Allocation methods for PAMM
This article describes the allocation methods available for PAMM and illustrates their use. One of the two methods can be selected as the default allocation method when configuring PAMM settings:
- Reallocation on deposit and withdrawal
- No action on deposit and autocorrection on withdrawal
Important: Autocorrection always results in partial closing of each open position on a PAMM master account by at least the minimum trading volume that is defined for an instrument.
Formulas
The following formulas are used for calculations in the examples:
Equity = Account balance + Floating PnL
Floating PnL = Position volume * (Current market price - Open price) * Contract size
Reallocation on deposit and withdrawal
On each deposit and withdrawal operation, open positions on a PAMM master account are reallocated to PAMM investment accounts subscribed to it, in proportion to equities.
Example
Consider PAMM investment accounts #1 and #2 that are subscribed to a PAMM master account:
Balance on PAMM master account = 0
Balance on PAMM investment account #1 = 0
Balance on PAMM investment account #2 = 0
Step 1: Investor #1 transfers 1,000 USD to the PAMM investment account #1.
During rollover, a transfer is made.
Result: The balances on both the PAMM investment account #1 and PAMM master account have increased by 1,000 USD.
Step 2: The PAMM trader opens a EUR/USD position for buying 1 lot at the price of 1.1555.
Result: This position has been reallocated only to the PAMM investment account #1 (because this account has a positive balance) in the following volume:
Position volume for Investor #1 = 1 lot * 1,000/1,000 = 1 lot
Step 3: EUR/USD is now traded at the price of 1.1600.
Result: The account equities have changed as follows:
Equity of PAMM master account = Equity of PAMM investment account #1 = 1,000 + 1 lot * (1.1600 - 1.1555) * 100,000 = 1,450
Step 4: Investor #2 transfers 550 USD to the PAMM investment account #2.
During rollover, a transfer is made.
Result: The balances on both the PAMM investment account #2 and PAMM master account have increased by 550 USD.
Balance of PAMM master account = 1,000 + 550 = 1,550
Balance of PAMM investment account #2 = 0 + 550 = 550
The open position on the PAMM master account is reallocated to both the PAMM investment accounts #1 and #2 in proportion to equities.
For this purpose, the open EUR/USD position for 1 lot on the PAMM investment account #1 has been closed at the current market price (1.1600).
Profit from 1 lot closed (for PAMM investment account #1) =
= 1 lot * (1.1600 - 1.1555) * 100,000 = 450
Balance on PAMM investment account #1 = 1,000 + 450 = 1,450
The following volumes are reallocated from the PAMM master account to the PAMM investment accounts #1 and #2:
Position volume for Investor #1 = 1 lot * 1,450/2,000 = 0.73 lots
Position volume for Investor #2 = 1 lot * 550/2,000 = 0.27 lots
Step 5: EUR/USD is now traded at the price of 1.1700.
Result: The account equities have changed as follows:
Equity of PAMM master account =
= 1,550 + 1 lot * (1.1700 - 1.1555) * 100,000 = 3,000
Equity of PAMM investment account #1 =
= 1,450 + 0.73 lots * (1.1700 - 1.1600) * 100,000 = 2,180
Equity of PAMM investment account #2 =
= 550 + 0.27 lots * (1.1700 - 1.1600) * 100,000 = 820
Step 6: Investor 2 requests to close the PAMM investment account #2 and transfer all funds from this account to the wallet.
During rollover, the request to close the account is executed and a transfer is made.
Result: The open position on the PAMM investment account #2 has been closed at the current market price (1.1700).
Profit from 0.27 lots closed (for PAMM investment account #2) =
= 0.27 lots * (1.1700 - 1.1600) * 100,000 = 270
Balance on PAMM investment account #2 = 550 + 270 = 820
The available amount of 820 USD has been withdrawn from the PAMM investment account #2 to the investor’s wallet. The balance on the PAMM master account has reduced by the amount withdrawn from the PAMM investment account #2.
Balance on PAMM master account = 1,550 - 820 = 730
Balance on PAMM investment account #2 = 820 - 820 = 0
The open position on the PAMM master account is reallocated to the PAMM investment account #1 in proportion to equities.
For this purpose, the open EUR/USD position for 0.73 lots on the PAMM investment account #1 has been closed at the current market price (1.1700).
