In this episode of Truth About FX, Walter talks about the advantages and disadvantages of using trade copying services like eToro and Amaya FX. He also gives some advices about hooking up your account to another trader and having a tested technology that can hold it up for you.
Download (Duration: 05:23/ 6.17 MB)
In This Episode:
00:52 – the bad news
01:10 – technology aspect
02:53 – equity curve
04:22 – lumped in
Watch out for the too good to believe equity curves. [Click To Tweet].
Anticipate that there’s going to be drawdowns. [Click To Tweet].
Make sure that you have the technology aspect that will iron it up. [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hey, Walter. This is a sticky question this week but this is something that comes up a lot. What are the benefits and downsides of trade copying services like eToro or Amaya FX or Zulu in trading?
Walter: There’s a couple of thoughts I have about this. The good news is, you can go through and you can sort the wheat from the chaff. You’ll know who’s good and who isn’t or, at least who’s hot and who’s not. That’s the good news.
The bad news is you still have to deal with all of the normal things that you get when you’re trading a system or you’re investing in the fund which is the drawdowns, the highs and the lows, and so forth.
The other part that I’ve noticed with some of this is there’s also that technology aspect of it. Sometimes, what it’ll do is they might lump forex traders in the same boat with commodity traders, or forex traders with stock traders.
They’re limited in how they can trade through the system. A lot of people don’t think about this but as a trader, you’re often limited in how many position you can take and your so-called leverage and things like that if your trader offering services in one that’s not just for forex traders.
That’s something to think about because that actually severely restricts with possible… in terms of leverage and number of position and things like that.
Beyond that, the other thing that you’ve got to pay attention to is the actual… how you hook this up to your account because this is like a bridge between the system and your account and sometimes that connection doesn’t always match up.
Anyone who’s listening who’s traded trading robots knows about this. You’ll often see it go down. What that means is the connection between, for example Zulu and your account, might not be as stable as you’d like.
These are the sort of things you have to be vigilant and baby-sitted as well. Then the normal things coming to the line — we’ve talked about this in an early podcast where we’re talking about this idea of waiting for a funder or an individual to have a bad patch and then you actually jump in and invest.
Well, that’s the same thing that you should think about doing when you’re looking at following a trader or hooking up your account to a trader. Because, they’re going to go through ups and downs and they’re going to have a normal equity curve like anyone else so you want to get in on the dip.
Now, the other thing is if you find an equity curve that is just like a forty five degree angle and just go straight up. The other thing that I’d say is beware. Beware what you wish for because those are usually so much like they’re gaming the system.
They’ve established it like there’s insufficiency. Something’s going on there. It can go really, really well for a while and then usually what end up happening is it just falls off the cliff. I would definitely look for a normal curve, not a forty five degrees angle. I’d look for one that goes up and down with little zigs and zags. I would just wait for it to pullback.
If you’re not good with technology, you’ve definitely want to get someone who can show you how to set this up so that you have a fail safe ‘cause the last thing you want is a trade locked in your account and then you lose connection then you don’t get out of that trade or something like that.
There’s lots of things… that aspect that you need to consider. That would be my advice. Watch out for the too good to believe equity curves, anticipate that there’s going to be drawdowns and maybe use that to get in, follow one of these traders, and then definitely make sure that you’ve got the technology aspect that will all iron it up. That’s what I would say.
Hugh: Awesome. Well, thanks for your advice. I don’t have too much experience with this so I have nothing to add. It’s really interesting that you mentioned that sometimes commodity and stock traders get lumped in because I guess if you warn something like that, then you would have to confront like parenting rules, or something like that. Right?
Walter: Yeah, exactly. I’ve done this and you’re exactly right. What ends up happening is like, they will give you twenty to one leverages or something where it’s just not ten to one. What ends up happening is you’re like: “oh, I can’t actually take anymore trades” so you missed out. Like, you normally have four or five positions on and now you only have three or whatever.
This sort of things happen so it’s critical that you understand. I would actually probably just say forget about those that lumped them all together and just look at like Amaya FX broker or something where it’s just forex traders. That’s the better one to go with, really.
Hugh: Okay. Well, great advice. Thanks so much.
Walter: Okay. See you.