ZuluTrade Tips – Money Management
ZuluTrade Tips: Money Management & Account Settings
Money Management is the process of managing the money you’re investing with ZuluTrade. It involves allocating the funds to the traders you’re following in your account settings. This is done from your account settings and portfolio screen.
If you follow more than 1 trader you first need to decide whether to invest your funds equally across those traders or whether you want to allocate different proportions to each one. Your decision will be aligned to your risk profile. I.e. for lower risk you’ll allocate a higher proportion to traders which have generated consistent returns with low drawdown.
When you’ve made that decision, you have to set the following 3 parameters for each trader you follow (SEEE IMAGE):
1) ZuluGuard Capital Protection:
This is the maximum amount you invest in the trader you follow and is the maximum amount in real money terms you might lose by copying the trades of this trades (i.e. that’s your risk for this trader).
In total, among all the traders you follow, you also cannot invest more than Your Total Capital Allowance which is based on your answers to the suitability questionnaire you completed when you signed up.
2) Follow Mode and Value
ZuluTrade offers 2 follow modes, Fixed Mode or Pro-Rate Mode (which is only available since 2016):
- In “Fixed Mode” you have to allocate the number of lots you assign to each ZuluTrade trader manually. The default lot size will depend on your global account settings (i.e. standard, mini or micro). You can use decimals, so if your account setting is mini lots, assigning 0.1 mini lot is the same as assigning a micro lot to the trader.If it’s easier to think in “real money” numbers, have a look at the following example:
Allocating 1 micro lot in a $ USD ZuluTrade account to a trader means that if they trade the GBPUSD pair you’ll make or lose $0.1 per 1 pip move.I.e. if the GBPUSD gets bought at 1.56789 and sold at 1.56889, this means a profit of 100 pips and profit of $10 in your ZuluTrade account.
Same, if the GBPUSD was bought at 1.56789 and sold at 1.56689, this means a loss of 100 pips and loss of $10 in your ZuluTrade account.
If you allocated 1 mini lot, a 100 pip move would mean a profit or loss of $100.
If you allocated 1 standard lot a 100 pip move would mean a profit or loss of $1000.Please note that if your account is denominated in another currency, you’d have to apply the exchange rate to this example. E.g. if your account is in £ GBP and the GBPUSD exchange rate is 1.5, a 100 pip move in the GBPUSD pair on a mini lot would mean a profit or loss of £66.66 (i.e. 100/1.5).So, when you follow a trader in “Fixed Mode” on the ZuluTrade social trading platform, always take into account the potential “real money” values. I.e. if you follow a trader who tells you to expect a drawdown of 1000 pips with their strategy, with 1 standard lot this means your account needs at least $10,000 of funds available to cover this drawdown without getting a margin call if (i.e. your account runs out of money). And, this is under the very optimistic assumption that this really is the maximum drawdown their strategy would ever reach and it won’t reach a higher drawdown level in the future.
- In “Pro-Rata Mode your trades will be copied proportionally, and you have to select the ratio (%) between the amount of the trade opened at the provider versus the amount that will open in your account.E.g. if you select 10% and the trader you follow opens 1 standard lot, then in your account 1 mini lot (= 0.1 standard lot) will be opened. ZuluTrade allows trades to be opened in amounts smaller than 1 micro lot if your broker supports this. Otherwise these trades will be rounded to 1 micro lot (their own AAAfx broker supports this).
The ZuluTrade Margin-Call-O-Meter provides a good indication of how risky your allocation settings are (pro rata or fixed). It uses the historical data of the traders (including drawdown) together with your allocation settings to calculate an estimate of the chances that your account will get a margin call. Because it’s based on historical settings, it’s nothing more than an indicator though and even setting the bar at 50% this doesn’t guarantee your account won’t get a margin call if the performance of the traders you follow goes against the market and they reach new drawdown levels (or if they change their strategy and hence the historical info becomes irrelevant).
“Fixed Mode” or “Pro-Rata Mode”?
In short: We always use “Fixed Mode” and only consider “Pro-Rata” if a trader trades in different lot sizes and sends signals from a live account.
You have no control over the lot size the trader uses there’s nothing stopping a trader changing the size from 1 lot to 100 lots, especially when they use a demo account. This make “Pro-Rata” more risky because you cannot be certain how much you will be risking per trade (obviously if a trader uses a live account themselves the risk of them increasing their risk exponentially is lower).
Yes in the real world top traders vary their trade size depending on the trade set-up and their anticipated risk/return of the trade. However, most ZuluTrade signal providers also still use the same lot size for every trade they enter because “Pro-Rata” copying only became available in 2016.
