RisksofCopyTrading

*Lossprobabilitiesareguessimates
Postriskmitigation
Category

RiskDescription

Followersaccountallocationtothesignalistoohighperthe
Impropersignal
followersallowedleverage,whichcouldcauseapremature
settings
stopout.
Lackof
Insufficientdiversificationamongsignals.
Diversification
Lackof
Returnsofdifferentsignalsaretoocorrelatedinthesame
Diversification direction.
Lackof
Insufficientdiversificationacrossdifferentassetclasses.
Diversification
Inaccurateormanipulatedstatisticsonthecopytrading
LackofDue
networkcouldmakeriskysignalslookbetterthantheyreally
Diligence
are.

Riskmitigationstrategy

%chance #times %portfolio Expected

peryear* peryear*
loss*
Loss

Makesuretheallocationsareconservative
enough,whichmeanslessprofit

5%

0.1

70%

4%

Findandcopymoresignals

90%

5%

5%

Useanalysistobalancetheallocationamong
differentsignals

20%

0.5

5%

1%

Findandinvestinmoreassetclasses

60%

15%

9%

Needtodoextensiveanalysisandduediligence
beforesubscribingtoasignal

15%

0.5

10%

2%

LackofDue
Diligence

Followingasignalpurportingtobemanuallytradedthatis
Doextensiveduediligenceoneverysignal
reallyabot,whichrunswithouthumansupervision.Bignews beforesubscribingreadreviewsandcontact
eventsorprogrammingbugscouldleadtosubstantiallosses. thesignaltoverifyifhuman

20%

0.5

15%

3%

LackofDue
Diligence

Survivorshipbiascouldleadtoinaccurateanalysisofsignals,
Needtodoextensiveanalysis
whicherroneouslymakesthesurvivingsignalslookbetter.

10%

0.5

10%

1%

LackofDue
Diligence

Followingarealaccountthatisreallyademoaccount(ortoo
Doduediligenceoneverysignalbefore
smalltomattertothetrader)overexposesthefollowerto
subscribing
risk.

5%

0.1

10%

1%

MarketRisk

Abignewsevent,suchascentralbankingintervention,could
Talktoovertradersabouttheirexperiences.
causesudden,rapid,andmassivechangeinthecurrency
markets,whichcouldcauseastopoutoranegativeaccount Setupalertsandautomaticstopoutcontrols.
ZuluTradehasafeaturelikethis.
balance(e.g.TheSwissNationalBankinterventionin2011
triggeredbytheGreeksovereigndebtcrisis.)

25%

0.3

15%

4%

Followthenewsandcontactaffectedsignal
providersregardingtheimpact

10%

0.5

2%

0%

Eitherdon'tdoitorbeextracareful

5%

0.1

50%

3%

Donothingorminimizeuseofforeignbrokers

35%

0.7

2%

1%

OffshoreRisks
OffshoreRisks
OffshoreRisks

Warorpoliticalinstabilityinthehomecountriesofthe
tradingsignals.
LegalriskfromclaimingnonU.S.residencytoaforeign
brokerwhodoesntacceptU.S.residents.
LawsuitsfromtheCFTCagainsttheforeignbrokerwho
acceptsU.S.residents.

Category

RiskDescription

Riskmitigationstrategy

%chance #times %portfolio Expected

peryear* peryear*
loss*
Loss

OffshoreRisks

Insufficientdiversificationacrossoffshorebrokerstomitigate Gettingmorebrokersminimizesthelossbut
theeffectsofoffshorebrokerfailure.
increasesthelikelihoodofthisoccurring.

15%

0.5

20%

3%

Selectionof
broker

Thefollowersbrokerminimumlotsizeistoohigh,which
couldcausemalfunctiononsomeplatforms.

10%

0.2

1%

0%

1%

0.1

0%

0%

5%

0.1

0%

0%

0%

0.0

70%

0%

90%

30

3%

3%

10%

10%

1%

20%

0.2

5%

1%

10%

0.1

20%

2%

1%

0.1

0%

0%

20%

1%

0%

10%

0.5

2%

0%

75%

7%

5%

5%

0.1

5%

0%

SignalTrader
Risks

Selectanaccountwith0.01minimumlotsize
and/orhave20Kminimumfunds
Selectanaccountwithasufficientlimitfor
Thefollowersbrokermaximumopentradeslimitisreached,
opentradesordon'tfollowsignalswithtoo
whichcouldcausemalfunctiononsomeplatforms.
manyopentrades
Subscribingtosignalthattradesinstrumentsyoucanttrade,
Makesureyouraccountcantradeallthe
whichcouldcausemalfunctionorresultininsufficient
symbolsthesignalcantrade
hedgingofyourportfolio.
Thefollowersbrokermargincallandstopoutpercentages
Selectanaccountwith<100%margincalland
aretooconservative,whichcouldcauseaprematurestop
<30%stopout
out.
Don'tuseaU.S.brokertofollowsignalsina
FIFO/hedgingrestrictionsofthefollowersbrokercouldcause
MT4.UseZuluTradeinsteadifusingaU.S.
malfunctionorinsufficienthedging.
broker.
Thesignaltraderdiscontinueshissignalwithoutnoticeand Havebackupprotraderstocallinan
youdonthaveabackupplan.
emergencysothatcantradeonourbehalf

SignalTrader
Risks

Thesignaltraderlaterchangeshistradingstrategyor
becomestooaggressive,whichcouldmeanriskiertrades.

Selectionof
broker
Selectionof
broker
Selectionof
broker
Selectionof
broker

SignalTrader
Risks
TechnicalRisk
TechnicalRisk
TechnicalRisk
TechnicalRisk
TechnicalRisk

Watchthesignaltrader'sbehaviorclosely.Set
upalertstodetectriskytradingbehavior.

Findoutthestopoutlimitsofthesignal
Thesignaltradercouldgetstoppedoutbyhisbrokerbecause trader'sbrokerandanalyzehowclosethe
ofalargedrawdown.
traderhasgottentothoselimitsinthepast.
Diversifytomoresignals.
Thesignaldisconnectsbecauseofforgettingtorenewthe
Creatingarecurringreminderinyourcalendar.
signalsubscriptionorpayingthemonthlyVPSfees.
UsespecialsoftwaretoreloadMetaTrader.Use
TheVPSgoesdownorMetaTradercloseswithoutrestarting.
softwareorserveralerts.
Followersaccountgetsoutofsyncwiththesignalwithout
Writeascriptthatdetectsandalertsofus
knowingit.
signalsyncissues.
Thecopytradingnetworkservers(MQL5,ZuluTrade,etc.)go Useatleasttwocopytradingnetworksto
downduringtradinghours.
spreadthelosses.
YourVPSortradingaccountgetshacked.

Uselongpasswordandhavesufficientsecurity