Profit from 0.73 lots closed (for PAMM investment account #1) =
= 0.73 lots * (1.1700 - 1.1600) * 100,000 = 730
Balance on PAMM investment account #1 = 1,450 + 730 = 2,180
The following volume is reallocated from the PAMM master account to the PAMM investment account #1:
Position volume for Investor #1 = 1 lot * 2,180/2,180 = 1 lot
Step 7: EUR/USD is now traded at the price of 1.1650.
Result: The account equities have changed as follows:
Equity of PAMM master account =
= 730 + 1 lot * (1.1650 - 1.1555) * 100,000 = 1,680
Equity of PAMM investment account #1 =
= 2,180 + 1 lot * (1.1650 - 1.1700) * 100,000 = 1,680
No action on deposit and autocorrection on withdrawal
On deposit operations, no position is reallocated from a PAMM master account to PAMM investment accounts subscribed to it. On withdrawal operations, open positions on the PAMM master account are autocorrected (partially closed) in proportion to withdrawn amounts in order to preserve the same leverage (or margin level) on the PAMM master account.
Note: The use of this allocation method results in the following issues:
1. The trading performance of a PAMM master account and PAMM investment accounts subscribed to it may differ significantly because no positions are rebalanced on the accounts.
2. The leverage (or margin level) of a PAMM master account increases significantly compared to one of PAMM investment accounts subscribed to it. As a result, the investor reaches the stop-out limit earlier than the PAMM trader does.
It is not recommended that you use this allocation method unless you have a clear idea of how to manage these issues.
Example
Consider PAMM investment accounts #1 and #2 that are subscribed to a PAMM master account:
Balance on PAMM master account = 0
Balance on PAMM investment account #1 = 0
Balance on PAMM investment account #2 = 0
Steps 1 through 3 described in the example illustrating reallocation on deposit and withdrawal also relate to this reallocation method.
Step 4: Investor #2 transfers 550 USD to the PAMM investment account #2.
During rollover, a transfer is made.
Result: The balances on both the PAMM investment account #2 and PAMM master account have increased by 550 USD.
Balance on the PAMM master account = 1,000 + 550 = 1,550
Balance on the PAMM investment account #2 = 0 + 550 = 550
No position is reallocated to PAMM investment accounts because this method doesn’t imply taking any actions on deposit operations.
Step 5: EUR/USD is now traded at the price of 1.1700.
Result: The account equities have changed as follows:
Equity of PAMM master account =
= 1,550 + 1 lot * (1.1700 - 1.1555) * 100,000 = 3,000
Equity of PAMM investment account #1 =
= 1,000 + 1 lot * (1.1700 - 1.1555) * 100,000 = 2,450
Step 6: Investor 2 requests to transfer 250 USD from the PAMM investment account #2 to the wallet.
During rollover, a transfer is made.
No autocorrection occurs because there are no open positions on the PAMM investment account #2.
Result: The balances on both the PAMM investment account #2 and PAMM master account have been reduced by 250 USD.
Balance on PAMM master account = 1,550 - 250 = 1,300
Balance on PAMM investment account #2 = 550 - 250 = 300
Step 7: Investor 1 requests to transfer 1,000 USD from the PAMM investment account #1 to the wallet.
During rollover, a transfer is made.
Autocorrection occurs because there is an open position on the PAMM investment account #1.
Result: On both the PAMM investment account #1 and PAMM master account, the open position in EUR/USD for 1 lot is partially closed. The volume that is due to be closed is proportional to the ratio of the withdrawn amount (1,000 USD) to the equity of the PAMM investment account #1 (2,450 USD).
Closed volume = 1 lot * 1,000/2,450 = 0.4 lots
Profit from 0.4 lots closed = 0.4 lots * (1.1700 - 1.1555) * 100,000 = 580
Balance on PAMM master account = 1,300 + 580 = 1,880
Balance on PAMM investment account #1 = 1,000 + 580 = 1,580
The balances on both the PAMM investment account #1 and PAMM master account are reduced by the amount of 1000 USD withdrawn from the PAMM investment account #1.
Balance on PAMM master account = 1,880 - 1,000 = 880
Balance on PAMM investment account #1 = 1,580 - 1,000 = 580
Step 8: The PAMM trader opens a GBP/USD position for buying 1 lot at the price of 1.3000.
Result: This position is reallocated to both the PAMM investment accounts #1 and #2 (because both accounts have positive balances) in the following volumes:
Position volume for Investor #1 = 1 lot * 1,450/1,750 = 0.83 lots
Position volume for Investor #2 = 1 lot * 3,00/1,750 = 0.17 lots
