You find a successful professional Strategy Provider, allocate your capital, set up your account to copy them, and then all that remains is for you to reap your daily profits. Sounds like a dream, doesn’t it? And so simple too!
Well, it isn’t quite that simple and copy trading does come with as many risks as any form of financial trading. Nevertheless, done right, it can become a great way to invest and diversify your strategy.
Obviously the aim of copy trading is to profit from other Strategy Providers’ right decisions, and yet all trading is risky. If you hand over responsibility to someone else to make money for your copy trading account, it’s essential to thoroughly research the profile of the Strategy Provider, to get the full picture of how they trade, and to calculate if and how much profit you should expect from copying them.
Define your risk
Remember that everything starts with you. To manage your expectations about how much you expect to earn from Copy Trading, you must know how much you are willing to risk. Be realistic about expectations and keep in mind that high profits often imply high-risk strategies too.
Additionally, just like with any investment, there is always a chance that even the most successful Strategy Provider will make a mistake. Whether it be an emotional decision or an effect of the volatile markets, copy trading platforms do not protect you from the losses. What they do do, however, is provide a variety of tools which can turn out very helpful to you.
Choose Strategy Providers to copy
One of the most time-consuming and worrying aspects of copy trading is choosing the right Strategy Provider. You can copy more than one Strategy Provider and diversify your trading strategy.
First off, it’s up to you to decide if you want to follow a Strategy Provider who scalps the market, day trades or swing trades. It’s also important to diversify your portfolio. Look for Strategy Providers that specialize in the assets they trade. There are hundreds of different kinds of financial markets that you can invest in. Bear in mind that not everyone is good in any market. Instead of putting all of your capital into one position, asset or strategy, you can choose multiple trading strategies that benefit each individual market.
The cTrader platform provides additional help for investors looking to find suitable Strategy Providers via extensive trading behavior filters.
There is no denying that Rank is a crucial measure, but basing your strategy selection on rank alone is hardly the way to go. You should also consider criteria and goals that you set when you start investing. This is the core of a right selection. For now, however, let’s dive a bit deeper into Rank, to see what it’s really all about.
The strategy rank is a proprietary method used to rank strategies in a comprehensive way, taking many parameters into consideration. For the calculation of the strategy rank, the following parameters are considered:
- ROI. It considers the all-time profitability of the strategy. The value of All-time ROI is used.
- Equity Based ROI. It considers the amount of funds that the provider used to achieve the ROI result i.e. how much of the provider’s own funds were used for each 1% of ROI. The average value is used.
- Trade Duration. It considers the number of trading days i.e. number of days when the strategy provider was trading. The more active a strategy, the higher it will score in the rank.
- Number of Profitable Months. It considers the number of months in which the strategy had positive ROI minus the number of months in which the strategy had negative ROI. This parameter allows you to evaluate the long term success of a strategy.
- Risk. It evaluates the degree strategy risk and, accordingly, the risk of losing the investment.
- Equity Drawdown. The lower the equity drawdown of a strategy, the higher the strategy will show on the rank.
- Risk Reward. The higher the risk-reward ratio of a strategy, the higher the strategy will show on the rank.
- Invested Funds. The more live investors’ funds are invested, the higher the strategy will show the rank.
- Number of Live Investors. The more live investors a strategy has, the higher the strategy will show in the rank.
- Own Funds. The more funds strategy providers invest in their own strategy, the higher the strategy will show in the rank.
Brokers and Symbols
You should also take into account that results may not match those of the Strategy Provider for the following reasons:
- The entry and exit prices of your positions differ from those of the Strategy Provider, because of the slippage between the Strategy Provider’s broker and yours.
- The size of your positions differ from those of the Strategy Provider.
- The commissions you pay to your broker differ from those of the Strategy Provider. This is another crucial point, but you are fine if the Strategy Provider’s average profit is higher than your broker’s commissions and slippage.
- Your broker does not offer the same symbols that are being traded in the strategy, so before you follow a Strategy Provider, it’s good to check if your broker supports their trading instruments.
- You did not have enough margin to follow some of the orders placed in the strategy.
- You may have a different Stop-Out Level, causing your account to be stopped out, while the Strategy Provider continues to trade.
Follow on Demo for a while
Before following a Strategy Provider on your live trading account, we recommend you follow them on Demo mode for a period of time, in order to not only understand the strategy, but to also check how well it runs on your account. You can study how Strategy Providers think and trade, and pick out the Traders you would like to follow in the end. A Demo account makes you familiar with the platform and helps you take the time to make the most of it.
