The manager’s performance fee is paid according to the high-water mark method. The essence of this method is as follows: performance fee is paid to the manager only if the investor’s equity value on a Saturday rollover or when the MAM account is disconnected and is above the high-water mark value. As a result, the investor pays the performance fee only from his profit (and not from the total amount invested), while the manager does not have to close trades before the rollover. The first value of the investor’s high-water mark is calculated based on the initial deposit amount of the investment account upon activation of the account.
Let’s consider an example. Let’s assume that an investor opened an investment account with an initial deposit of $1,000. This value will be the first high-water mark value. During the trading period, $300 is earned thus pushing the investor’s equity up to $1,300. In the manager’s offer, the performance fee is 15%. Therefore, the manager will be paid the sum of $45 (300 · 15%) as a performance fee from the investor’s profit ($300) during the Saturday rollover.