Ayondo Tips: Risk & Money Management
With any trading strategy, money and risk management is a very important component. And so, when you copy other traders it’s important to understand how to best manage the overall risk of your account.
When you follow a trader with ayondo, all their trades are copied proportionally in your account.
Hence if you follow only 1 trader without using an order size multiplier (i.e. just using x1) the risk taken in your ayondo account will be the same as the risk the trader takes in their account (i.e. they risk 1% on a trade means 1% in your account will be risked). So in terms of drawdown, the level you should expect in your account is the same as the level you’d expect for this 1 trader. You can look at the trader’s historical statistics in ayondo to get an idea of what level to expect. You obviously need to bear in mind that historical figures from Top Traders with long histories will provide a better guidance baseline. But even then, there’s no guarantee the future drawdown levels won’t be higher than the historical maximum.
When you follow a trader on ayondo, you can also decide to increase the order size using a multiplier. E.g. 2x means that if they risk 1%, 2% in your account will be risked. Using the multiplier is a way of leveraging the money in your account and allowing you to make higher potential returns with the same amount of capital. However, as noted, this will also increase the risk. E.g. using a multiplier of 4x will result in your ayondo account being blown when the trader you follow hits drawdown levels of near 25%. Hence when using an order size multiplier always consider what the maximum level of drawdown is you’d expect the trader to reach in the worst case scenario. Also consider what level you’d be comfortable with yourself. E.g. if you’re expecting account drawdowns of 50%, don’t start panicking when your account is 40% drawdown.
When you follow more than 1 trader on ayondo, then your risk is distributed evenly amongst the number of traders. E.g. with 4 traders in your ayondo Portfolio you then follow each trader with 1/4 of your capital. So if one of them would loses their balance, you should still be left with 75% of yours (depending on the performance of the other 3 traders). Hence your overall risk depends on the combination of all 4 traders. Again, you can increase the order size of each trader. So with 4 traders if you increase it to 4x for each trader, for each of them the trades will then be executed proportionally to your full account balance. However, if only one of them would go rogue and lose their full balance, you would lose your full balance as well.
So in summary, there are 3 factors which you can control on ayondo which impact your overall risk:
- the choice of traders you follow
- the amount of traders you follow
- the order size (multiplier) you use for each trader you follow
There’s no right or wrong answer in terms of whether it’s better to follow 1 low risk trader and potentially increase the lot size for them, or follow a portfolio of different types of traders and manage your overall risk accordingly. All will depend on your own risk profile and your proficiency with using ayondo.
As always, it’s often better to start small and with one trader. You can then evaluate the trades in your ayondo account in order to get a feel of the trade sizes (i.e. how much is being risked per trade, etc.). Only once you fully understand the trade sizes should you consider increasing them for the traders you follow, always of course, taking into account the risk profile of the trader.