Many Strategy Providers also offer contact information, so you can reach out to them and get responses to your queries during your Demo following. This is very helpful in order to make clear all you need to know to proceed with Live following.
Once you have trusted their strategies, you can create your portfolio of Strategy Providers and monitor them closely.
Set an Equity Stop Loss. This is obvious right? You’re always going to set up stop losses, but you don’t always have to, as it’s a personal choice. If you have no idea what a stop loss does, it may be better to leave it for the Strategy Provider. Keep in mind that even professional Strategy Providers can lose. Losses do not indicate poor trading practices, however if there is a large number of losses over a period of time, you could temporarily halt trading signals and monitor to see if the Strategy Provider improves. Don’t jump the ship after one or two losses. Let the Strategy Provider do his job, and complete your evaluation week to week, or month to month.
When copying a strategy, a Copy Trading Account can still be managed. You can dynamically add or remove funds from it, set or remove Stop Equity Loss, or just stop copying.
All these options are available from the Copy Trading Account Settings button to the right of the Copy Trading Account preview.
Be Mindful with Leverage
In the right hands, leverage is a gift that keeps on giving. While copy trading platforms give this option to everyone, it does not mean you should always take it. It multiplies what you do well, but also increases the effects of what you do wrong. Especially in volatile markets, such as cryptocurrencies, leverage can be dangerous and wipe out your wallet very quickly.
The general logic of cTrader Copy’s copying mechanism is that a Strategy Provider can allocate a certain amount of his funds to copy a specific trading strategy. The allocated funds from an investor’s account are moved to a Copy Trading Account, which is a separate trading account under the same cTID that can be used only for copying the specific strategy.
One can understand the copying idea as an investment of funds in trading strategies under specific conditions. A Strategy Provider executes trades from his trading account, and all the investors following the strategy automatically copy all the trades, generating their equity depending on their Copy Trading Account’s equity and leverage, based on the Equity-to-Equity model.
The copying model of cTrader Copy is based on the Equity-to-Equity ratio which means that the volume of a trade that will be copied, is defined according to both the Strategy Provider’s and the Investor’s equities. According to the Equity-to-Equity copying model, the volume to be copied for a trade by a Copy Trading Account is calculated as follows:
Investor’s Equity / Strategy Provider’s Equity * Strategy Provider’s Volume
Note that the prices of the Provider and the Follower differ because of the different trading conditions and execution time.
This way, the platform automatically adjusts the volume of the positions copied by an investor according to the withdrawals or deposits of both — the Provider and the Investor. All the withdrawals or deposits are taken into account and position sizes are kept relative to the amounts that each party has invested.
All Strategy Provider actions within the strategy are being copied automatically by the investor. For example, if a Strategy Provider modifies the existing positions within his strategy (closes half of the positions), then such actions will be copied for the investor as well. Nevertheless, please note that in some cases certain Strategy Provider’s steps will not be copied by the investor.
For example, if there are not enough funds on the Investor’s account, if a follower doesn’t have the trading instruments that the strategy provider is operating with, or if the follower’s leverage is lower than the Strategy Provider’s leverage, and there’s a chance that the follower’s free margin will not be enough to copy all the trades of this strategy, then such trades can not be copied by the Copying Trading Accounts.
Community plays a really important role in copy trading. Our community’s channels are open to everyone and we give our best to keep them running smoothly! Strategy Providers and investors can engage with one another, providing benefit to both sides!
We love to keep the cTrader community up-to-date, which is why we are running our Forum (https://ctrader.com/forum/), where we post news and announcements regarding the platform, etc. and it is open to all of our members.
We are also running our Official Channels, among which our Telegram cTrader Official Telegram Channel, our Facebook Official Page and Official Group. Even more so, we are active on Medium and Reddit. Lastly, aside from our above-mentioned Official Channels, another major community is the cTrader Copy Telegram Channel, where traders can extract more information regarding strategies by questioning other traders.
In a nutshell, copy trading is a new buzzword in trading and investing, which has become a very popular way of earning in the past years.
cTrader offers a variety of tools available to investors for the best copy trading experience. Consider not having to do daily technical or fundamental analysis or searching for profitable setups. Once you’ve established your copy trading account, you create your portfolio with Strategy Providers and earn a passive income without having to trade for yourself.
Please take your time to choose a Strategy Provider to copy. Consider the long-term for continuous gains, and examine their trading history to guarantee the Strategy Provider continues to trade with minimal risk and good return.