PAMM. Let’s diversify

Diversification is a conception familiar for most. Someone maybe uses its advantages even without being aware that his simultaneous investments in three or more short-term, medium-term and in couple of low-interest projects, are nothing but diversification itself. In general, this conception is interpreted as “distribution of funds amongst different ways of investment to minimize possible losses”.

In case with PAMM-accounts diversification is done in several directions:

1) distribution of funds amongst several managers/PAMM accounts. This is caused by an exigency in reliable back which one of your choices can provide for you in case of a deep drawdown or even a series of losses of its “colleague”.

2) It is not enough to distribute your money amongst different specialists’ accounts, it is also necessary to consider factors that don’t depend on the trader. One of them is a usual thing for particular currencies – to lose value from time to time. To play safe it would be good to have several accounts in different currencies: dollars, euros and rubles/hrivnas. Otherwise it will be impossible to avoid difficulties of transferring.

3) One more thing. It’s desirable that your managers differ according to the criterion of “traded currency” (currency that is bought or sold for quoted currency, it is the first abbrevation (in the left part) of the currency pair code). This moment should be diversified, too.

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4) Probably, the most crucial and defining moment in the process of distribution of one’s funds is the choice of the trading strategy and the manager according to your plans. There are aggressive and conservative traders. Despite the increased risk level, exactly the first ones will be able to provide you significant amounts of income in the short term. Supporters of a conservative strategy will slowly earn tenths of a percent, but according to experienced people’s statements they will be doing it as long as possible, and what is the main thing – this process will be stable. Nevertheless, even in this case the “drain” of the deposit is not excluded. It will just be not as dramatic and painful as in the situation with hyperactive trader. To somehow smooth the edge between the two sides of a medal, one should organize his own PAMM portfolio relying on the principle of combinations. The ratio can be different, 50×50 is far from being a dogma. While extreme traders will be exploding your account with unprecedented profits or sudden drawdowns, conservators will be slowly dealing with the main share of your funds providing the reliable back. This is diversification in its pure form.

I will explain later how to filter out managers on this principle.

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