Different Types of Managed FOREX Accounts

Most managed accounts are either individual or pools. A third variety, the PAMM account (percent asset management module) has become popular in the past two years. In an individual account, your money should reside at a registered broker, preferably an FCM (futures commission merchant) in the United States or a manager with a prime relationship. When the manager executes a trade, he will place a single order and lots will be allocated in accordance with the size and other parameters accorded to that account by the broker.

In a pooled account, monies reside in a separate entity such as a fund or limited partnership.

The great advantage of an individual account is the transparency; you know exactly where the money is at all times; there is less opportunity for fraud.
Your funds are said to be segregated in your name.

The great advantage of a pooled account is you can participate with less money. A pool also has the advantage of being able to take a bigger stake in a position, hold more positions concurrently, and access more pairs and opportunities in the market than a small individual account.

Tip: Do not dismiss a pooled account -- it may be your only means of participating with the manager of your choice if capital is limited. But give preference to an individual account. Fraud is usually associated with pooled interests whereby your money winds up in someone other than the broker's possession.

The organization of a fund or a pool may get very complicated. They introduce third, fourth, and even fifth parties into the chain. Each party is a potential cost, point of failure, and something on which you must conduct a separate due diligence.

A PAMM account is a new hybrid. Funds are combined for the purposes of the inherent advantages, but remain segregated in the name of the specific account holder. A rose by any other name is still a rose. PAMM accounts still introduce third parties into the chain.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2020. Content published with author's permission.

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