With the popularity and publicity around ZuluTrade and social trading at the moment, we’ve seen the question on whether ZuluTrade is a scam or whether it’s “real” raised a few times. Based on over 2 years first-hand experience as a ZuluTrade customer (with accounts at different brokers) as well as vast amounts of experience with other social trading networks and Forex trading in general, I thought it might be useful to share my point on view the ‘scam or not’ debate.
Let’s assume we use the dictionary definition for the word “scam” for the purpose of this article and to measure whether ZuluTrade fits this description or not:
a scam: “A fraudulent business scheme; a swindle”
Our focus is also solely on ZuluTrade as a social trading network, i.e. allowing traders to share their trades with followers who can copy them real-time. I.e. we’re not discussing AAAfx, their broker operation.
From the point of investors, is ZuluTrade a scam?
So the question here is whether ZuluTrade purposely deceives the people who invest real money and copy other traders (aka signal providers) via the platform. The main way an unscrupulous business would deceive or scam investors would be by presenting the wrong information. In the case of ZuluTrade, the main information investors will use are the profiles and historical trades of the traders on the ZuluTrade network the can copy. As we mentioned in our detailed ZuluTrade review, we feel ZuluTrade is very transparent about all the data they share with investors.
In fact, they share:
- every single trade with time and date stamp a trader has done in the past (all downloadable so results can be analysed off-line using other tools) – most other networks only supply a sub-set
- how much actual investors (followers) have made per trader and in total – only ZuluTrade currently provides this
- average historical spread per broker and per trader – only ZuluTrade shares this
- pretty much uncensored comments from followers on the trader profiles – if available on other networks they’re sometimes more heavily censored
- full profiles and trade data of traders who are no longer actively trading on ZuluTrade, often because they blew their accounts – other networks normally remove these traders from their listings
- if a trader sends signals from multiple accounts, they will all be linked and displayed (this to detects traders who tried multiple failing systems in the past) – to my knowledge ZuluTrade is the only network trying to identify and show these links
So in fact, ZuluTrade provides you with all the data to recalculate any of the statistics they provide in the trader profile screens. In addition they’re not hiding accounts from traders who lost money or remove negative feedback from followers. Hence I’d go as far as saying that in our experience, there’s no other major social trading network as transparent as ZuluTrade in terms of the data and information they share with their customers.
To make any suggestions that the actual trader data (i.e. historical trades) isn’t real and would be manipulated is easily disproved by comparing the results you see from copying the trades on your live account with the results displayed in the ZuluTrade interface.
Another aspect working against the argument that ZuluTrade should be consider a scam, is the fact that they offer a fully functioning demo account which anyone can try. There are no limitations on the functionality of the demo account, so before investing anyone can use the demo account to try and copy some traders and see what the results would be after a few weeks.
The entry criteria to invest with real money are also very low. So even with real money you can try ZuluTrade with as little as $300. I.e. they don’t ask a massive amount up-front and there are no other entry, maintenance or exit fees to pay.
So, I hear you asking, why are there still people out there with negative opinions about ZuluTrade? I believe the main reason for this is that they’d have lost money by following losing traders (sometimes losing their full account). To call ZuluTrade a scam because of the very poor quality of some of the traders/signal providers on their social trading network would be unjustified in my opinion.
Let’s make the analogy with a stock exchange. Would you call the DOW, NASDAQ, DAX or LSE a scam because they listed companies which went out of business or who’s share prices dropped significantly? No, I don’t think you would, since the stock exchange is the enabler, but it’s the investor’s responsibility to understand the risk when buying shares. The same goes for ZuluTrade, they enable traders to share their signals and investors to automatically copy these trades. However they cannot predict which traders will be successful and which ones won’t. In fact, even top investment banks cannot, as plenty of rogue trader stories prove (e.g. Nick Leeson and Barings Bank).
So can ZuluTrade do more to avoid adding poor quality traders to their network? Probably yes, but this all comes down to the argument of openness. We’ve long argued on here that a good thing about ZuluTrade is that they’re very open and let the people on the network rate their traders. There are other networks which claim to “vet” their traders and hence claim to be safer. However as highlighted in our reviews of these networks, there’s no guarantee these traders won’t go rogue either and lose their full account balance.
Because ZuluTrade allows traders to send signals from demo accounts, it’s clear that some of them may take a lot of risk since they’re not trading with their own money (even though they’re risking their future commissions). However, ZuluTrade clearly displays which traders send signals from real live trading accounts (i.e. they risk their own money) and which ones use demo accounts. I.e. the investor can (and should) make their own choice of which traders to trust more with their money. In addition, ZuluTrade also offer a range of safety guards their customers can use to protect their capital. The main problem (and why people lose their money) is that many customers expect to double their account balance in short periods of time, but they don’t accept the associated high risk of going for high returns (and hence consider social trading a scam once they blow their account).
The ZuluRanking, which ranks the traders based on a number of indicators, also occasionally gets some negative feedback. And yes, we certainly agree that the ranking is very far from optimal (and we don’t put much value in it). However ZuluTrade allows you to search and rank traders based on your own criteria. Hence if someone just makes their investment decisions on an arbitrary ranking and doesn’t do any further research, then this type of investing is probably not for them.
Yes, some of their marketing materials may make it sound easier than the reality, and again, that’s why some people might ask whether ZuluTrade is “real”. But again, in their defence, plenty of guides are available and an active forum as well. And as we mentioned, anyone can ‘try before they buy’. In addition we have created a very useful ZuluTrade tips section with subsections about selecting traders and money/risk management.
The occasional high slippage and missed copied trades is another aspect of some people’s complaints. And yes, this is certainly something to be aware off. As mentioned elsewhere on our website, there are a number of factors which impact this. The type of trader you follow (if they trade during news events, expect high slippage and missed trades) and the broker you use. To call this a scam would mean ZuluTrade purposely delays trade executions. This would really not be in their benefit, since in the long run, they benefit if their customers make money, not if the lose and leave.
It’s worth mentioning that as a business ZuluTrade started in 2006. Their headquarters are in Greece and they’re fully regulated in Europe, while their US website is compliant to US regulations. I’m not sure what the impact would be to ZuluTrade of Greece leaving the EU (if this would ever happen), though your actual money is residing with the broker and not ZuluTrade.
Is ZuluTrade as scam from the point of view of the trader/signal provider?
If you want to make some more money from trading yourself, you can share your trades on ZuluTrade and get paid for it. ZuluTrade pays you a commission on all trades copied, but for profitable months only. You can send signals from demo or real money accounts, and from their own AAAfx broker or any of 50 other brokers. Since we’re not a signal provider on ZuluTrade we’re not talking of first-hand experience here. However some negative comments traders shared seem to be either about the payout delay (though didn’t see anything about people not getting paid) or about slippage (which I already discussed above). Hence while some things can be improved, nothing fraudulent in my opinion and traders have received “real money” commissions.
So in summary, we don’t believe ZuluTrade should be labelled as a scam. They’re probably the most transparent of all major social trading networks in terms of sharing the historical trade information of the traders on their network. They also don’t sensor negative comments or feedback on their own website. There’s a free demo to try and anyone wanting to invest ZuluTrade with real money can do so from $300. I.e. you can try everything first and are not forced to make massive investments (which is what serious scams or frauds are often about). Yes, the quality of plenty of the traders may be poor, but it’s up to the investor to decide who to copy based on the historical data and to understand the risk (same way as with buying shares or other financial instruments). Ultimately it’s also up to the investor to decide whether this type of investing is right for them and if unsure to contact a financial advisor.