Copy Trading vs PAMM: A Comparative Analysis

As technology and artificial intelligence continue to advance, new and innovative methods for wealth accumulation are emerging and flourishing. PAMM accounts and Copy trading are two investment models that have gained significant popularity recently, with PAMM being around for years. Copy trading allows investors to replicate the trades of successful traders. However, PAMM (Percentage Allocation Money Management) accounts involve allocating funds to a professional trader who trades on behalf of investors. These two investment models have gained attraction from both experienced and novice traders and investors. When choosing between copy trading vs PAMM, the traders and investors seek potential profit from generating passive income.

In this post from Finestel, we analyze the world of copy trading and PAMM accounts, exploring their similarities and differences, benefits and risks. The reason for this comparative analysis is to help investors make informed decisions about which approach aligns best with their investment goals. By understanding the fundamental concepts behind copy trading and PAMM accounts, investors and traders can maximize their potential for financial success. So let’s dive in and explore the intriguing world of copy trading and PAMM accounts.

Understanding Copy Trading

With a stroke of a pen, or let’s say with one click of a button, now you can copy everything traders do. Copy trading is the practice of choosing and copying successful traders’ orders by investors. This practice involves three sides: trader, investor, and copy trading platform.

The investor or copier chooses a trader on a copy trading platform. Then, via API key, the investor’s account on an exchange will be linked through copy trading platform. Afterwards, when the trader makes any moves, those moves will also automatically execute on your account. Finally, after reflecting on the concept of copy trading, let’s explore on risks and rewards of copy trading.

The Risks and Rewards of CopyTrading

The primary concern to remember when using copy trading is that not all trades of successful traders will be closed in profit. Hence, investors and traders should be aware of both advantages and disadvantages of copy trading. Finally, we have presented effective strategies to minimize the associated risks and maximize the benefits of copy trading.

Risks

• Market Risk: The trader may face liquidity risk in a volatile market.
• Position Exit: Due to liquidity risk, a trader may be unable to exit positions at expected levels.
• Trader Movements: Not all pro trader’s strategies bring about profit.
• Technical Issues: While machines are expected to operate without any flaws, it is inevitable that glitches can occur, leading to potential order execution slippages.

Rewards

• Time-Saving: Copy trading mitigates the need to do market research and constant monitoring.
• Portfolio Diversification: Traders can diversify their portfolios and see which strategy works.
• Learning opportunity: Novice traders can learn how to trade from expert traders.
• AUM: Copy trading enables professional traders to engage in non-custodial trading with increased balances.

Exploring PAMM Accounts

Within the realm of investment lies an account type where you, as an investor, can trade with the slightest need for financial market knowledge or experience. PAMM accounts, in terms of their nature, represent another account type wherein a third party conducts trading on behalf of investors. This third party is called a manager or trader that you, as an investor, trust in a PAMM account. What was mentioned was the basic definition of a PAMM account for those who have never heard the word PAMM.

Extending the analysis, in PAMM accounts, the investor funds will be pooled together, and the trader buy and sell assets. Hence, the narrative behind Percentage Allocation Money Management can be revealed now. The investor allocates a percentage of their funds to the manager or trader, and the trader makes trades on their behalf.

Advantages and Disadvantages of PAMM Accounts

In financial markets, it becomes evident that every aspect bears a dual nature, characterized by advantages and disadvantages. The narrative holds for PAMM accounts; we’ve highlighted their pros and cons accordingly.

Advantages

• Using PAMM accounts enable more enormous pooled funds to traders and, as a result, leads to amplified profit potentials.
• Making higher profits as a result of having a higher percentage of ownership.
• Contributing to multiple trading portfolios over different types of markets.

Disadvantages

• The manager or trader greatly influences the profit or loss in PAMM accounts.
• The investors have limited control and access over traders’ moves.
• While advantageous, bigger pooled funds in PAMM accounts can also lead to losses if traders experience losses.

Key Differences Between Copy Trading and PAMM

The similarities between copy trading and PAMM accounts outweigh the differences. However, we will briefly review the similarities and extend our analysis of differences. PAMM accounts and copy trading are both investment methods that a trader or manager trades on investors’ behalf. Let us now delve into the distinctions. The primary distinction lies in the management of funds. Copy trading involves individualized funds for each trader, whereas PAMM accounts provide access to combined or pooled investor funds for traders.

Moreover, the PAMM account originates from the FOREX market, whereas copy trading can be employed across various trading accounts and markets. In addition, in the PAMM account, investors have no access and control over trading decisions; conversely, in copy trading, the investor can make decisions too. Finally, with a PAMM account, there is only a spread fee; however, with copy trading, the spread fee, together with the commission by copy trading platform.

Choosing Between Copy Trading and PAMM

Copy trading and PAMM are alike in essence yet distinct in practice. The main objective is almost the same for investors, making a profit from passive income. Also, traders and managers follow the same objective, making successful trades on the investor’s behalf and gaining performance and commission fees. However, choosing between copy trading and PAMM requires individual preferences, and we have tried to mention the features independently.

Copy Trading

• Copy the trades of successful traders.
• Diversify investment by copying multiple traders.
• Having control over the amount, the trader, and when to start and stop copying.

PAMM

• Experienced traders manage PAMM accounts.
• You can diversify across multiple accounts if desired.
• PAMM platforms often provide detailed performance data.

To make an informed choice between copy trading and PAMM, traders and investors should analyze the specific features rather than take a general approach.

Which is Better for Beginners?

Both copy trading and PAMM provide attractive features for novice traders. It is important for beginners venturing into the trading world to familiarize themselves with the offerings of each and subsequently make an informed decision. Furthermore, analyzing the movements of traders presents a crucial opportunity for investors to learn and gain valuable insights.

