Contents
Percent Allocation Management Module (PAMM) services are a well-established way for retail and institutional investors to allocate capital to a single professional trader or strategy while preserving distinct client accounts. PAMM arrangements are common in foreign exchange markets because FX is liquid, centralized in broker infrastructure, and supports margining on a per-account basis. The concept is straightforward: a manager trades a master account and the profits and losses are allocated proportionally to investor sub-accounts according to pre-defined rules. The reality is operationally and economically complex. Execution differences, margining, allocation timing, fee calculations, withdrawal mechanics and counterparty risk all affect realised returns.
This article explains the PAMM model in technical terms for traders and investors who already understand basic market mechanics. It covers the structure of PAMM accounts, precise allocation and fee calculations with worked examples, risks that commonly produce divergence between reported and realised returns, how to perform due diligence on managers and platforms, and the operational and regulatory features that materially affect outcomes.
What a PAMM forex broker and PAMM service are
PAMM is a platform-level service provided by brokers or third-party vendors enabling a professional trader (the manager) to trade a single master account while investors (the followers) retain separate sub-accounts. The manager’s market actions—orders, position sizes, stops and limits—are executed in the master account; the system mirrors performance to sub-accounts by allocating P&L and balance changes proportionally.
Two roles are central: the manager and the investor. The manager sets strategy, executes or automates trades, and often controls risk parameters within agreed limits. The investor supplies capital, accepts proportional exposure, and receives allocated P&L net of fees. The broker provides custody, margining, trade execution, accounting and the allocation engine. In many implementations the broker is the custodian and the matchmaker; in others an independent PAMM provider interfaces with brokers via APIs.
PAMM contrasts with simple copy trading because copy trading often replicates orders across investor accounts in real time, producing tiny execution differences between accounts depending on latency and slippage. PAMM centralises execution: trades occur in a single account and results are apportioned by the platform, which reduces execution discrepancy but introduces operational centralisation risk and dependence on the platform’s allocation logic.
Important distinctions include allocation basis and timing. PAMM allocations can be based on equity at a fixed snapshot time, on deposited capital, or on dynamic equity including unrealised P&L. The choice matters for how capital flows and new investor inflows are treated.
How PAMM accounts work: mechanics and allocation rules
Mechanically, a PAMM system maps a master trading account and a set of sub-accounts. The allocation process typically follows these steps: the manager opens a position in the master account; the platform determines the allocation ratio for each sub-account based on the selected base metric (commonly equity or balance at a specific snapshot); when positions are closed, realised P&L is divided among sub-accounts in proportion to their allocation ratio; fees are deducted according to the agreed schedule; and balances are updated on each investor account.
There are several common allocation methods:
• Equity-based proportional allocation at snapshot. At a defined reference time—often daily or immediately before the trade—the platform records each sub-account’s equity. The allocation ratio is sub_equity / total_equity. Realised P&L on the closed trade is apportioned by multiplying master_trade_P&L by that ratio for each sub-account.
• Balance-based allocation. The system uses account balances excluding unrealised P&L. This simplifies margining but changes incentives, since unrealised gains are not immediately compounded into allocation weights.
• Lot-based or ticket-based allocation. In some legacy systems the master trade is replicated as lots across sub-accounts according to a pre-computed lot distribution. This produces integer lot rounding issues for small accounts and requires specific handling for minimum trade sizes.
Allocation timing matters when capital flows occur during an open position. If allocations are computed on trade close using snapshot equity from before the trade, late inflows do not share in the closed trade’s P&L. If allocation uses up-to-date equity including unrealised P&L, new inflows can immediately gain or lose exposure to existing open positions. Platforms vary; always confirm the rule.
Margining is central. Many PAMM platforms leave margin and leverage management at the sub-account level: each investor retains an individual margin requirement calculated by the broker. Other implementations aggregate margin at the master level and then post initial or maintenance margin obligations to sub-accounts pro rata. That decision changes liquidation dynamics. If margin is enforced at the sub-account level, a sudden market move may liquidate a single sub-account while the master remains open; if margin is aggregated at master level, liquidations are executed centrally with proportional downstream effects.
Allocation at trade open versus trade close also affects slippage and rounding. Close-based allocation avoids replication slippage but requires accurate snapshotting and careful treatment of partial fills. Open-based replication may mirror manager intent more closely but can produce variation in execution quality for sub-accounts depending on timing.
Fee structures, calculations and example math
PAMM fee structures typically combine a management fee and a performance fee. Management fees are uncommon in retail PAMM but exist in institutional arrangements. Performance fees dominate: the manager receives a share of profits according to a pre-agreed percentage. Fee mechanisms vary—common variants are flat percentage of profits, high-water mark (HWM), and hurdle rates.
The basic calculation steps for a simple performance fee are:
- Compute the gross profit in master account for the period (P_master).
- For each sub-account, compute the allocated profit: P_sub_allocated = P_master × (sub_equity_at_snapshot / total_equity_at_snapshot).
- Compute manager fee = fee_rate × P_sub_allocated (if positive).
- Deduct fee and credit net to sub_account balance.
