Where there is a difference in currency denomination between PAMM Accounts and Portfolios, the portfolio returns will depend on both the returns for the PAMM Accounts which make up the portfolio in addition to the exchange rate between the corresponding currencies.
Calculating return for a USD portfolio which includes a EUR denominated account.
The portfolio’s return will be calculated according to changes in the equity denominated in USD.
Portfolio equity = equity in the dollar denominated PAMM Accounts + ( equity in the euro denominated PAMM Account x the EUR/USD rate )
As you can see from the formula above, the stronger the euro is, the larger the return in dollars will be. In such a case, the total return for the portfolio will increase.
Conversely, if the euro weakens against the dollar, the dollar denominated equity of the portfolio will decrease.
If you invest in a PAMM Account whose denomination differs from that of the portfolio, a conversion of the currencies will take place.
Currency conversions involve commission which is taken due to the spread difference (the difference between the rate of buying and the rate of selling a particular currency).
Calculation of the portfolio’s return with a currency conversion.
EUR/USD rate at the moment when the portfolio is created: 1.1/1.2.
Portfolio deposit: 1,000 USD.
Accounts which make up the portfolio:
To calculate the portfolio return, we need convert the euro amount into dollars so as to have a figure in one currency denomination.
Since the selling rate of 1 EUR = 1.1 USD,
PAMM Portfolio equity = 500 USD + ( 416.16 EUR x 1.1 USD / EUR ) = 957.77 USD
As you can see from the example above, investing in a euro account means a partial loss due to the currency conversion which takes place.
Other than this, the returns on the portfolio are affected only by the returns of the PAMM Accounts which make up the portfolio.