Considering this aspect, it is typically observed that copy trading platforms provide investors with greater access than PAMM accounts. Regarding control, the investors have more control over the traders in copy trading than PAMM. Considering this aspect, novice traders may find PAMM accounts more fitting as they are not required to make decisions regarding entry and exit points in trading. Ultimately, when determining which option is more beginner-friendly, it is crucial to analyze personal preferences alongside the features they provide.

Which is Better for Pro Traders?

Professional traders have extensive experience and expertise in the financial markets, so they develop and employ unique trading strategies. Hence, professional traders may opt for copy trading as a preferable choice over PAMM accounts, as it grants them control over their trading activities. Another factor to consider is customization, as professional traders utilize risk management techniques and trading tools to implement their trades.

Therefore, professional traders can utilize copy trading to execute trades in a more customizable manner. Moreover, professional traders aspire to continuously enhance their skills, emphasizing the importance of actively refining their abilities. Consequently, professional traders may find it beneficial to open accounts on copy trading and PAMM to determine which option better fulfils skill development.

Top 5 Copy Trading Services

Typically, when choosing a copy trading platform, traders must comprehensively evaluate the various features to make their selection. Therefore, we will provide more detailed information regarding the features offered by each platform, along with the essential general information that is crucial for traders.

1. eToro

• Best for beginners in social and copy trading.
• Investors can choose from a variety of traders and communicate with them.
• Professional trading tools and user-friendly interface.
• It offers crypto, forex, and stocks for copy trading.
• A huge social network of traders.

2. Finestel

• Finestel is a crypto trading solution provider.
• Finestel offers powerful trading and asset management automation software.
• The bots provide services such as copy trading in both spot and futures markets.
• It also offers client management and portfolio tracking services.
• Finestel’s solution encompasses a range of functionalities for efficient crypto trading and asset management.
• Finestel’s copy trading service utilizes fully and partially autonomous algorithms, known as automated trading systems (ATS) or bots- These bots can execute a large number of orders, including various trade elements such as stop loss (SL), take profit (TP), one-cancels-the-other (OCO), and different trade setups like cross, isolated, and leverage.

3. Zignaly

• A new crypto copy trading software was launched in 2018.
• Allows using crypto trading bots for free.
• The trader’s information and track record are available together with profitability records.
• Crypto traders using Zignaly can connect their trading bot to a Zignaly-compatible signal provider.
• For a secure integration, Zignaly employs RSA-encrypted API keys.

4. Pionex

• Pionex offers a free built-in trading bot on the exchange.
• Pionex offers a selection of 16 trading bots, such as DCA bots and rebalancing bots.
• In addition, to copy traders, Pionex offers to replicate the exact parameters of successful bots.
• The trading fee on Pionex is 0.05% per trade.

5. Kryll

• Kryll is more of a crypto trading bot software.
• The primary concern of Kryll founders is accuracy and automation.
• The mechanism is drag-and-drop which is a user-friendly feature.
• The strategies offered for trading surpass 280.
• Kryll charges 1% of the traded capital from users.

 

Top 5 PAMM Accounts

PAMM accounts have roots in the Forex market and have been around for decades. Here we have provided a general overview of the top 5 PAMM accounts for our analysis.

1. HFM

• A forex and commodities broker, which CySEC and FCA regulated.
• The minimum deposit amount on HFM is $5, and they offer premium, pro, and zero spread accounts.
• It offers Crypto trading and supports 47 trading pairs.
• The trading fees have been reported as low.
• US clients cannot use the platform.

2. Finestel

• Finestel offers a white-label plan on almost every service that Finestel provides. Users can request PAMM as a service.
• Users can request technical features modification, and Finestel’s product team will make changes within 1 day -2 weeks.
• The trade automation and execution on Finestel is 1K Orders < 0.5 Sec.
• The set-up fee for the white-label solution is $0.
• Finestel primarily focuses on empowering financial market leaders and automating business processes.

3. AvaTrade

• Forex and CFD broker since 2006.
• Regulated in many countries throughout the world.
• It offers multiple trading platforms like MT5, Web Trader, Mobile Apps, and social trading.
• More than 125o financial instruments and 24/7 customer service.
• The minimum deposit amount on AvaTrade is $100.

4. Pepperstone

• A leading Forex broker with more than 400,000 clients.
• It offers MT4, MT5, TradingView and cTrader.
• FCA and CySEC regulate Pepperstone.
• In addition to CFD, Forex, Indices, and Currency Indices, they also offer crypto.
• The minimum deposit amount on Pepperstone is $500.

5. IC Markets

• The platform is a multi-asset broker, and it offers premium trading technology.
• Customer support is 24/7.
• Mostly suitable for beginners seeking to use social trading.
• It offers CFD, Forex, Crypto, Futures, and Commodities.
• The minimum deposit amount on IC Markets is $200.

Copy Trading Vs. PAMM Infographic

Conclusion

 

In conclusion, when comparing copy trading and PAMM accounts, it is important to consider their key similarities and differences. Copy trading involves replicating successful traders’ orders, while PAMM accounts allow a third-party manager to trade on behalf of investors. So copy trading, and PAMM have the same objective of passive income. Both approaches come with their own set of benefits and risks. For example, copy trading provides a learning opportunity and portfolio diversification. However, PAMM accounts enable access to larger pooled funds with limited control by investors.

When choosing between copy trading vs PAMM, individual preferences and careful analysis of the features are crucial. Copy trading may be more suitable for beginners seeking control and customization, while PAMM accounts may be favoured by professional traders who want to refine their skills and utilize risk management techniques. Finally, traders and investors must thoroughly review features and then choose between copy trading and PAMM accounts.

FAQ