Getting hold of hard facts about Copytrader can be like ‘pulling teeth’ if its specifics that you are after. When I first started looking into the software I had read that when you copy a trader, the software automatically copies the trade at a ratio of 10:1, in short, if the trader you are copying opens a trade with $100, your trade will copy with a ‘stake’ of $10. It turns out that this is not true.
[Since this article was published, eToro have updated their ‘ratio’ and I’ve published a corresponding post on OpenBook’s New CopyTrader Allocation Ratios]
My eToro representative explained to me in a phone call how the ‘proportions’ actually work (which is just as well, because their FAQs merely tell you that trades are copied proportionally without giving you an example – an explanation which is about as much as a chocolate fireguard). Anyway, enough griping, here’s what the guy explained to me:
Your trade will be copied as an exact proportion of how much of a percentage of the trader’s account was staked. E.g. A trader has a $1000 account, they stake $100 on the trade which is 10% of their account. Your trade is coped at 10% of theirs, so, if you have $100 allocated to the trader for copying, $10 (i.e. 10%) will be staked from your account on the trade. If you have $30 allocated to the trader, then your trade will be $3, and so on. (abridged version of the actual explanation).
That is from the ‘horses mouth’ (or at least one of the ponies), and is essential information for anyone who is new to the software, and is looking to develop a copytrading strategy. If you want to copy forex traders, you need (IMO), a strong grasp on how it all actually works, there is no point in blindly allocating your funds without understanding the maths behind it.
Lets have some more in depth tutorials/FAQs/guides eToro!