eToro’s CopyTrader is used by thousands of its OpenBook traders, you can see that by looking at the ‘copier’ stats for individual traders listed in the OpenBook rankings. eToro are obviously doing something right, but how ‘right’ are they? What are the Forex Trading system’s strengths and weaknesses? Continue reading
It’s been a few months since starting the copytrader experiment, and what with the festive season and one thing and another there hasn’t been a lot going in terms of writing/action, however, this is a good thing.
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. Continue reading
Oh dear me. Ouch. That stung. Take a look at my copy trading history below and look at the figures in the top row. Yes that’s right 350 bucks in the red. So how did that happen, and can these stings be avoided when using CopyTrader?
Firstly lets take a little look at the trader’s previous performance. I’ll summarize this briefly, as I don’t want to get boring with a load of stats. Overall, he was doing well, and copying his trades was bringing in a few bucks a day without fail – when I say a ‘few’, I mean rarely going past the ten bucks mark, and although that doesn’t sound a lot, it all adds up, especially when you consider it was taking no effort on my part. So what happened?
Firstly, and most importantly, notice the amount of units, over 10,000. CopyTrader copies an amount proportional to the amount you have allotted to the trader. One problem, is that until you actually copy a trader, you don’t know what lost sizes they trade in, as this is not listed on their stats or history. This makes things a little bit difficult, and I’m not sure why this situation exists, maybe the software isn’t 100% at the moment, or it could boil down to being a data protection issue.
Prior to this, when I first started copying him, he’d been doing smaller trades. I did take him off my copy list, but a few days later when I decided to go back he would appear to be upping his game. Having said that, he was chasing a mere 25 point move, but with a massive Stop Loss.
Luckily, I’m still on a demo account, but after looking on the guy’s profile, there were a few negative comments about him from traders using real money, who’d just started copying the guy as he hid a bit of a rough patch.
Over time, this guy was doing very well. BUT, what I’m learning, and what they will tell you on the forums, is that you’ve got to be able to take a few hits. In all honesty, although CopyTrader is (IMO) a good system, it is never going to be 100% perfect – if it was, the traders being copied would be taking a cut from the copiers.
Can these stings be avoided? The short answer is a definite NO, although, perhaps the potential for these occurrences can be eliminated by testing out the traders on demo, before adding them to your copy list. The problem is, that to my knowledge, the only way you can limit such stings (without watching the trades and manually closing them), is to limit the amount you assign to individual traders which would be another way of imposing your own stop loss. The problem with this would be that by doing so you would probably be limiting your profit potential due to the reduction in your stake size (which is proportional). It is a question of scale, big potential profits will always run hand in hand with big potential losses, and the reason is simple. If you are copying a trader, your only stop loss is the size of your proportion of the account allotted to each trader. You are copying their stop loss – if you applied your own stop loss independently (which you can’t do anyway), you may be messing with the trader’s strategy and may botch the trade (the same would apply if you had the ability to apply your own take Profit).
So, in short, the math must be done, but luckily, there are Demo Accounts available, to make the learning process a less financially painful one.