Most Newsletters I get in my inbox are immediately deleted, but I’m glad I read today’s eToro newsletter regarding the change in the way the amounts are automatically calculated when copying traders. And, they’ve got examples.
Getting hold of info from Forex Trading platforms can be a bit of a chore, the FAQs rarely have what you are looking for, so it’s good that eToro have explained their CopyTrader ratio in black and white.
The ratio of how much of your trade is allocated to the trader is based on a ‘copy percentage’ of the traders ‘Available Balance’, and how much the copier has in their ‘Copy Account’ for any given trader. To save a rewrite of this I’ve copied the explanation from their blog, below:
So What Are The Implications Of The New OpenBook Trade Ratios?
This is quite confusing, but I think I may have some of them figured, and will discuss below (and more importantly am going to test them out on another account).
Does This Help Us Choose Who To Copy?
Confusing. Yes/maybe, and No.
Yes/Maybe. If you go on the assumption that the best traders are those with the largest accounts, then one potential route to take is to only copy traders who are not copying themselves and in theory are higher up the account ‘food chain’ (will be testing this and reporting on the results).
So is the answer to just copy traders who aren’t copying other traders? I’m going to try it, and if you want to try it yourself, sign up for a demo account.
If you don’t know how to select ‘non-copying traders’ what you need to do is go on to a trader’s history, and look down the trades to see how the trades were closed (left side of the page next to ‘Closed ‘x days’ Ago)- if there is a [C], that means the trade was copied. Non-copying traders should have their trades closed by [M] Manual, [TP] Take Profit, or [SL] Stop Loss – make sure there aren’t too many of them in the trading history!
The assumption that the lower down the ‘copying chain’ a trader is (as per the eToro blog) is a bit problematic. If ‘Lisa’ had a 10K account, her and was copying ‘John’ with 2K, her trade would be $40 not $4. This brings us to the next of my ‘understandings’.
No. Another problem is that we still don’t know the size of the original trader’s account, and without a lack of further information cannot figure out how much will allocated to our own accounts when copying. Although obviously the best way to do it is to demo trade, test it out (see what size the trades are when copied). It’s a lengthy process, but if you are serious about making cash from copytrading, then this is the type of ‘homework’ that you need to be doing.
Trading without knowing the original trader’s account size and being tied into the ‘ratio’ with no ‘manual opt out’ is not exactly ‘trading blind’, and in my experience they system works, and is a safer option than being able to ‘up your stake’ in the pursuit of higher profits.
If however you do want to opt out of the safety net, choose your own lot sizes (making sure that you apply stop losses)and grab more potential profit head over for a demo account at ZuluTrade, although their Forex platform isn’t for everyone, as the higher potential ROI comes with higher risk.
So Where Does This Leave Us
My plan is to test my ideas, and to be honest, no matter what I say, eToro say, or anyone else on Forex forums say, don’t put any cash down without testing. Obviously some people can afford to just go ahead and try it out with real cash, but my advice is and will always be try to a Demo account.