3) Maximum Open Trades:
The default for this is set to “No Limit”. However we always feel it be be safer to limit this. The most obvious level is to set it to “the historical maximum number of trades” the trader opened at the same time in the past. However, quite a few providers have been reducing the number of trades they open concurrently (to get a better ranking) and therefore they may suggest a lower number in their profile. Please note that many traders who open multiple trades at the same time will actually open these in the same currency pair and direction. I.e. they’re all part of the same overall trade cycle and they’re just adding more to an existing position.
4) ZuluTrade Automator Settings (Optionally):
The Automator was added in Q1 2016 and provides you with more control over your ZuluTrade account though the creation of simple “if this, then that” rules.
The options are pretty much endless and we’ll write a separate tips guide on the Automator soon. One obvious rule you can implement is adding individual stop levels for the traders you copy (something which used to be possible direct from your ZuluTrade portfolio view).
While any decent trader will normally set and manage their own stops to protect their followers against complete capital loss, it’s best practise to apply your own stops in order to protect your account (especially if you’re not going to manage your ZuluTrade account on a daily basis). The best level is arbitrary and will depend on the trader you follow. Some traders clearly indicate the level they suggest you use. Otherwise, you can look up the lowest negative pip value of a single position within the trading history of the trader (you can do this by sorting the trading history by the “Low” value) . This is a good starting point, though you may want to consider adding some considerable margin to this to allow the trader’s strategy and system to perform optimally. I.e. when there’s not much historical data available, there’s no guarantee the drawdown for a single trade won’t be higher than the lowest historical value.
So the rule might be (SEE IMAGE):
IF PnL of any trade from Trader (NAME OF TRADER) is less than or equal to 100 pips
THEN close trades matching the condition (or if you prefer, you can request an email notification instead and close the trades manually yourself)
Other Money Management and ZuluTrade Account Settings Considerations:
- If you’re new to ZuluTrade, try your allocation settings first for a while on the free demo account, and when you’re considering following a new trader (aka “signal provider”) you can add and follow them from your demo account first as well. This will show the results in money terms so you know how much movement to expect per pip on the trades you copy from this trader.
- Always keep the ZuluTrade MarginCall-O-Meter or Risk-O-Meter significantly under 100% (unless you want to take large risks and fully accept that all your investment can be lost in 1 trade). If you’re following long term strategy traders (with historical drawdown of > 1000 pips) even setting it at 50% is very risky.
- Look at the maximum historical drawdown (click here to see how to calculate this) and then consider that it is almost certain this will be reached again. There’s even a high change this will be more than double in the future or even a fair change this could be 4 or more times as high with any long term strategies that add trades to losing positions (e.g. look at our Forex Cruise Control Case Study).
- Have a look at our “ZuluTrade Account Settings Calculator” to give you some additional and alternative indications on the ZuluTrade account settings you could consider using when copying in fixed mode (this tool takes into account historical drawdown as discussed in the previous point).
- Consider your initial ZuluTrade investment and deposit in terms of your overall investment budget. Because ZuluTrade allows you to be flexible with your risk settings (i.e. trade with leverage), there’s no need to fund your account with all your capital. E.g. if you consider investing $10,000, you can start with depositing $1000 and trade with this. Doing this means that the maximum you can lose is 10% of your investment budget. As you become more familiar with ZuluTrade and build a portfolio of trusted signal providers you can gradually increase your deposit and/or accounts risk settings.
- When you start following a trader, it’s always better to start when they don’t have any current open trades. This is because current open positions may influence the decision on any new trades a trader opens. However with ZuluTrade traders who trade actively and have constantly positions open this isn’t always possible. Just make sure you don’t start following them when they’re already severely in the red.
- Because ZuluTrade “signal providers” get paid only when they have a profitable month, some may take more risk at the end of the month to chase profits or extra commissions. You may therefore want to consider not investing in the past few days of a month and wait for the 1st day of the next month.
- Traders will have winning and losing streaks. You cannot predict which one will be next when you start your investment with the trader. However, if you phase in your investment and allocation (i.e. over a few days, weeks or months) you reduce the risk that all your allocation is invested at once just before they go on a losing run.
- When you change your portfolio, make sure you close any trades still open by any “trader” you remove (i.e. stop copying) from your account.
- If you’re a ZuluTrade customer based in the EU please be aware that you can only copy traders in the top 1,000 and who’s drawdown is lower than 30%. However what this also means is that when a trader drops out of the top 1,000 or their drawdown goes over 30% no new trades from this trader will be opened (hence your results will be decoupled). You therefore need to keep an eye on this and ideally create some rules using the automator which will warn you a bit in advance of this (e.g. you can write a rule warning you when the losses of the individual trader pass a certain threshold). Even for non EU customers this is good practise.
Please note that investing with social networks and using leverage products is subject to investment risks, including possible loss of part or all of your initial investment. Investments can go up or down and you may get back less than you started with. Ask your financial advisor whether trading with ZuluTrade is for you.
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