Many things can go wrong when working with an unfitting technology. What is the right technology suite for a modern brokerage?
Large market acceleration trends like gamification and democratization influence the trading process in many ways. For example, they cause a surge of attention to new trading experiences, including using cryptocurrencies, microlots, and synthetic symbols. In this context, investment platforms may seem too familiar and even outdated to attract new customers or spur trading activity. In reality, investment systems are still a highly demanded technology that is an object of interest to traders and brokers.
Besides the ability to increase profits via trading signals sharing, new traders can use investment solutions to observe the trading process of more seasoned peers and learn their strategies. From this point of view, such technologies may be considered a more available and smooth way to enter trading.
Next, the functionality of investment systems has developed significantly in the last decade. Technology no longer limits the creation of business offers. In fact, the comprehensive functionality of solutions enables brokers to accurately configure all possible stages of system performance or increase the solution’s functionality via API tools. Hence, even white-label brokers can now build an entire business model around investment systems.
Even though investment systems have a lot in common, there are fundamental differences in their functionalities and specific features.
MAM, or “multi-account management,” allows the connection of multiple MetaTrader accounts to a single one – the master account – and replicates trades to investors’ accounts. Originally, MAM was created not as a comprehensive investment system, but as a technology that helps managers automate trading on several accounts.
The MAM systems are popular among money managers who have their own client base. A master trader does all the copying configuration, whereas investors can only specify investment amount and a risk ratio. Thus, master traders can choose allocation modes for each investor and switch between client accounts when trading certain instruments via a separate portal. In other words, when working with MAM, money managers gain almost full access to investors’ accounts without needing to log in and permission to withdraw funds. To minimize any interference with the trading strategy chosen by a money manager, investors’ accounts are switched to “read-only” modes. In the “read-only” mode, investors can neither trade on the account nor freely withdraw their funds as it may lead to a stop-out and unwanted losses.
PAMM, or the percent allocation management module, allows brokers to establish investment services on their MetaTrader platform. Investors’ deposits are usually aggregated on a separate trading account where a money manager manages all trusted funds. Most popular PAMM solutions you may come across work with aggregated funds and do not execute trades in investors’ accounts.
Just like other investment systems, PAMM strives to use the knowledge and skills of more experienced traders to increase profits and provide beginners with the opportunity for a more efficient and safe start. The profit received as a result of trading is proportionally distributed among all investors, thus allowing traders to start investing in PAMM accounts with minimal amounts.
The roles in PAMM are more strictly separated than in MAM:
1) The platform maintains relations between investors and money managers, distributes PnL, and processes money transfers;
2) The money managers are only involved in trading operations and don’t need to manage allocation modes for each investor separately;
3) Investors, on the other hand, have complete control over their invested funds and may deposit and withdraw at any time without additional procedures and risks. Moreover, they can participate in several PAMM accounts.
Therefore, the PAMM solution is a comprehensive system that allows traders to choose a money manager, receive profits, and “cash-out” once desired results are achieved.
Social Trading refers to an investment system that allows traders to share their trades with a network of investors and receive a commission for each copied trade. Traders’ interaction in social trading allows some users to “share” their trading signals and others to follow these signals. Investors have full control over subscriptions and trading volumes in this case.
Like PAMM, Social Trading solutions enable traders to create a balanced portfolio by subscribing to several providers. In other words, a trader may subscribe to the trading signals of experienced peers-–signal providers and follow their trading strategy by copying trades. The system ensures that signal providers receive a “bonus” for each subscriber, so both groups of users benefit from Social Trading.
Brokeree Solutions is a leading technology company specializing in turnkey solutions development, trading platform servicing, and consultation for retail brokers running MetaTrader 4 and 5. The company’s portfolio provides clients with flagship investment systems like Social Trading and PAMM.