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How do managers need to adjust their trading after investor deposits and withdrawals?

PAMM Account managers need to closely follow the activity on their PAMM Accounts. When deposits and withdrawals are made, they will need to make adjustments to the volume of open positions on the account.

The following examples show how a manager can make the necessary adjustments if investors deposit or withdraw funds from the PAMM Account.

Example 1: A PAMM Account consists of two investment accounts plus the manager's own investment account. The total amount of investment on the account is 10,000 USD.

PAMM AccountManagerInvestor 1Investor 23,000 USD6,000 USD1,000 USD

The manager opens a long position on EURUSD for 4 lots at a price of 1.29000.

Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Start
Manager
3,000 USD
Investor 1
1,000 USD
Investor 2
6,000 USD

At the next rollover the price has fallen to 1.28800. The result is a loss of 800 USD, distributed proportionately among the managers and investors.

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD
Start
Rollover 1
Manager
3,000 USD
3,000 - 240 = 2,760 USD
Investor 1
1,000 USD
1,000 - 80 = 920 USD
Investor 2
6,000 USD
6,000 - 480 = 5,520 USD

At the next rollover, EURUSD has risen to 1.29300. The result is 2,000 USD in profits, which are distributed proportionately among the manager and investors.

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD
Rollover 2Price: 1.29300Return on the Account: 2,000 USDManager: 600 USDInvestor 1: 200 USDInvestor 2: 1,200 USD
Start
Rollover 1
Rollover 2
Result
Manager
3,000 USD
3,000 - 240 = 2,760 USD
2,760 + 600 = 3,360 USD
3,360 USD
Investor 1
1,000 USD
1,000 - 80 = 920 USD
920 + 200 = 1,120 USD
1,120 USD
Investor 2
6,000 USD
6,000 - 480 = 5,520 USD
5,520 + 1,200 = 6,720 USD
6,720 USD

Example 2: Let's take a look at what happens with the same PAMM Account when a deposit is made.

Again, our PAMM Account consists of two investment accounts plus the manager's own investment account and the starting equity on the account is 10,000 USD. The manager has bought 4 lots of EURUSD at a price of 1.29000.

At the rollover, EURUSD has fallen to 1.28800. The result is a loss of 800 USD, which is then distributed proportionately among the manager and investors.

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD
Start
Rollover 1
Manager
3,000 USD
3,000 - 240 = 2,760 USD
Investor 1
1,000 USD
1,000 - 80 = 920 USD
Investor 2
6,000 USD
6,000 - 480 = 5,520 USD

At the rollover, the manager learns that a new investor is going to join the account. The new investor has 5,000 USD on his investment account.

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD
Investor 3 adds 5,000 USD to the PAMM Account

The manager will need to adjust the volume of his open positions to take into account the added funds. The formula for calculating this adjustment is as follows: Volume Needed = (SumInv / Equity) × Lots

  • SumInv: Amount of new investments
  • Equity: Equity of the PAMM Account at rollover
  • Lots: Volume of open positions on the account (before deposit)

In our example: (5,000 / 9,200) × 4 = 2.17 lots

The manager will need to buy 2.17 lots of EURUSD to adjust the volume of his open positions.

The manager opens the position: BUY - EURUSD 2.17 1.28800

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD
Investor 3 adds 5,000 USD to the PAMM Account
Position Adjustment
BUY EURUSDVolume: 4 lotsPrice: 1.29000
+ BUY EURUSDVolume: 2.17 lotsPrice: 1.28800
Start
Rollover 1
Manager
3,000 USD
3,000 - 240 = 2,760 USD
Investor 1
1,000 USD
1,000 - 80 = 920 USD
Investor 2
6,000 USD
6,000 - 480 = 5,520 USD
Investor 3
0 USD
Deposit: 5,000 USD

At the next rollover, EURUSD has risen to 1.29300. The result is 3,080 USD in profits which is then distributed proportionately among the manager and investors.

