What Are RAMM Accounts in Forex and How to Invest in Them
A RAMM account is a hybrid form of trust management and social trading signal copying. The trader independently selects strategies based on the trading results provided by managers and decides what part of the deposit to allocate for copying them.
Instead of directly transferring funds into trust management, the deposit remains in the investor's account, but the broker freezes access to it for a certain time. This guarantees the RAMM manager an automatic fee accrual depending on the positive result. Thus, unlike selling signals for a fixed subscription fee, income from trust management is comparable to the model of PAMM accounts.
In turn, the investor receives from the broker the ability to set a loss level (limit), which a principal in a PAMM cannot do and is forced to watch their funds being drained under the portfolio manager's terms. Also, as in social trading signals, the investor can combine several strategies in their account and manage risks. Today we will look at the pros and cons of this type of investment, investment strategies, and compare them with PAMM accounts.
PAMM and RAMM
The terms of entrusting funds for management quite rightly contain a clause reminding the investor that the reported performance results do not guarantee similar future performance. Under the terms, a PAMM investor is not allowed to withdraw money for a certain period, during which it is exposed to danger:
- In manual trading, to the risk of mistaken trades, emotional breakdowns as a result of overload, the human factor of overconfidence, which results in holding a losing position in the hope that the price will return, increasing the loss by adding to (averaging) the position, etc.;
- When using a robot, to the strategy becoming unprofitable over time.
Advantages of RAMM for Investors:
- Prompt profit/loss management despite the freezing of funds;
The broker provides the possibility of immediate investor intervention: withdrawal of funds or changing (increasing/decreasing) loss limits.
As the practice of using any algorithmic strategy shows, robots lose effectiveness over time due to the factor of changing volatility, the period of cyclic price fluctuations.
Urgently withdrawing funds from management will make it possible to interrupt a series of losing trades, and increasing loss limits will help use the effect of leverage to make up for the previous loss. If a trader, based on analysis of previous trading results, is confident that a cycle of profitable trades will begin soon, they can also increase the size of the deposit. The RAMM account will automatically increase the lot from the first new trade.
- Hedging losses through unique account diversification;
A trader can protect capital from losses by investing funds in managers trading different instruments together with combining different strategy styles in one account. Maximizing profit can be entrusted to aggressive short-term trading methods by mixing them with a conservative approach.
- Automation of trading;
The RAMM platform requires the trader to decide on two parameters: what percentage of capital they are ready to lose in a week and what drawdown (in pips or percent) is acceptable for one trade. After entering the figures and the trading lot size, opening and closing trades occurs automatically, provided that the strategy to be copied is specified.
This approach differs from the model of managing funds in a PAMM account, where the manager has complete freedom in deciding how to use methods and tactics for limiting losses. As studies show, in 76% of cases the reason for investors' ruin due to trust management was the absence of stop losses. According to anonymous surveys, PAMM managers consciously resorted to high risks in an effort to earn more because they did not feel emotional and personal responsibility for other people's money.
Advantages of RAMM for Managers:
- An incentive to control risks;
Allocated investments can disappear in an instant if RAMM allows large drawdowns, so those who do not want to unexpectedly lose funds under management need to trade with conservative risk management tactics.
- A low threshold for opening a RAMM portfolio and ease of attracting funds;
Given the features of RAMM investing, which allow an investor to withdraw invested funds at any time, the broker sets the threshold for opening a manager's portfolio from $50, which attracts investments without problems regardless of the size of their own capital.
Social trading is a general definition for a system of copying the signals/trades of successful traders. Many brokers have initialized this functionality in their own services; the reason is one feature of the display of strategy results that provides additional attractiveness.
