Percent allocation management module

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. While the trader may be managing an account worth one million dollars, the PAMM solution allows the trader to use one platform to simultaneously manage tens of millions or even billions of dollars of other clients' accounts. Each tethered PAMM account is then proportionally assigned the trader's gains and losses.

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.

General

The percent allocation management module is a form of piggybacking a large investor’s money onto the smaller account of a trader. The trader's own money remains at risk, which theoretically reduces the chance of irresponsible management of the combined funds. PAMM is actually a more advanced descendent of "LAMM", which is a "lot allocation management module". In a LAMM trading system, if the trader buys one standard lot of a currency, each of the customers' accounts will also be increased with a standard lot of the currency, regardless of the relative size of the customer’s account. This makes sense for accounts where the customer's assets are about the same size as the trader’s, but it makes less sense when the customer’s portfolio is much larger than the trader's. Thus, PAMM was developed as an alternative to LAMM.

Depending on which currency with which the customer has funded their own account, the ratio calculation of each customer's share is typically converted to United States dollar amounts. This facilitates an ideal investor-trader relationship.

Software

One book mentions that Forex Bot Limited is one type of PAMM software that ensures that "all accounts are given their appropriate signals, traded together in a PAMM account."