LAMM stands for “Lot Allocation Management Module”, and is a managed forex account type which provides a system where individual investors delegate their funds to a designated trader or money manager. This professional trader then engages in forex trading on behalf of these investors.
The trading outcomes achieved by the manager in a LAMM account are distributed to the investors’ forex accounts, in a manner that is directly proportional to their individual financial contributions. As a form of remuneration for their expertise and efforts, these managers usually gain a portion of the profits, primarily through a performance-based fee arrangement.
How do LAMM accounts work?
In LAMM accounts investors specify how many lots they want to allocate to the manager’s trades. This allocation can be a fixed size or a multiple of the lots traded by the manager.
This means that when the fund manager executes trades, the same trade will be mirrored into the investor account proportionally to the allocated lots.
When using a LAMM account, the investor starts by choosing a money manager based on their trading strategy, historical performance, and other relevant criteria. The investor then decides how much money to allocate to this manager, essentially lending them capital to trade on their behalf.
In contrast to MAM accounts, which offer a broader range of customization options, LAMM accounts only provide the flexibility to adjust lot sizes, a key feature for managing market exposure. Although this customization option might seem limited, it can be quite dynamic, with the frequency of adjustments largely dependent on the specific policies of the trading platform or the stipulations set by the money manager.
What determines the investor’s trade size in a LAMM account?
In a LAMM account, the investor’s trading size is quantified in lots, which are the standard units for measuring trade volume in forex trading. One lot typically represents 100,000 units of a given currency, which means that 1 lot of USD would be equivalent to 100,000 USD.
The crucial task for an investor in a LAMM system is to decide the number of lots they wish to allocate for the money manager to handle.
For instance, if a money manager initiates a trade with a volume of 1 lot and the investor has opted to allocate 0.1 lots (also known as 1 mini lot) to this money manager, the size of the investor’s position will be 10% of the manager’s trade.
Consequently, any profits or losses from this trade will also be scaled down to 10% of the original trade’s outcome.
Can investors set allocation preferences in a LAMM account?
Investors in LAMM accounts can influence the investment strategy by selecting the number of lots they wish to allocate to each money manager. This lot selection is the primary tool for investors to influence their portfolio in LAMM accounts.
However, LAMM accounts do not provide options for further involvement in trade decision-making.
This goes in contrast with other managed forex accounts like MAM accounts, which offer a variety of allocation methods. In fact, the fundamental characteristic of LAMM accounts, as indicated by their name (Lot Allocation Management Module), is their focus on managing investments through the allocation of lots, and nothing more.
How frequently can investors make changes to their LAMM account?
In LAMM accounts, the investors can adjust their investment settings usually at the start of each trading cycle.
Compared to other types of managed accounts, like PAMM, LAMM accounts typically offer greater flexibility for investors to modify their investment parameters.
However, the specific frequency and flexibility of making these changes are largely dependent on the terms and conditions established by the LAMM account manager.
What is an example of LAMM account investment?
Imagine an investor, Alex, decides to invest $1000 in a forex trading LAMM account managed by a professional trader, Jordan.
Alex decides to allocate 0.5 lots for every lot traded by Jordan. This means that for every trade Jordan makes, Alex’s trade will be half the size of Jordan’s in terms of lot allocation. If Jordan trades 2 lots in a particular currency pair, Alex’s corresponding trade will be for 1 lot.
Let’s say Jordan enters a trade, buying EUR/USD with 2 lots. In Alex’s account, this trade is automatically replicated with a 1 lot size, adhering to his 0.5 lot allocation setting. If this trade results in a profit, Alex gains a proportional amount, albeit half of what Jordan gains because of the smaller lot size. Conversely, if the trade incurs a loss, Alex’s loss is also proportionally smaller.
Over time, the value of Alex’s $1000 investment will fluctuate based on the performance of Jordan’s trades and Alex’s chosen allocation. This example demonstrates how LAMM accounts allow investors to leverage the expertise of professional traders while maintaining control over their risk exposure through lot size customization.
How does LAMM compare to other managed accounts?
Here below you can see a table comparing all the different managed forex accounts.
| LAMM | PAMM | MAM | RAMM | |
|---|---|---|---|---|
| Factors | Based on fixed lots | Proportional to client’s percentage share | Multiple allocation methods | Based on a predetermined risk level |
| Allocation Method | Uniform risk distribution | Uniform risk distribution | Customizable per account | Uniform risk distribution |
| Type of risk | Low | Moderate | High | High |
| Flexibility | Best LAMM brokers | Best PAMM brokers | Best MAM brokers | Best RAMM brokers |
LAMM accounts pros and cons
Pros:
- Limited Market Knowledge Friendly: LAMM accounts are a type of managed account, meaning that it allows investors to participate in trading without needing extensive knowledge about the market.
- Commission Earning Opportunity: Professionals managing the funds can earn commissions from the trades they make.
- Lot Allocation: LAMM accounts allow the parties involved to select the appropriate lot sizing for each strategy
Cons:
- Limited Investor Control: Investors have minimal influence over their fund’s investment decisions, making it less suitable for those who prefer hands-on management.
- Higher Fee Structure in LAMM Accounts: Investors with a LAMM account will be charged performance fees on top of other fees (such as deposit and withdrawal ones).
Are LAMM accounts safe?
LAMM accounts are often perceived as secure options, however, traders should always be aware of the risks inherent in forex trading, where the potential for financial loss is a constant.
Research reveals that between 74% and 89% of retail investor accounts experience losses, emphasizing the continuous risk present in the forex market.
Enhancing the security of LAMM accounts are several regulatory and safeguarding actions taken by brokers and financial regulatory bodies. These initiatives are focused on supervising the conduct of LAMM managers, contributing to the overall safety of these accounts.
What are the best LAMM account brokers?
Top LAMM forex brokers include IC Markets and RoboForex.
They offer a manageable minimum deposit under $500, a range of LAMM-compatible trading platforms, competitive low fees, and support for algorithmic trading, which is advantageous for fund managers.
Do all Forex brokers offer LAMM accounts?
Not all forex brokers provide LAMM accounts.
However, it’s worth noting that many of the world’s top forex brokers do offer managed account solutions to their customers, and these frequently include LAMM accounts.
In some cases, brokers offer a hybrid solution that combines features of MAM and LAMM accounts. This mixed MAM-LAMM solution provides greater flexibility, allowing traders and fund managers to choose an approach that best suits their trading style, needs, and preferences.