RAMM stands for “Risk Allocation Management Module”, and is a type of managed forex account that enables investors to assign their funds to a chosen trader or money manager, who then conducts trades on their behalf.
In a RAMM account, investors set a risk percentage that dictates the size of their trade relative to the money manager’s positions. Managers typically earn through a performance fee, a portion of the profits generated in the investor’s forex account, aligning their interests with those of the investors.
How do RAMM accounts work?
The unique aspect of RAMM accounts is how this allocation works. The RAMM system adjusts the size of the trades according to the investor’s specified risk level and investment amount. This means if the money manager makes a particular trade, a corresponding trade is opened in the investor’s account, but scaled to their chosen level of risk and investment.
When an investor decides to use a RAMM account, the first step involves choosing a money manager. This manager is typically an experienced trader whose role is to execute trading strategies. After selecting a manager, the investor then decides how much money to allocate to them.
In RAMM accounts, investors also have a considerable amount of control over their investments. They can not only choose their money manager but also customize how their money is allocated to different trades.
The frequency of these adjustments can vary, but typically, RAMM platforms offer the flexibility to make changes as often as the investor needs.
What determines the investor’s trade size in a RAMM account?
In RAMM accounts, the scale of an investor’s trade is directly linked to the risk percentage they choose.
Essentially, this means the investor specifies a certain percentage of their total investment that they’re willing to risk.
For instance, if an investor opts for a 20% risk setting, their account mirrors the trading actions of the money manager but scales down these trades to 20% of their original size, effectively reducing the exposure by 80%.
Can investors set allocation preferences in a RAMM account?
Investors in RAMM accounts have the ability to influence their investment strategy primarily through setting a risk percentage. This choice directly impacts how their funds are allocated in tandem with the trades made by their chosen money manager.
Nevertheless, unlike other managed forex account types such as MAM accounts, which provide diverse allocation methods and more active involvement in trading decisions, RAMM accounts are limited in this aspect.
The core feature of RAMM accounts, as suggested by their full name “Risk Allocation Management Module”, is their specialized focus on managing investments based on risk allocation parameters, without offering additional layers of decision-making.
How frequently can investors make changes to their RAMM account?
RAMM account investors can often modify their risk parameters on a trade-to-trade basis.
This level of flexibility is a standout feature of RAMM accounts, setting them apart from other types of managed forex accounts which typically permit adjustments only once per trading period.
What is an example of RAMM account investment?
Imagine an investor decides to invest $1000 in a RAMM account and chooses a specific money manager who aligns with their investment style and goals. The investor, understanding the risks involved in Forex trading, decides to set their risk level at 10%. This means they are willing to risk 10% of their investment, or $100, on the trading strategies executed by the money manager.
Now, when the money manager executes trades, these trades are replicated in the investor’s RAMM account but scaled down to align with the 10% risk setting. If the money manager enters a trade worth $10,000, the investor’s trade would be $1,000 (10% of $10,000), matching their total investment. However, the risk is still capped at 10% of their investment, so the maximum they can lose on this trade is $100.
If the trade is successful and the money manager makes a 10% profit, the investor also makes a 10% profit on their scaled-down trade. This would be a $100 gain on their $1,000 trade. Conversely, if the trade results in a 10% loss, the investor incurs a $100 loss, which is within their acceptable risk threshold.
How does RAMM compare to other managed accounts?
Here below you can see a table comparing all the different types of managed forex accounts.
| RAMM | PAMM | MAM | LAMM | |
|---|---|---|---|---|
| Factors | Based on a predetermined risk level | Proportional to client’s percentage share | Multiple allocation methods | Based on fixed lots |
| Allocation Method | Uniform risk distribution | Uniform risk distribution | Customizable per account | Uniform risk distribution |
| Type of risk | High | Moderate | High | Low |
| Flexibility | Best RAMM brokers | Best PAMM brokers | Best MAM brokers | Best LAMM brokers |
RAMM accounts pros and cons
Pros:
- Limited Market Knowledge Friendly: RAMM accounts, being managed accounts, enable investors to be involved in trading without requiring deep market understanding.
- Opportunity to Earn Commissions: Professionals who manage these funds have the chance to earn commissions from the trades they execute.
- Flexible Risk Management: RAMM accounts allow investors to manage risk in a more user friendly way.
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.
- High Fee Structure: Investors with a RAMM account will be charged performance fees on top of other fees (such as deposit and withdrawal ones).
Are RAMM accounts safe?
RAMM accounts are often seen as safe, however, it’s crucial for traders to remember that forex trading carries inherent risks.
Statistical evidence shows that a substantial number of retail investor accounts, with percentages varying between 74% and 89%, suffer losses. This fact underscores the potential risks involved in forex trading.
To bolster the safety of RAMM accounts, brokers and financial regulatory bodies implement a range of regulatory and protective measures. These actions are intended to oversee and control the operations of RAMM account managers. Such oversight adds an extra layer of security for investors, helping to safeguard their investments against various risks associated with forex trading.
What are the best RAMM account brokers?
Some of the best RAMM forex brokers are Grand Capital and AMarkets.
These brokers all provide options for a low minimum deposit of under $100, diverse trading platforms compatible with RAMM, low fees, and algorithmic trading support, all of which are beneficial for fund managers.
Do all Forex brokers offer RAMM accounts?
RAMM accounts are not commonly found among forex brokers.
This is largely because many of the risk management capabilities associated with RAMM accounts have been integrated into various allocation methods within MAM (Multi-Account Manager) accounts.
Consequently, for investors seeking to focus on risk allocation, MAM accounts often provide a suitable alternative. This integration of risk management features into MAM accounts is a key reason why MAM accounts enjoy greater popularity among the leading forex brokers.