading well and makes a 10% profit on the PAMM account for the second month. The total balance becomes 18 040 USD. Like in the previous month, the profit (1 640 USD) is proportionally distributed to all the investors according to their account balance in the PAMM Account.
Having $4 560 USD on the account in the beginning of the second month, Investor Brown has earned a profit of 456 USD. 30% of the earned profit is subject to Manager William’s reward: 136.80 USD. Investor Brown’s balance after the second month is 4 560 USD + 319.20 (456-136.80) USD = 4 879.20 USD.
Having 3 420 USD on the account in the beginning of the second month, Investor Davis has earned a profit of $342 USD. Manager William is rewarded with a 30% performance fee of this amount: 102.60 USD. Investor Davis’s balance after the second month is 3 420 USD + 239.40 (342-102.60) USD = 3 659.40 USD.
Having 3 420 USD on the account in the beginning of the second month, Investor Smith has earned profit 342 USD. Manager William is rewarded with a 30% performance fee of this amount: 102.60 USD. Investor Smith’s balance after the second month is 3 420 USD + 239.40 (342-102.60) USD = 3 659.40 USD.
With an initial investment of 5 000 USD, Investor Bentley has gained a profit of 500 USD. Manager William will be rewarded with a 30% performance fee of this amount: 150 USD. Investor Bentley’s balance after this month is 5 000 USD + 350 (500-150) USD =$5 350 USD.

PAMM 5 Description

A percent allocation management module, or PAMM, which may also be referred to as percent allocation money management, describes a software application used predominantly by foreign exchange market (forex) brokers to allow their clients to attach money to a specific trader managing one or more accounts appointed on the basis of a limited power of attorney. PAMM solution allows the trader on one trading platform to manage simultaneously unlimited quantity of managed accounts. Depending on the size of the deposit each managed account has its own ratio in PAMM. Trader’s activity results (trades, profit and loss) are allocated between managed accounts according to the ratio.
Because currency trading and other forms of arbitrage achieve profitability within very narrow margins, typically, a PAMM system allows more money to be brought into play while distributing the risk of one trader across (usually) multiple investors.

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