Copy Trading vs. PAMM – What are the Differences?

The Forex market has grown to become the world’s biggest financial market. And given that it is the most liquid, millions of people across the world now participate in forex trading. Traders employ different strategies. Some prefer trading on their own, while others let experts do the work for them. Those who prefer the latter engage in copy trading and PAMM. Keep reading this article to understand the benefits and risks of the two trading concepts and their key differences.

Understanding PAMM

PAMM (Percentage Allocation Management Module) can best be described as a managed account. This means funding your trading account and then letting an expert trader trade on your behalf. Moreover, unlike copy trading, PAMM does not require the lead trader to hold their own trading funds. Instead, they combine investors’ funds to open positions. After a successful trade, each investor receives a certain percentage of the profits, and the lead trader will also deduct their commission.

While you can monitor the trades opened by the lead trader, you have no control over them, unfortunately. For this reason, it is essential to select the right expert trader. You can do this by taking a look at their past performances.

Advantages of PAMM

• PAMM trading strategy offers a simple way for novice traders to participate in the forex market.
• Since trades are executed by expert traders, the chances of closing winning positions are considerably high.
• Brokers offering PAMM services provide necessary information about expert traders, allowing you to make the correct decision.

Disadvantages of PAMM

• Like any other trading strategy, PAMM does not guarantee winning trades all the time. So, you should keep in mind there is a possibility of losing whenever an expert trader opens positions.
• The more experience an expert trader has, the higher their commission and fees. Still, this does not guarantee successful trades.
• Investors have no control over executed trades. So, even if you notice a losing trade, you cannot close it to avoid further loss.

Understanding Copy Trading

Copy trading involves one trader replicating trades of another trader, who is considered to have more experience. Like PAMM, those participating in copy trading are allowed to select their preffered expert traders. Moreover, there is a commission that must be paid to experienced traders for copying their strategies.

Before copying trades, examine the lead trader’s trade history, which many brokers display on traders’ profiles. Check their win rate and the level of risk to determine if they align with your trading goals. Once you choose a lead trader, your trading account will be connected to theirs automatically so that you can start copying their trades. Unlike PAMM, you have control over the executed trades in copy trading, meaning you can close them or adjust your take profit and stop loss anytime.

Advantages

• Copy trading gives you an opportunity to follow experienced traders, thus increasing your chances of winning.
• Trades are executed automatically. So, this strategy does not take up much of your time.
• In copy trading, you can follow more than one expert trader, unlike in PAMM, where you are limited to just one.
• You do not need vast trading experience to replicate the trades of expert traders.
• You have control over the trades executed by the lead trader.

Disadvantages of Copy Trading

• Like PAMM, copy trading doesn’t guarantee profits from every executed trade.
• Commissions charged by expert traders can be expensive, thus eating up your profits.

Differences Between Copy Trading and PAMM

While the two trading strategies may appear similar, they have several differences. Firstly, PAMM does not give investors control over the opened trades, while copy trading lets them close positions or adjust various trading parameters like stop loss and take profits.

Secondly, Brokers offering PAMM allow investors to follow only one expert trader at a time, while those offering copy trading let users replicate the strategies of more than one experienced trader, thus helping them spread risk.