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD
Rollover 2Price: 1.29300Return on the Account: 3,080 USDManager: 600 USDInvestor 1: 200 USDInvestor 2: 1,200 USDInvestor 3 (deposited 5,000 USD): 1,080 USD
Position Adjustment
BUY EURUSDVolume: 4 lotsPrice: 1.29000
+ BUY EURUSDVolume: 2.17 lotsPrice: 1.28800
Investor 3 deposits 5,000 USD
Start
Rollover 1
Rollover 2
Result
Manager
3,000 USD
3,000 - 240 = 2,760 USD
2,760 + 600 = 3,360 USD
3,360 USD
Investor 1
1,000 USD
1,000 - 80 = 920 USD
920 + 200 = 1,120 USD
1,120 USD
Investor 2
6,000 USD
6,000 - 480 = 5,520 USD
5,520 + 1,200 = 6,720 USD
6,720 USD
Investor 3
0 USD
Deposit: 5,000 USD
5,000 + 1,080 = 6,080 USD
6,080 USD

When a deposit is made to the PAMM Account or a new investor is added to the account, the trading results of the investors will not be affected by the manager's adjusting of the trading volume.

Example 3: The same PAMM Account, only with a withdrawal instead of a deposit.

We'll start out with the same PAMM Account consisting of two investment accounts plus the manager's own investment account. The starting equity on the PAMM Account is 10,000 USD. The manager buys 4 lots of EURUSD at a price of 1.29000.

At the moment of the next rollover the price of EURUSD has fallen to 1.28800. The result is a loss of 800 USD, distributed proportionately among the managers and investors.

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD

At this point, Investor 2 decides to withdraw all of his 5,520 USD from the PAMM Account.

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD
Investor 2 - Withdrawal 5,520 USD

During the rollover the manager will need to make the necessary adjustments to his open positions to account for the withdrawal -- in this case reduce the volume of his portfolio. The following formula can be used to make the necessary calculations:

(OutInv / Equity) × Lots

  • OutInv: the total amount of withdrawals
  • Equity: the equity of the PAMM Account at rollover
  • Lots — volume of open positions on the account (before deposit)

In our example: (5,520 / 9,200) × 4 = 2.4 lots

The manager will need to close 2.4 lots of his position on EURUSD.

The manager thus needs to open the following position: BUY - EURUSD 1.6 1.28800

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD
Investor 2 - Withdrawal 5,520 USD
Position Adjustment
BUY EURUSDVolume: 4 lotsPrice: 1.29000
CLOSE EURUSDVolume: 2.4 lotsPrice: 1.28800
Start
Rollover 1
Manager
3,000 USD
3,000 - 240 = 2,760 USD
Investor 1
1,000 USD
1,000 - 80 = 920 USD
Investor 2
6,000 USD
6,000 - 480 = 5,520 USD (withdrawal 5 of 5,520)

At the next rollover, EURUSD has risen to 1.29300. The result is 800 USD in profits which is then distributed proportionately among the manager and investors.

12: 0015: 0018: 0021: 0000: 0003: 00
1.293001.292001.291001.290001.289001.28800
Open positionBUY EURUSDVolume: 4 lotsPrice: 1.29000
Rollover 1Price: 1.28800Return on the Account: -800 USDManager: -240 USDInvestor 1: -80 USDInvestor 2: -480 USD
Rollover 2Price: 1.29300Return on the account: 800 USDManager: 600 USDInvestor 1: 200 USD
Position Adjustment
BUY EURUSDVolume: 4 lotsPrice: 1.29000
CLOSE EURUSDVolume: 2.4 lotsPrice: 1.28800
Investor 2 - Withdrawal 5,520 USD
Start
Rollover 1
Rollover 2
Manager
3,000 USD
3,000 - 240 = 2,760 USD
2,760 + 600 = 3,360 USD
Investor 1
1,000 USD
1,000 - 80 = 920 USD
920 + 200 = 1,120 USD

When a deposit is made to the PAMM Account or a new investor is added to the account, the trading results of the investors will not be affected by the manager's adjusting of the trading volume.

Attention:

When several requests for deposits and/or withdrawals are made on a PAMM Account which need to be processed during the same rollover, the manager can adjust the volume of open positions just once, taking into account the total of deposits and withdrawals to the account (the sum of all of the deposit and withdrawal requests). They will not have to adjust the volume once for each individual request.

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