Example (simple proportional fee): assume master profit for a closed trade is $100,000. Two sub-accounts have equity at snapshot of $10,000 and $40,000; total equity = $50,000. Allocation ratios: sub1 = 0.20, sub2 = 0.80. Allocated profits: sub1 = $20,000, sub2 = $80,000. If the manager fee is 25% of profit, sub1 pays $5,000 and ends net with $15,000; sub2 pays $20,000 and ends net with $60,000.
High-water mark (HWM) introduces path dependency. Under HWM, performance fee is charged only on profits above the previous peak equity level. Calculation: determine the sub-account’s prior peak balance; compute net new profit above peak; apply performance fee to that excess. HWM prevents repeated fee charging on the same gains after drawdowns.
Illustrative HWM example: sub_account begins at $10,000. Over period A it rises to $12,000; no HWM fee is charged until agreement specifics are met. If a fee is charged on the $2,000 and HWM set to $12,000, then a subsequent drawdown to $9,000 and recovery back to $11,000 generates no fee until equity exceeds $12,000.
Hurdle rates require profits to exceed a benchmark return before fees apply. For example, a 2% monthly hurdle means the manager collects performance fees only on returns above that threshold. Combinations of HWM and hurdle are common in institutional setups.
There are edge cases. Negative performance normally produces no fee; some contracts allow managers to carry forward losses into future HWM calculations (i.e., waive clawback if losses recover later) while others require clawback arrangements, where fees already paid are returned if subsequent losses wipe out the previously paid profits. Verify whether the platform enforces clawbacks and how they are calculated.
Precise accounting for partial withdrawals, depositor fees, and deposits during open trades requires clear platform rules. For example, if an investor deposits mid-trade and allocation is determined on close based on snapshot before deposit, the new deposit will not share in the closed trade’s P&L. That can be advantageous or disadvantageous depending on the direction of the trade.
Risk, performance metrics and common failure modes
PAMM structures expose investors to several layered risks: market risk from the manager’s trades, operational risk from the allocation engine, counterparty and custody risk from the broker, liquidity and margin risk and behavioural risks such as risk concentration and adverse incentives.
Market risk is the obvious exposure: a manager’s strategy may underperform, produce large drawdowns or be wrong in regimes where historical backtests were calibrated. Investors should examine drawdown depth and speed because leverage and stop loss discipline determine how fast losses accrue and when margin calls occur.
Operational risk includes incorrect allocation logic, rounding errors, timing mistakes, misapplied fees, and platform outages. Examples: an allocation engine that uses balance instead of equity will misattribute profits when unrealised P&L exists; a rounding procedure that truncates lots may produce systematic small deficits for small sub-accounts.
Counterparty/custody risk is significant because investor cash and margin are typically held with the broker providing PAMM services. Broker insolvency, regulatory action or freezing of assets can prevent withdrawal and cause losses unrelated to trading performance. Verify whether funds are segregated, who the clearing/custody counterparties are, and whether the platform provides insurance or default waterfalls.
Liquidity and margin risk manifest during volatile events. If margin is enforced at the sub-account level, a single sub-account may be force-liquidated despite the manager’s overall position being solvent. Conversely, if margin is aggregated at the master level, a large redemptive flow can reduce the cushion and precipitate stop-outs across investors. Ensure mechanics for withdrawal requests, required notice periods and emergency procedures are clearly defined.
Performance measurement should use robust metrics: net-of-fees returns, maximum drawdown, Sterling or MAR ratio (annualized return divided by max drawdown), Sharpe and Sortino ratios, and recovery time. Look at rolling returns and stress periods (e.g., historical episodes of FX volatility) rather than only peak returns. Examine trade-level statistics: average win/loss, expectancy, average holding time, and skewness of return distribution. Pay attention to concentration risk by currency pair and correlation with macro risk factors.
Common failure modes include undisclosed changes to risk limits, manager overtrading after inflows (capacity risk), hidden offsets where the manager hedges client exposure to the detriment of followers, and fee miscalculation. Fraud risk exists where managers misrepresent track records—demand auditable live account history and independent verification.
Due diligence and manager selection criteria
A structured due diligence process reduces informational asymmetry and increases the odds of you selecting a good PAMM Broker. Essential checks:
Verify live track record and reconcile past performance with broker statements. Live traded results are materially more reliable than backtests. Ask for exportable trade-level statements and confirm via the broker or independent auditor when possible.
Understand the strategy in detail. What is the edge, typical position sizing, stop-loss discipline and expected holding period? Confirm the manager’s capacity—how much capital can the strategy reasonably absorb before returns degrade.
Inspect risk controls. Does the manager use stop losses, maximum drawdown limits, maximum open trades, and correlation constraints? Are there documented contingency procedures for execution outages or margin calls?
Confirm platform rules: allocation basis, snapshot timing, fee calculation method, withdrawal notice, and rounding rules. Request sample calculations for a range of scenarios (deposits during open trades, partial withdrawals, manager fees in drawdowns).
Evaluate operational transparency. Does the platform provide transaction-level data, latency metrics and reconciliation tools? Can you independently verify fills or are you forced to rely solely on platform reports?
Assess counterparty and custody. Which broker holds client funds? Are funds segregated? Who clears trades? What is the jurisdiction and its deposit insurance or investor protection regime?
This article was last updated on: February 10, 2026