What are RAMM accounts on Forex and how to invest in them
A RAMM account is a hybrid form of trust management and copying of social trading signals. The trader chooses strategies on the basis of the bidding results provided by the managers and decides which part of the deposit should be allocated for copying them.
Instead of transferring funds directly to trust management, the deposit remains in the investor’s account, but the broker freezes access to it for a certain time. This ensures that the RAMM-manager will automatically award bonuses depending on the positive result. Thus, in contrast to the sale of signals for a fixed subscription cost, the revenues from trust management are comparable with the model of PAMM accounts.
In turn, the investor receives from the broker the opportunity to set the level (limit) of losses, which the “principal” in PAMM cannot do, forced to observe the “drain” of his funds on the terms of the portfolio manager. As well as in social trading signals, an investor can combine several strategies on his account and manage risks. Today we 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 trust transfer of funds to management fairly contain a clause reminding the investor that the presented reporting results do not guarantee future, similar performance. According to the conditions, the PAMM investor does not have the right to withdraw money for a certain period of time during which they are in danger:
- In manual trading - the risk of erroneous transactions, emotional breakdowns due to overloads, the “human factor of self-confidence”, which translates into “outstripping the loss” in the hope that the price will return, increasing the loss by increasing (averaging) the position, etc .;
- When using a robot, a loss-making strategy over time.
RAMM benefits for investors:
- Operational profit / loss management, despite the freezing of funds;
The broker provides an opportunity for instant investor intervention - withdrawing funds or changing (increasing / decreasing) loss limits.
As the practice of applying any algorithmic strategy shows, robots lose effectiveness over time due to the factor of changing volatility, the period of cyclical price fluctuations.
Urgent withdrawal of funds from management will allow you to interrupt a series of loss-making transactions, an increase in loss limits will help to use the “effect” of the leverage to justify (“beat off”) the previous loss. If a trader, based on an analysis of previous trading results, is confident that the cycle of profitable trades will come soon, he can also increase the size of the deposit. The RAMM account will automatically increase the lot with the first new transaction.
- Hedging losses through unique account diversification;
A trader can protect capital from losses by investing in managing different instruments together with combining different styles of strategies on one account. Profit maximization can be entrusted to aggressive short-term trading methods, mixing them with a conservative approach.
In the case of PAMM-investing, a trader can trust only one manager’s strategy; self-allocation of capital shares in different accounts is inconvenient due to the difference in the conditions of the investment offer for each portfolio.
- Bidding automation;
The RAMM platform requires the trader to decide on two parameters - how much percent of the capital he is ready to lose in a week and what drawdown (in pips or percent) is allowed per transaction. After entering the numbers, the size of the trading lot, the opening and closing of transactions occurs automatically, provided that you specify which strategy should be copied.
This approach differs from the model of managing funds on the PAMM account, where the manager has complete freedom in deciding the use of methods and tactics for limiting losses. According to studies, in 76% of cases, the reason for the ruin of investors due to trust management was the lack of stop loss. According to anonymous polls, PAMM managers deliberately resorted to high risks, in an effort to earn money, because they did not feel emotional and personal responsibility for other people's money.
Advantages of RAMM for managers:
- Risk control incentive;
Allocated investments may disappear when RAMM makes big drawdowns, so those who do not want to unexpectedly lose funds in management should trade with conservative risk management tactics.
- Low threshold for opening a RAMM portfolio and ease of raising funds;
Considering the peculiarities of RAMM investing, which allows the investor to withdraw the invested funds at any time, the broker sets the threshold for opening a manager’s portfolio from $ 50, which attracts investments without any problems, regardless of the amount of equity.
RAMM and social trading
Social trading is a general definition of the system of copying signals / transactions of successful traders. Many brokers initialized this functionality to their own services, which is due to one feature of displaying the results of strategies, which provides additional attractiveness.
To visually understand this statement, we turn to the statistics of the Instaforex broker combining PAMMs and copy strategies. Pay attention to the top 10 in monitoring the best strategies, in the above statistics only three successful managers offer investment, the rest provide the ability to only copy their own transactions:
At the same time, for some of them, the equity trend line, which graphically displays the dynamics of earnings, indicates a staggering constancy of profitable transactions:
The manager’s earnings are much higher than the trader’s profit, which opened the possibility of copying his transactions. Another disadvantage of such a “revelation” may be the problem of “theft of strategy,” since public display of transactions will help to reveal it.
Why are signal providers more successful than investors? Because equity does not take into account the effect of capital outflows, account recovery factors and many other indicators. Incorrect accounting of profit occurs, in fact - a simple mathematical summation of successful transactions, as if we presented them as 1, and the loss was taken as zero.
For this reason, the mql5 community prefers to allow only sale and subscription to trading signals and is not involved in PAMM investing. Pay attention to the “beautiful smoothness” of profit set by the leaders of the mql5 community rating, where the best managers are ready to “give” to anyone who wants signals of these superstrategies for $ 20-30 per month:
Now visually compare the equity lines with the PAMM managers of the Alpari broker, who, despite the “uneven” results with fairly high drawdowns and a lower percentage of income, traders entrusted millions of dollars in management.
The problem of social trading is especially profit accounting, while RAMM retains the “veracity” of displaying results, which include capital outflows, as well as in PAMM accounts.
Features of working on RAMM accounts
Roboforex is the main broker that provides investment services in RAMM accounts, which are designed as a separate platform that guarantees the trader:
- Automatic copying of manager’s transactions without slippage;
- Charging only for profitable trades;
- Instant deposit and withdrawal of funds.
The broker designed RAMM-accounts in the form of sub-accounts, therefore, the user of the service was ensured the speed of transfers and the absence of commissions for replenishment and withdrawal of funds.
All calculations of risk management and setting parameters are carried out in fractions of the account - percent. RAMM-deposit is taken as 100%, the trader determines how much he is ready to protect funds from losses during weekly trading. For example, protection of 70% guarantees a stop of trade with a total drawdown of 30%.
The client must also determine the size of the stop loss that will be applied to each transaction, it is set for convenience in two ways: in order not to get confused as a percentage, you can resort to the limit in pips.
A week is a standard reporting period after which:
- All transactions are closed automatically;
- The blocking of funds allocated to management is removed;
- The results are automatically recorded.
Roboforex provides an opportunity not only for auto trading, but also analyzes the strategies used by the trader, advising the optimal distribution of investments in potentially more highly profitable portfolios.
Despite the fact that the formula is “1 person - 1 RAMM account”, a separate account is allocated for each investment. In theory, you can simultaneously invest in an infinite number of strategies, each of which does not intersect with the others, has its own risk management within the allocated share of funds.
RAMM Account Investment Strategies
A rating of RAMM managers, compiled by a broker based on the results of weekly trading, is available to customers based on the principle of the highest closed profit result.
The presented result is not a reliable criterion for choosing strategies, therefore, the user of the RAMM platform should independently select the managers according to the following algorithm:
- Select RAMM-centenarians with the most weeks;
- Sort the sample by the “smoothness” of the equity trend, avoiding the broken curve of drawdowns;
- Choose the account with the highest average return;
- Define 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 to use the “leverage increase” strategy when reaching this drawdown. By reducing risk limits and increasing shares in investments, a trader on the remaining funds may try to repay the resulting loss without investing in a subsequent series of profitable transactions.
RAMM accounts are another investment opportunity that “dilutes” the trust management services market. An undoubted plus of RAMMs is diversification of investments, minus is the lack of alternativeness of the RoboForex broker and a poorly developed block for analyzing the results of managers.