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In June of 2012, a proposal by the National Futures Association requiring stricter regulation of PAMM accounts went into effect, sending many money managers and CTAs scrambling for PAMM account alternatives.

A PAMM account, or Percentage Allocation Management Module, is simply a way for investment management firms and CTAs to manage individual investor accounts more efficiently. Multiple individual accounts are aggregated into one “Master Account,” which is traded by the money manager or CTA. It is operated as one pooled account and the P&L is divided equally among the investors based on their equity in in it.

In April of 2012, James Bibbings, a former NFA supervising auditor, wrote a very informative post discussing the implications of the pending proposal. Appearing on SeekingAlpha.com, the post explained how the NFA felt PAMM accounts too closely resembled Commodity Pools, without being registered as such.

The points they brought up described multiple instances of structural problems. Issues with liquidity and margin were posing risks to investors and contributing to questions about the fairness of the division of P&L among sub-accounts. In the proposal, the NFA recommended the restructuring of PAMM accounts as a means of eradicating any dangers they could cause participating investors.
Bibbings also notes that PAMM scrutiny has reached the state level. Pennsylvania state security regulators saw the PAMM allocation system as a mechanism that was generating a “synthetic securities product.” This view made PAMM accounts subject to many additional securities laws and regulations in Pennsylvania, and could do so in other states, too.

At the time of Bibbings post, things weren’t looking good for PAMM accounts as they fell under intense regulatory scrutiny. Two months later, after the proposal took effect, “traditional” PAMM accounts began disappearing to make their necessary compliance changes. Some companies have seized the opportunity to create PAMM alternatives and others offer consulting services to help existing PAMMs comply with the new rules.   These instruments play an integral role in providing CTA’s and Money Managers with the key benefit of PAMM accounts: centralized management.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

The CFTC has brought charges against a Northern California Forex money manager for committing fraud against his clients. The money manager claims he had never had a losing year, when his actual trading records revealed consistent losses year over year.  He also seems to have mysteriously misplaced a majority of customers’ deposits, taking a page out of the Bernie Madoff method of creative money management. You can read about it on Forex Magnates.

I hate to be self-serving here, but I must. If his clients required him to register on Currensee (as a free service, I might add), these customers would have seen his real results, including win/loss P&L, trade-by-trade recaps, etc. on a daily basis, along with a detailed comparison of his business against the other traders on the Currensee platform.

This charlatan would have been exposed and some of the $4.3 million might not have been lost.  It is time to demand transparency in Forex from all people that offer to manage your money!!

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.