To visually understand this statement, let us turn to the statistics of broker Instaforex, which combines PAMMs and copying strategies. Pay attention to the top 10 in the monitoring of the best strategies: in the presented statistics, only three successful managers offer investment, while the rest provide only the opportunity to copy their own trades:
At the same time, for some of them the equity trend line, graphically displaying the earnings dynamics, indicates an astonishing consistency of profitable trades:
The manager's earnings are significantly higher than the profit of the trader who opened the option to copy their trades. Another drawback of such a "revelation" may be the problem of "strategy theft," since the public display of trades will help reveal it.
Why are signal providers more successful than investors? Because equity does not take into account the effect of capital outflow, the account recovery factor, and many other indicators. Profit is accounted for incorrectly, in essence as a simple mathematical summation of successful trades, as if we represented them as 1 and took a loss as zero.
It is for this reason that the mql5 community prefers to allow only the sale of and subscription to trading signals and does not engage in PAMM investing. Pay attention to the "beautiful smoothness" of profit accumulation among the leaders of the mql5 community ranking, where the best managers are ready to "gift" anyone the signals of these super-strategies for $20-30 per month:
Now visually compare the equity lines with the PAMM managers of broker Alpari, to whom traders entrusted millions of dollars under management despite "uneven" results with fairly high drawdowns and a lower percentage of return.
The problem with social trading lies in the peculiarities of profit accounting, whereas RAMM preserves the "truthfulness" of displayed results, which include capital outflow, just as in PAMM accounts.
Specific Features of Working with RAMM Accounts
Roboforex is the main broker providing investment services in RAMM accounts, which are designed as a separate platform guaranteeing the trader:
- Automatic copying of the manager's trades without slippage;
- Fees charged only for profitable trades;
- Instant deposits and withdrawals.
The broker structured RAMM accounts as a sub-account, so the service user is provided with fast transfers and no fees for depositing and withdrawing funds.
All risk-management calculations and parameter settings are made in fractions of the account, that is, percentages. The RAMM deposit is taken as 100%; the trader determines how much of the funds they are ready to protect from losses during a week of trading. For example, 70% protection guarantees a trading stop at a total drawdown of 30%.
The client must also independently determine the size of the stop-loss that will be applied to each trade; for convenience it is set in two variants: to avoid confusion in percentages, you can use a limit in pips.
A week is a standard reporting period, after which:
- All trades are closed automatically;
- The lock on the funds allocated for management is removed;
- Automatic accounting of results is carried out.
Roboforex provides an opportunity not only for auto-trading, but also analyzes the strategies used by the trader, advising an optimal allocation of investments into potentially more highly profitable portfolios.
Despite the formula "1 person - 1 RAMM account," a separate account is allocated for each investment. In theory, one can simultaneously invest in an infinite number of strategies, each of which does not intersect with the others and has its own risk management within the allocated share of funds.
Strategies for Investing in a RAMM Account
Clients have access to the ranking of RAMM managers compiled by the broker based on the results of weekly trading, according to the principle of the greatest result in closed profit.
The presented result is not a reliable criterion for choosing strategies, so the user of the RAMM platform should independently select managers according to the following algorithm:
- Select RAMM long-livers with the greatest number of weeks;
- Sort the selection by the "smoothness" of the equity trend, avoiding a jagged drawdown curve;
- Choose the account with the highest average return;
- Determine the maximum drawdown as the difference between the previous equity value and the subsequent minimum of the chart.
The obtained value is a guideline that allows the trader, upon reaching this drawdown, to use the strategy's "leverage increase." By lowering risk limits and increasing investment shares, the trader can try to recover the resulting loss with the remaining funds, without adding money, through a subsequent series of profitable trades.
Conclusion
RAMM accounts are another investment opportunity that "dilutes" the trust-management services market. The unquestionable advantage of RAMM accounts is diversification of investments; the downside is that the service is offered by a small number of brokers, among them RoboForex and AMarkets.
Sincerely, Alexey Vergunov Tlap.io
Forex RAMM accounts explained: how they work, how to invest in them, their pros and cons, and how they compare with PAMM accounts for risk control.